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Case Study on abuse of dominance in Taiwan

Case Study on abuse of dominance in Taiwan. Jishyan Hwu Senior Investigator Fair Trade Commission(TFTC) OECD RCC seminar,Seoul ,23-25 April,2008. Outlines. Fuel gas market Case study Conclusion. Fuel Gas Market in Taiwan. Classification of fuel gas market

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Case Study on abuse of dominance in Taiwan

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  1. Case Study on abuse of dominance in Taiwan Jishyan Hwu Senior Investigator Fair Trade Commission(TFTC) OECD RCC seminar,Seoul ,23-25 April,2008

  2. Outlines • Fuel gas market • Case study • Conclusion

  3. Fuel Gas Market in Taiwan • Classification of fuel gas market • 1. Liquefied Petroleum Gas, LPG LPGprovides 65% usage of household heat energy • 2. Liquefied Natural Gas, LNG LNGprovides 35% usage of household heat energy

  4. Liquefied Petroleum Gas, LPG Liquefied Natural Gas, LNG Classification of Fuel Gas Market

  5. Classification of Fuel Gas Market

  6. Case analysis(1) • The Great Taipei Gas Corp（Taipei Gas）Case

  7. Case analysis(2) • Taipei Gas Case • When and What Article been violated? • Fair Trade Commission’s（TFTC） Decision (the 444 Commission Meeting) • Violation of Article 10 of the Fair Trade Act(FTA) by abusing its market power and asymmetric information of consumers to inappropriately install larger flow rate of No.5 natural gas meters in order to raise the basic monthly fees and gain extra illegal benefit.

  8. Taipei Gas Case • Case Background • Originated from:A citizen’s complaint • Taipei Gas’s market position -- a monopolist in its LNG business operation area -- price regulation is undertaken in LNG industry --

  9. Facts-1 (1/10) • Gas meter and basic usage degree

  10. Facts-2 (2/10) No.3Gas Meter Max Flow Rate of No.3Gas Meter per hour is about 3.7 cubic meters A typical household in Taipei usually had gas appliance of one hot water (shower)heater and one 2-burner gas stove

  11. Facts-3(3/10) What flow rate did a hot water heater need most per hour? The hot water (shower)heaters sold on the market had an average flow rate of gas about 2.25 or less cubic meters per hour.

  12. Facts-4 (4/10) What flow rate did a 2-burner gas stove need most per hour? The two burner Gas Stoves sold on the market had an average flow rate of gas about 1.2 or less cubic meters per hour.

  13. Facts-5 (5/10) • A combined flow rate of all gas appliance in a typical household is about 3.45 （ 2.25+ 1.2 ）cubic meters per hour. • According to other city gas companies’ statement: Gas meters were typically designed for the combined flow rate per hour of all gas appliances in a household when they were operating simultaneously at 80%.

  14. Facts-6 (6/10) • That is: 3.45 ×80%=2.76 cubic meters per hour • No.3 gas meters could accommodate a max flow rate of 3.7 cubic meters per hour. • Taipei Gas's No.3 meters had an average flow rate of 3.53 cubic meters per hour. • Accordingly, No.3 gas meter would have been adequate for the needs of a household having one 2-burner gas stove and one hot water heater.

  15. Facts-7 (7/10) • After comparing with other suppliers in the LNG industry • It is found by TFTC that : The number and percentage of No. 5 meters installed by Taipei Gas, and that of customers paying only the basic monthly fee ,compared with other LNG suppliers, were excessively high.

  16. Facts-8 (8/10)

  17. Facts-9 (9/10)

  18. Facts-10 (10/10)

  19. 18p 12p 0 12 18 Economic Analysis • No.3 versus No.5 Y Consumer’s expense curve = Taipei Gas’s revenue curve X, degree Consumers of Taipei Gas had been cheated and exploited.

  20. Economic Analysis of the Case • “Comparable Market Concept”

  21. Identify and Investigate Abuses • Types of Abuses • Exploitative abuses • To its customers or suppliers • Exclusionary abuses • To its competitors

  22. Identify and Investigate Abuses • Exploitative Abuse of Dominance • Taipei Gas’s market position: • Regional Monopolist • Asymmetric information • Without first ascertaining • Without explaining the difference • Motive of gaining illegal benefits

  23. Enforcement of FTA • Violated Article 10(1)(ii) of the FTA • Article 10(1)(ii) • Remedy orders-- Ordered Taipei Gas • To cease the practice and change its basic monthly fee of original No.5 users from 18 to 12 degree (0r change meter) • To pay a fine of NTD 5 million (USD 153 thousand) • To inform its customers of related information

  24. Conclusion • One of the fundamental purposes of FTA is to protect consumers’ interests • The enforcement of competition laws is to protect consumers’ interests against the abuse of dominance

  25. Case Study on Abuse of Dominance Taipei 101 tower • The Taipei Gas Case

  26. 謝謝 Thanks for your attention

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