Fair Trade Commission. FTC Newsletter

Transcription

1 Fair Trade Commission FTC Newsletter No.028 May, 2010 Publisher: Wu, Shiow-Ming Editor-in-Chief: Hu, Kuang-Yu Selected Cases Easy for price-rising but hard to fall? Hsin-tao Gas Equipment violated the Fair Trade Act for marketing products in the name of security checks CTCB s untrue credit card advertisement was punished by the FTC Untrue advertisements on Viva TV Homeshopping violated the Fair Trade Act FTC Statistics Statistics for Decision Rulings FTC Activities FTC Activities in March 2010 FTC International Exchanges FTC International Exchanges in March 2010 Easy for price-rising but hard to fall? When costs go up, the additional costs are often immediately reflected in the price. However, when costs go down, prices do not go down right away; even if prices do go down, the decline is usually not proportionate to that of the costs. What is it that makes prices go up like a rocket, but causes them to come down like a feather? The following are some plausible explanations: 1. The difference between nominal prices and real prices is ignored. Some increases in the commodity price (such as the fuel price) lead to the overall increase in price and lift the price index. The comparison in terms of changes in the commodity s nominal price may, however, be misleading. For example, when the nominal fuel price rises from NT$ 30 to NT$

2 36 (a NT$ 6 increase in the nominal price), the overall price goes up, and the price index increases by 5%. However, when the nominal fuel price goes down from NT$ 36 to NT$ 31 (a NT$ 5 decrease in the nominal price), even though the decline in the nominal price is smaller than the increase in the nominal price, the increase in the price index causes the post-decline real price (the price deflated by the price index) to be lower than the real price before the price increase (31/1.05=29.52). If the difference between the nominal price and the real price is ignored, then we will mistakenly conclude that the decline is smaller than the increase. 2. The observation period is not long enough. Many enterprises use cost markup as their pricing method. When the costs of raw materials go up, enterprises do not immediately reflect the additional costs in the price due to the inventory effect. Similarly, when the costs of raw materials go down, the inventory effect also results in a time lag in the price s decline. The time lag will be more significant as the length of the supply chain increases. As a result, if the observation period is not sufficiently long, it is likely to create the illusion that prices do not go down when the costs of raw materials go down. 3. The scope of observation is not broad enough. Many factors are required in a product s manufacturing process, such as raw materials, labor, utilities, and transportation expenses. As a result, when the cost of a certain material goes down, the product s price may not decline proportionately, since other factor prices remain the same. Take feedstuffs, for example. Feeds comprise 60% corn, and the rest is made up of soybean meal, wheat bran, vitamins, and other additives. As a result, when the corn price declines, it only has a partial effect on the production cost of feeds. If the prices of other raw materials are ignored, then it is likely to create the illusion that prices do not go down when the costs of raw materials go down. 4. Price stickiness: retail prices are often sticky. To make transactions more convenient, prices are often set at intervals (price adjustments are often made at NT$ 5 or NT$ 10 intervals) to avoid complicated calculations and changes. Sometimes, enterprises use psychological pricing in their marketing strategy (for example, they set the price at NT$ 199 on purpose). If the managerial cost goes down but the decline is less than an interval (NT$ 5) or they have not reached another psychological pricing point (NT$ 189), the enterprise will tend to maintain the current price level without making any adjustments. In addition, changing a price gives rise to menu costs (such as the costs of changing price lists, labels, price stickers, POS, or notifying customers), which also tends to keep the price at its current level. 5. Tacit collusion or concerted actions. There are three requisites for a successful concerted price agreement: 1. a consensus on price, 2. a monitoring mechanism detecting betrayals, and 3. a mechanism punishing betrayers. The record high-price can be a focal point for oligopolies, which solves the problems of reaching a consensus on price. However, when the cost goes down, oligopolies realize competitors responses and are not likely to cut the

3 corresponding price accordingly (for a price decline prompts counterparts to follow the decline, and a price war is not beneficial to the oligopoly in the long run). The interdependence among oligopolies creates a conscious parallelism, which does not constitute a violation of the competition laws. However, if competitors implicitly reach agreement on price adjustment s or have a monitoring and punishment mechanism, then it is a concerted action under the competition law. Hsin-tao Gas Equipment violated the Fair Trade Act for marketing products in the name of security checks During its 929th Commissioners Meeting on August 26, 2009, the FTC resolved the case on Hsin-tao Gas Equipment (hereinafter called HGE). HGE misled the public to believe it was the same company as the gas company in the district. It disguised itself in performing security checks on gas pipelines in order to sell emergency shut-off valves. Such action sufficiently affected trading order. It violated Article 24 of the Fair Trade Act; the unlawful activities were suspended, and an administrative fine of NT$ 200,000 was imposed. The FTC indicated that HGE sent representatives to the complainant s home in the name of a security check; the representative suggested the purchase of an emergency shut-off valve (i.e., gas valve) because of the serious gas leak. However, the complainant realized later that HGE was different from the Hsin-Tao Gas Corp. which supplies local gas pipes. The complainant believed that HGE disguised itself as Hsin-Tao Gas Corp. to market its products. The FTC also suggested that HGE s main business was sel l ing emergency shut -of f valves. It deliberately chose a name similar to Hsin-Tao Gas Corp., printed misleading service notices, and misled the public into believing that HGE and Hsin-Tao Gas Corp. belonged to the same business unit. HGE disguised itself when performing security checks on gas pipelines in order to sell products. Such action sufficiently affected trading order and violated Article 24 of the Fair Trade Act.

4 CTCB s untrue credit card advertisement was punished by the FTC During its 958th Commissioners Meeting on March 17, 2010, the FTC resolved the case on Chinatrust Commercial Bank (hereinafter called CTCB). CTCB published advertisements for its credit card alleging that consumers could use CTCB s Platinum Card every day and upgrade to Taiwan High Speed Rail s (THSRC) business class with only 600 rewards points. It made false, untrue, and misleading representations as to the service quality in its advertisement. It violated Article 21(3) of the Fair Trade Act which applied mutatis mutandis to Paragraph 1 of the same Article. The unlawful activities were suspended pursuant to Article 41 of the Act, and an administrative fine of NT$ 500,000 was imposed on CTCB. The FTC pointed out that advertisements are forms of behavior used to solicit business activities. The advertiser is obliged to verify and make a true representation as to the content of alleged services in the advertisement. If an advertiser fails to verify the content before advertising, consumers cannot accurately select the service they need; in addition, it constitutes unfair competition against other lawful competitors. CTCB published an advertisement in which it stated Use CTCB s Platinum Card every day and upgrade to Taiwan High Speed Rail s business class with only 600 rewards points on television, on its website, in THSRC in-station advertisements, on its billing envelope, and in other media. The Taiwan High Speed Rail Corporat ion (THSRC) of fered to upgrade customers to its business class according to its operational rules: for each white-route (the route at the original price) it would offer 5 to 10 seats for upgrades, for each blue-route (routes at a 15% discount) 10 to 20 seats, and for each orange route (routes with 35% discount) 2 to 5 seats for all banks to share. However, CTCB failed to verify the actual limitation before advertising. The TV advertisements failed to explain that the upgrade was limited both in the voice-over and in writing, which was sufficient to create the impression in the minds of consumers that once they had the CTCB card, they could redeem rewards points to upgrade to THSRC s business class. In addition, even though the advertisement on the Internet, in the THSRC ins tat ion advertisement, and on the billing envelope specified limited seats for upgrades and

5 limited upgrades, consumers with common knowledge and experience could only associate the limitation with the maximum traffic on the transport. It was hard for them to know that THSRC had specific limitations imposed according to the colors of the routes. Finally, the FTC indicated that the CTCB had failed to fully prepare and verify the content of the advertisement before advertising; it failed to disclose the quantity limitations in the advertisement to customers. It failed to perform the duty of clear and comprehensive representation. The contents in the advertisement were contrary to the facts, which were misleading and may have affected the consumers decisions. CTCB made false, untrue, and misleading representations as to the service quality in its advertisement. It violated Article 21(3) of the Fair Trade Act which applied mutatis mutandis to Paragraph 1 of the same Article. Untrue advertisements on Viva TV Homeshopping violated the Fair Trade Act During its 956th Commissioners Meeting on March 3, 2009, the FTC resolved the case involving Viva TV Homeshopping (hereinafter called Viva) and Lijishuo Int. Co., Ltd. They advertised the MEGA High Efficiency Power Saver on Viva Shopping Channel, claiming that it effectively saves 10%-30% of utility expenses. They made misleading representations as to the product quality in the advertisement. They violated Article 21(1) of the Fair Trade Act. The unlawful activities were ordered to be suspended from the second day since the decision was served. The FTC imposed administrative fines of NT$ 400,000 and NT$ 100,000 on the two companies, respectively. The FTC pointed out that Viva and Lijishuo Int. Co., Ltd. sold the MEGA High Efficiency Power Saver on Viva Shopping Channel, claiming it effectively saves 10%-30% of utility expenses. General consumers in ordinary household situations would have been given the impression that the disputed product could effectively save 10%-30% of the utility expenses for normal electricity use in a household, just as claimed in the advertisement. However, the testing conditions in the relevant report for the MEGA High Efficiency Power

6 Saver, submitted by Viva and Lijishuo Int. Co., Ltd., were quite different from the conditions in common households. In a typical household, the electrical circuits were shorter, and the loss was smaller. As a result, the tests were not sufficient to prove the extent of power saving in an ordinary household. In addition, even though the advertisement specified that the extent of power saving varies according to the types of home appliances and utility usage and that the product may have different power saving results given different utility usages and facilities, the ambiguous wording was insufficient to make consumers realize that under conditions in an ordinary household, the product might not be able to reach the effect claimed in the advertisement. As a result, it might have created false impressions or misled consumers in making decisions. The FTC pointed out that whether or not power savers effectively save power is an important indicator of consumers choices regarding buying such products. The advertisement by Viva and Lijishuo Int. Co., Ltd. caused consumers to have wrong impressions or to make wrong trading decisions, and was sufficiently misleading.

7 Statistics for Decision Rulings 1. Decisions (1) Definition Cases subject to decision rulings refer to complaints received by the FTC or FTC self initiated investigation cases; after discussions at the FTC Commissioners Meeting, decisions on violations to the Fair Trade Act, the Supervisory Regulations Governing Multi-Level Sales, and relevant regulations are resolved and sent out (2) Statistical standards Statistics on FTC decisions are based on the numbers of decisions in the results. The number of illegal practices may exceed the total number of complaint cases subject to the decision rulings, because a case may involve two or more illegal practices. 2. Statistics for Decision Rulings (1) Case statistics There were a total of 183 decisions made in 2009, and administrative fines were imposed on 316 enterprises in 163 decisions (89.1% of the decisions). The total amount of the administrative fines reached NT$ million; on average, each enterprise was subject to a NT$ 639,000 administrative fine (see Figure ). (2) Statistics on illegal practices In terms of illegal practices (including cases with more than one illegal practice), there were 120 false, untrue and misleading advertisements (65.6%), 28 deceptive or obviously unfair cases (15.3%), and 18 improper multi-level sales (9.8%) among the 183 decisions made in 2009.

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10 FTC Activities in March 2010 On March 8, the FTC invited Mr. Liang, Chi-Yuan, Minister without Portfolio of the Executive Yuan, to lecture on The Response to Climate Change - To Create Opportunities for Sustainable Development. On March 25, the FTC hosted the Conference on Issues related to the Milk Market and Fair Trade Act. On March 29, the FTC hosted the lecture on Introduction to Electronic Stored Value Cards and their Practice. On Ma r ch 30, the FTC he ld the FTC Introduction to Regulations on Real Estate in Taichung.

11 FTC International Exchanges in March 2010 On March 9, 11, 16, 17, and 18, the FTC participated in the conference calls of the ICN merger working group, unilateral conduct working group, and cartel working group. From March 22 to 26, the FTC held the Training Course for Authority for Fair Competition and Consumer Protection of Mongolia