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 LPG provides 65% usage of household heat energy  2. Liquefied Natural Gas, LNG LNG provides 35% usage of household heat energy

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

5 LPGLNG Market Share of household fuel gas usage in Taiwan (%) 6535 Transportation to household Motocycle or Truck Pipeline Type of Market Facing Consumers CompetitiveRegional Monopoly Number of suppliers in Taiwan About 3,600 retailers25 city gas companies 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 Gas meterNo.3No.5 Max Gas Flow Rate per Hour 3.7 (cubic meters) 5.8 (cubic meters) Basic usage degree 12 (cubic meters) 18 (cubic meters) Expenditure of users under basic usage degree 12*p （ p is the charged rate ） 18*p Suitable for Household with one hot- water heater and a 2-burner gas stove Household with more than one hot-water heater and a 2-burner gas stove Expenditure of users above basic usage degree Usage*p

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

11 Facts-3(3/10) 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. What flow rate did a hot water heater need most per hour?

12 Facts-4 (4/10) 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. What flow rate did a 2- burner gas stove need most per hour?

13 Facts-5 (5/10) A combined flow rate of all gas appliance in a typical household is about 3.45 （ ） 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 Economic Analysis  No.3 versus No p 18p X, degree Y degreeNo.3No.5extra rangeexpense 0 ≦ x ≦ 12 12p18p6p 12 ＜ x ≦ 18 xp18p （ 18-x ） p x ＞ 18 xp 0 Consumer’s expense curve = Taipei Gas’s revenue curve 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 The Taipei Gas Case Taipei 101 tower

26 謝謝 Thanks for your attention