Case Study Regulation on Predation in Japan ’ s Retail Sector 13 October, 2006 Tsuyoshi OKUMURA Japan Fair Trade Commission OECD-Korea Regional Centre for Competition Regional Antitrust Workshop on Abuse of Dominance

Table of Contents Regulation framework in Japan – Unfair Trade Practices – Guidelines What is unjust low price sales that would be regulated based on Japan’s Antimonopoly Act ? – Case law Specific cases – Maruetsu (foods retailer) Case – Hamaguchi Sekiyu (fuel retailer) Case

Regulation Framework Unjust low price sales Unjust low price sales One of the Unfair Trade Practices One of the Unfair Trade Practices Prohibited by Section 19 of the Antimonopoly Prohibited by Section 19 of the Antimonopoly Act (AMA) Act (AMA) Subsection 6 of the “Designation of Unfair Trade Practices” Subsection 6 of the “Designation of Unfair Trade Practices” 6. Without proper justification, supplying a commodity or service continuously at a price which is excessively below cost incurred in the said supply, or otherwise unjustly supplying a commodity and service at a low price, thereby tending to cause difficulties to the business activities of other entrepreneurs.

Regulation Framework Guidelines Guidelines “Guidelines concerning Unfair Price Cutting under the Antimonopoly Act” “Guidelines concerning Unfair Price Cutting under the Antimonopoly Act” （ November 20, 1984 ） （ November 20, 1984 ） Three requirements (1) Supplying commodities or services at markedly lower prices than the cost of supply (2) Continuing such supply (3) Tending to cause difficulties to the business activities of other entrepreneurs

Regulation Framework (1) Price which is excessively below cost Lower than purchase prices Lower than purchase prices (2) Continuing such supply A considerably long period of time A considerably long period of time (3) Tending to cause difficulties to other entrepreneurs Recognized possibility of disruption on business activities (not necessarily an actual disruption) Recognized possibility of disruption on business activities (not necessarily an actual disruption) Meeting Competition Meeting Competition Perishable or Obsolete commodities Perishable or Obsolete commodities

Regulation Framework Discriminatory Pricing Discriminatory Pricing Subsection 3 of “Designation of Unfair Trade Practices” Subsection 3 of “Designation of Unfair Trade Practices” 3. Unjustly supplying or accepting a commodity or service at prices which discriminate between regions or between other parties. Reflection or result of competition? Reflection or result of competition? With / without other due reason? With / without other due reason?

Regulation Framework Guidelines on specific sectors Guidelines on specific sectors “Approach to Unjust Low-Price Sales and Discriminatory Pricing in the Distribution of Gasoline etc.” “Approach to Unjust Low-Price Sales and Discriminatory Pricing in the Distribution of Gasoline etc.” (December 2001) (December 2001) “Approach to Unjust Low-Price Sales and Discriminatory Pricing in the Distribution of Liquors etc.” “Approach to Unjust Low-Price Sales and Discriminatory Pricing in the Distribution of Liquors etc.” (November 2000) (November 2000)

Regulation Framework Case Law Case Law Those relevant factors such as intentions, objectives, and details of the concerned conduct, actual competitive relationship, and situations of the market should be taken into account in a comprehensive way. Those relevant factors such as intentions, objectives, and details of the concerned conduct, actual competitive relationship, and situations of the market should be taken into account in a comprehensive way. (December 14, 1989, Supreme Court) (December 14, 1989, Supreme Court)

Specific Cases (food retailers) Case against food retailers (1982) Case against food retailers (1982) Maruetsu and Hello Mart Maruetsu and Hello Mart - Both are Japanese retailers - Large-scale retailers - Compete each other in the relevant market The JFTC ordered both companies to take necessary measures to ensure it would not happen again The JFTC ordered both companies to take necessary measures to ensure it would not happen again

Specific Cases (food retailers) Situation on the market (1981) Situation on the market (1981) A branch of MaruetsuA branch of Hello Mart Branches of other large retailers Small Milk-specialized retailers Milk Market in a commercial district Sales of Milk = 1.6% of all sales Sales of Milk = 3% of all sales Sales of Milk = Almost all of sales

Specific Cases (food retailers) Maruetsu’s branch Maruetsu’s branch - The number of customers declined due to the impact of the Hello Mart’s branch - The number of customers declined due to the impact of the Hello Mart’s branch - Maruetsu Headquarters designated the branch to take a loss leader strategy - Maruetsu Headquarters designated the branch to take a loss leader strategy Reduction of milk price per carton

Specific Cases (food retailers) Reduction of Milk price Reduction of Milk price Purchase price = around 155 yen to 160 yen per carton Terms Maruetsu’s branch Hello Mart’s branch Until June 1981 Around 178 yen per carton Around 178 yen per carton July to Aug yen 160 yen Sept. to Nov yen for the first carton, and 150 yen thereafter Same as the left

Specific Cases (food retailers) Findings of fact Findings of fact Two branches continued to sell milk at prices significantly below the purchase prices Two branches continued to sell milk at prices significantly below the purchase prices Selling below the purchase prices are continued during long period of time Selling below the purchase prices are continued during long period of time For Maruetsu and Hello Mart, loss occurred by the strategy can be compensated by other sales. For Maruetsu and Hello Mart, loss occurred by the strategy can be compensated by other sales. On the other hand, small milk-specialized retailers cannot compete at such a reduced price. On the other hand, small milk-specialized retailers cannot compete at such a reduced price.

Specific Cases (food retailers) Findings of fact (cont.) Findings of fact (cont.) Market effects of the conduct Market effects of the conduct Term Maruetsu’s branch Hello Mart’s branch Sept. to Nov. in previous year 12,700 cartons 15,000 cartons Sept. to Nov. in ,000 cartons 39,000 cartons

Specific Cases (food retailers) Findings of fact Findings of fact Market effects of the conduct (Cont.) Market effects of the conduct (Cont.) In contrast, the numbers of milk cartons, home deliveries, and sales from milk of small milk- specialized retailers within the district had all decreased In contrast, the numbers of milk cartons, home deliveries, and sales from milk of small milk- specialized retailers within the district had all decreased Other large retailer’s branch had also experienced the decrease Other large retailer’s branch had also experienced the decrease Tending to cause difficulties to the business activities of other entrepreneurs

Specific Cases (food retailers) Application of the law Application of the law Maruetsu and Hello Mart had supplied milk at unjustly low price. Maruetsu and Hello Mart had supplied milk at unjustly low price. The above act falls under “ Unjust low price sales ” and violates the provision of Section 19 of the AMA. The above act falls under “ Unjust low price sales ” and violates the provision of Section 19 of the AMA.

Specific Cases (fuel retailers) Case against Hamaguchi Sekiyu (May 2006) Case against Hamaguchi Sekiyu (May 2006) Hamaguchi Sekiyu Hamaguchi Sekiyu - A Japanese fuel retailer - Relatively large-scale retailer in the market The JFTC ordered the company to stop “unjust low sales price” and to take necessary measures to ensure it would not happen again The JFTC ordered the company to stop “unjust low sales price” and to take necessary measures to ensure it would not happen again

Specific Cases (fuel retailers) Market situation Market situation Hamaguchi Sekiyu 14 gas stations in other districts A commercial district Small fuel retailers in the commercial district ( 2 gas stations in the commercial district )

Specific Cases (fuel retailers) Conducts of the 2 Hamaguchi’s gas stations Conducts of the 2 Hamaguchi’s gas stations With intention to exclude its competitors in the commercial district: With intention to exclude its competitors in the commercial district: - Selling gasoline below the purchase cost for 80 days from August 2005 to January 2006 at the one gas station in the district - Selling gasoline below the purchase price for 30 days from November 2005 to January 2006 at the other gas station in the district, and so on.

Specific Cases (fuel retailers) Findings of fact Findings of fact With intention to exclude competitors in the district, two gas stations continued to sell gasoline at prices significantly below the purchase prices With intention to exclude competitors in the district, two gas stations continued to sell gasoline at prices significantly below the purchase prices Selling below the purchase prices are continued during long period of time Selling below the purchase prices are continued during long period of time Hamaguchi could compensate for the losses in the district with sales in other district. Hamaguchi could compensate for the losses in the district with sales in other district. In contrast, other fuel retailers, which had no stations in other district, could not compete at such a low price. In contrast, other fuel retailers, which had no stations in other district, could not compete at such a low price.

Specific Cases (fuel retailers) Findings of fact (Cont.) Findings of fact (Cont.) Market Effects Market Effects Sales of the other gas stations had declined compared to the same term in the previous year. Sales of the other gas stations had declined compared to the same term in the previous year. Tending to cause difficulties to the business activities of other entrepreneurs

Specific Cases (fuel retailers) Application of law Application of law Hamaguchi Sekiyu had supplied gasoline at unjustly low price. Hamaguchi Sekiyu had supplied gasoline at unjustly low price. The above act falls under “ Unjust low price sales ” and violates the provision of Section 19 of the AMA. The above act falls under “ Unjust low price sales ” and violates the provision of Section 19 of the AMA.

Thank you for your kind attention.