Title: Restriction of outlet stores location on branded produc
1Detecting Common Types of Abuses of Dominance
Experience from Taiwan
- Lin Gin-Lan
- Section chief of TFTC
2Abuse of dominance (Misuse of market
powerMonopolisation)Common Types(1)
- 1. Excessive pricing
- 2. Predatory pricing selling at below cost for
the purpose of driving out competitors - 3. Refusals to deal
3Common Types(2)
- 4. Price discrimination a practice where by a
firm charges different customers or classes of
customers different prices for the same good for
reasons unrelated to costs - 5. Exclusive dealing requiring a retailer or
distributor not to sell products competing with
the supplier's products - 6. Tie-ins
4Common Types(3)
- 7. Third line forcing requiring purchasers of
one product to purchase other products from named
suppliers - 8. Territorial restrictions the retailer or
distributor may not resell outside of a defined
territory - 9. Customer restrictions the retailer or
distributor may only deal with specified
customers - 10. Resale price maintenance minimum price at
which the product may be resold to customers -
5Analysis of abusing dominance
- Determining the status of firm
- Evaluating the behavior Economic analysis
6A case of economic analysis with game theory
- CPC 70 FPCC 30
- Abusing of joint dominance of duopoly gasoline
market - mechanism of joint dominance
- - price leadership
- - price meeting contract
- - advance announcement of a price
- change
- Static game vs. dynamic game
7Static game of pricing strategy
- Simultaneous moves (payoff form)
8 Dynamic game of pricing strategy
- sequential moves (game tree)
- CPC( first mover ),FPCC( new comer of gasoline
market)
9Newly types of abusing dominance
- market power evolving from distribution
orientation - upstream anti-competition from industry
- organization perspective
10 A case of newly type of abusing dominance SoGo
department store vs. branded product suppliers
which operate outlet store in SoGo
- Restriction of outlet stores location on branded
product suppliers (outside a radius of 2000
meters of SoGo) - To create an entry barrier and intend to prevent
potential competitors from entering the same
geographic market
11- 3.Relative market position
- - 29.54 market share in Taipei Metropolis
- - NT19.20 billion of sales in 2001
- - Superb business location
- - 739 of the 766 ( 96.40 )outlets signed
the - disputed restrictive clause
- 4. Guidelines on trade practices between
- department store and branded products
- suppliers
12- Developing Trends in retailing sector (1)
- 1. scale of chain-store retailing grow rapidly
and strengthen its relative dominant position
compared to supplier (low costs low sales prices) - 2. satisfy consumers with the need of one-stop
shopping
13- Developing Trends in retailing sector (2)
- 3. various promotional programs to stimulate
consumption - 4. utilize industrialized information technology
- e-commerce supply chain management
- customer relations management
- 5. increasing spot promotional programs in the
outlet to stimulate consumption - 6. supplier being over-reliant to single retailer
14Relevant market in retailing sector
- 1. supermarkets
- - Wellcome - Fressay
- 2. volume retailers
- - Carrefour - Costo
- 3. convenience stores
- - 7-11 - Hi-life
- 4. department stores(shopping center)
- - Sogo Department - Breeze shopping center
15Types of abuse of an relative dominance in
retailing sector(1)
- Improperly charging suppliers additional fees
- Demanding the "most favored" price
- Restricting the business area of trading
counterpart - Failing to attribute liability of inventory
shortfall and improperly calculating penalty
damage for inventory shortfall
16Types of abuse of relative dominance in
retailing sector(2)
- Failing to articulate the conditions or standards
of products return and improperly returning
products - 1.return a product without due reasons
- 2.return a product where the pollution,
damage - or expiry is non-fault to the trading
counterpart - 3.purchase large amount of products with low
- price for the promotion, and return at a
normal - price after the promotion
17Additional Fees (Slotting allowance) charged
by chain- store retailer being relative
dominant position
- 1. any kind of fee charged to supplier
- - secret rebate
- - business premises rent subsidy
- - promotion fee
- - minimum guarantee amount fee
- 2. any direct deduction from payment account for
goods according to supplier agreement
18Improperly Charging Additional Fees
- Fees are not directly related to promoting the
sale of the goods - Amount exceeding the benefit that suppliers may
reasonably expect to derive from sale - Fees are only for the retailers purpose of
achieving its own performance target - Demanding a reduction of purchasing price for
already-delivered goods when the supplier is
under no obligation
19Carrefour case in the year of 2000
- 1. The case
- Complants alleging Carrefour Corporations
- collection of addition slotting allowance,
rebates and - patronage grants.
- 2. Dominace position of carrefour
- a. Carefour was established in 1987 and had
23 - outlets at that time the alleged disputes
occurred. - b. Carrefour had revenues of NT 39.77
million in - 1999 accounting for 30.75 of the
domestic - market
20- Case summery(1)
- 1. When suppliers negotiated annual agreements
with Carrefour, the completed agreement
consisted of the document drafted unilaterally by
Carrefour,including a national agreement with
addendum 1 to 3, and a national supplementary
agreement. Under the documents, Carrefour was
entitled to collect various additional fees from
suppliers. - 2. A supplementary fixed rebate (referred to in
the industry as a secret rebate) introduced by
Carrefour in 1997 is an example of such
additional fees and it did not directly benefit
sales.
21- Case summery(2)
- 3.The additional fees collected by Carrefour over
1998 and 1999 amounted to NT280 million. Hence
the dispute clearly involved not just a small but
large number of Carrefours trading counterparts.
- 4. Carrefours reliance on its relative market
position to deny its trading counterparts the
freedom to decide whether they would like to
accept the additional fees were culpable in terms
of commercial ethics, and were sufficient to
affect trading order.
22- Case summery(3)
- 5. When Carrefour introduced the supplementary
fixed rebate transaction clause into the
standard national supplementary agreement drafted
unilaterally by Carrefour, as most of the small
and medium-sized suppliers were under the
pressure to maintain their existing commercial
relationship with Carrefour, it had used its
relative market power to force the suppiers to
accept the additional fees. - 6. Carrefours conduct was clearly unfair and
sufficient to affect trading order in violation
of the FTA.Therefore, the commission imposed an
administrative fine of NT4 million on Carrefour.
23Fair Trade Commission Guidelines on
Additional Fees Charged by
Distribution BusinessesPrescribed by the 470th
Commissioners' Meeting on November 9, 20001.
Purpose of these Principles
- These Principles have been specially adopted to
prevent distribution businesses from abusing
advantageous positions in the market by
improperly charging suppliers additional fees,
and thereby to maintain the market trading order
and ensure fair competition.
24 2. Definition of distribution business
- The term "distribution business" as used in these
Principles refers to volume retailers,
convenience stores, super/hyper markets,
department stores, cooperative stores, and all
other businesses engaging in the retail sale of
assorted goods.
25 3. Definition of additional fees
- The term "additional fees" as used in these
Principles, with the exception of amounts payable
for goods by the distribution businesses, refers
to fees charged to suppliers by distribution
businesses, or to deductions made from amounts
payable for goods, or to all kinds of fees
demanded of suppliers by distribution businesses
by other means.
264. Factors to be considered in determination
of advantageous market position
- In determining whether a distribution business
holds an advantageous position in the market, the
following factors must be considered the
comparative scales and market shares of the
distribution business and supplier the
supplier's degree of dependence on the
distribution business the supplier's ability to
change its sales channel and supply of and
demand for the goods.
27 5. Entering into written agreements
- When a distribution business asks a supplier to
bear additional fees, it should first negotiate
with the supplier with respect to the type of
additional fee, its use, and the amount of the
fee (or the method of its calculation), and enter
into a written agreement with the supplier.
28 6. Provision of information for direct
debiting of additional fee
- When a distribution business charges its supplier
additional fees by directly debiting its account
payable for goods purchased, it must provide
information regarding the deduction prior to
deducting the additional fees.
29 7. Practices constituting improper
charging of additional fees(1)
- Under anyone of the following circumstances, a
distribution business shall be deemed to be
improperly charging additional fees - (1) the fees charged are not directly related to
promoting the - sale of the goods
- (2) the fees charged are contributions to
equipment, research - and development, or promotional activities,
and while of - benefit to the supplier in promoting sale of
goods or reducing - operating costs, the amount of the fees
exceeds in value the - tangible benefit that the supplier may
reasonably expect to - derive from paying such contributions
30 7. Practices constituting improper
charging of additional fees(2)
-
- (3) the fees charged are for the sole purpose of
achieving target - figures or other accounting measures at the
end of a fiscal - year
- (4) when, despite the supplier being under no
obligation, a - reduction in the purchase price is demanded
by the - distributor for already-delivered goods or
- (5) fees are charged in a manner contrary to
normal trading - principles or commercial ethics.
31 8. Violation of these Principles
- If a distribution business having an advantageous
market position charges suppliers additional fees
in a manner not in accordance with Points 5 and 6
of these Principles or is found to be in
violation of Point 7 such that the distribution
business market order is impacted, the
distribution business shall possibly deemed to be
in violation of Article 19(1)(vi) or Article 24
of the Fair Trade Law.
32