Newsletter
CPC AND FORMOSA PETRO-CHEMICAL FINED FOR FTA VIOLATIONS
In a decision dated 14 October 2004, the Fair Trade Commission (FTC) ruled that Taiwan's two largest motor fuel suppliers, Chinese Petro-leum Corporation (CPC) and Formosa Petro-chemical Corporation (FPC), had engaged in concerted actions in violation of Article 14 of the Fair Trade Act. By communicating their intent to adjust fuel prices in advance through public announcements, they had been able to change their prices simultaneously to the same amounts, and this had been sufficient to affect prices and the supply and demand mechanism in Taiwan's petroleum products market. The FTC fined the companies NT$6.5 million each.
The FTC's decision to penalize CPC and FPC was based on the evidence that the companies had adopted "another form of mutual under-standing" (as defined in FTA Article 7) to engage in concerted actions, that had in fact allowed them to both act in the same way. This had consisted in both parties "communicating intent" by publicly disclosing competition-related sen-sitive market information in order to inform each other of their operating strategies, or directly exchange commercial information. The FTC believed that it was a characteristic of oligopolies that they are mutually dependent, and in view of the difficulty of obtaining direct evidence of any incitement to tacit collusion, the FTC was obliged to rigorously examine indirect evidence (such as incentive, economic benefit, timing or amount of price rises, substitutability of other actions, number of occurrences, duration, closeness and similarity of actions, etc.) to de-termine whether an offense had been committed.
The FTC stressed that the simple fact of two en-tities charging the same prices in a competitive market was not in itself unlawful. The main focus of the FTC's investigation, and its reason for penalizing the two companies, had been their mutual communications of intent by making advance public disclosures of information about impending price changes, by which they had achieved the result of identical price changes.
According to the FTC's observation over two years, the two companies had adjusted their prices simultaneously 20 times, and in all cases they have employed a "price announcement mechanism," by which one of them would first release news of its intent of price adjustment, to test the other's reaction. If the other announced that it would follow suit, the first company would implement the increase, whereas if the com-petitor announced that it would not follow suit, the first company could announce the cancella-tion of the increase, at no cost to itself and with almost zero risk. These price adjustments were certainly not simply parallel actions by the two companies, but amounted to communications of intent that had the effect of encouraging both sides to engage in concerted actions. This was why the FTC had determined that CPC and FPC had violated the FTA's ban on concerted actions.
This is the first time that the FTC has penalized tacit concerted actions, and is highly indicative of the FTC's future approach to such cases. In future, enterprises may not use advance an-nouncements to test their competitors' attitude before making joint price rises. The decision sets a new precedent for the treatment of concerted actions, and may protect consumers' interests by discouraging the widespread commercial prac-tice of coordinated price rises.