Issues on Enterprise Combination Arising from the Opening of Liquid Gas Market in Chinese Taipei and their Relationship with the Fair Trade Law

Abstract

In general, the transportation and distribution patterns of Liquidified Petroleum Gas ("LPG") in Chinese Taipei are not significantly different from those adopted in most developed or developing countries such as Japan, the United States, or Korea. For industrial customers, LPG is most commonly delivered through pipelines. Although differences exist between the more complicated Japanese system and those of the other three countries, residential users usually receive their needed LPG through conventional distribution channels that vertically consists of LPG suppliers, distributors, and retailers. Demand-side analysis by this project reveals that LPG are principally demanded by residential users in Chinese Taipei, residential and industrial users in Japan, residential, vehicle, and industrial users in Korea, and petrochemical users in the United States. In terms of the importance of foreign import to domestic demands, Japan has the highest rate of reliance, followed by Korea and Chinese Taipei. The rates of reliance on foreign LPG import for these three countries all exceed 50%. For the United States, the rate is 12.7%, the lowest of the four countries.

To understand the impact of the policy of opening the distribution market for LPG in Chinese Taipei, we first conduct an empirical study in this project by comparing the data regarding (1) the sales of LPG for family use, (2) the total sales of LPG including those for industrial uses, and (3) the quantities of LPG used per household, before and after the market-opening policies were implemented. The result of the study supports the expectation that deregulation of the LPG distribution market would increase market sales, could avoid the successive-monopoly problem associated with limited-entry regulation, and will increase its overall efficiency. In a similar vein and by comparing the similar data, we also find that the policy of opening the LPG import market brings about the identical beneficial effects in that market. However, when the data regarding the final price changes before and after the markets were deregulated were used as the proxies, we find the previous conclusion on the welfare effect from deregulation to be less robust.

Finally in this project, we conduct an analysis on the market impacts of vertical combinations among LPG suppliers, distributors, and retailers in Chinese Taipei. Economic theories relating to the pro and anticompetitive effects of vertical mergers were first elaborated upon, followed by the legal analysis of vertical mergers under antitrust law. In particular, we rely on the decisions made by the U.S. courts and the Vertical Merger Guideline issued by its Department of Justice to propose a three-stage investigation on the vertical combinations activities in the LPG market of Chinese Taipei. The proposal will requires the enforcement agencies to measure of the defendant's market power, to evaluate the real and potential exclusionary effects in connection with the alleged vertical combinations, and the tradeoff between their anticompetitive and efficiency-enhancing effects. In addition, we also point out some of the post-merger unfair contractual arrangements that are likely to be implemented by LPG market participants, including price and nonprice collusion, predatory pricing, refusal to deal, and discriminatory treatments.