May 2024
Aaron Chen, Oli Wong, and Sally Yang
A merger between PX Mart Co., Ltd. (“PX Mart”) and RT-Mart International Ltd. (“RT-Mart”) was conditionally approved by the Taiwan Fair Trade Commission (“TFTC”) on July 13, 2022.[1] Among the conditions of the merger approval, clauses 1 and 6 required PX Mart and RT-Mart to fulfill their commitment not to adopt a “Most Favored Customer Policy.”[2]
However, after an investigation, the TFTC determined that PX Mart failed to fulfill the merger commitments when acquiring RT-Mart. Consequently, under Article 39, Paragraph 1 of the Fair Trade Act, the TFTC imposed a fine of NT$20 million on PX Mart.[3]
1. Content of the Decision
The TFTC’s investigation revealed that PX Mart removed the Most Favored Customer clauses from its supply contracts after the merger, however, PX Mart still imposed the following restrictions on suppliers in practice, including:
(1) When suppliers applied to list new products or requested price increases, PX Mart required the sale price to be a certain percentage of other channels’ prices. If PX Mart discovered discrepancies, suppliers were required to reduce their prices proportionately. Some agreements even stipulate penalties for breach.
(2) During promotional periods, PX Mart negotiated with suppliers to adjust promotional prices and purchase prices based on price checks and comparisons. If suppliers refused to agree, PX Mart unilaterally reduced promotional prices and deducted the difference from the suppliers’ payments.
2. Impact on Competition
The TFTC stated that the imposition of the ban on PX Mart’s “Most Favored Customer Policy” was due to the following considerations. Although PX Mart appeared to be engaging in consumer-friendly price reductions, in reality, PX Mart was leveraging its substantial market power to force suppliers to absorb costs to maintain PX Mart’s profit margins. This pressured suppliers not to price their products to other channels lower than PX Mart, which ultimately reduced the extent of price competition among different channels. As a result, this practice was detrimental to market competition and prevented consumers from enjoying more favorable prices across various channels. It restricted the market’s ability to adjust prices based on supply and demand conditions.
3. Brief analysis
(1) According to the disposition, PX Mart argued that its price comparison and subsequent price reductions were based on Clause 2 of the merger decision, which allows PX Mart to reference competitors’ prices and further reduce prices for specific products in different regions. However, this action simultaneously violated Clause 6, leading to the TFTC’s penalty. PX Mart contended that these two clauses were contradictory. The TFTC explained that the purpose of Clause 6 was to ensure PX Mart removed the Most Favored Customer clauses to prevent costs from shifting to suppliers. This did not prohibit PX Mart from lowering prices in highly competitive regional markets to maintain competitiveness. Thus, there was no contradiction between the two clauses. In other words, the TFTC chose an approach that balanced consumer protection (ensuring competition in the end market) and supplier rights, considering the strengthened market power of the combined PX Mart-RT-Mart entity, hence imposing the appropriate restrictions.
(2) In the 2022 merger decision, the TFTC imposed the burden on PX Mart to eliminate the Most Favored Customer clauses while also requiring PX Mart to maintain its low-price policy. For distributional retailers, fulfilling both obligations might impact their gross margins, and the actual effectiveness of these measures remains to be seen.[4] However, if a business believes these two conditions are contradictory and thus impractical to implement, it should consider seeking administrative remedies to dispute the validity, scope, or boundaries of these obligations. Failing to address these issues before the statutory remedy period expires could result in unfavorable consequences.
(3) In recent years, the TFTC has actively monitored businesses’ compliance with the burdens imposed in merger cases. For example, cable TV operators who failed to fulfill obligations from a 2010 merger decision were fined NT$100 million.[5] The TFTC emphasized that it could impose additional measures such as prohibiting the merger, requiring business separation, selling shares, transferring operations, removing directors, or other necessary actions. This demonstrates the TFTC’s proactive enforcement trend regarding compliance with merger obligations, which businesses should heed.
[1] Please refer to our newsletter in September 2022 “The TFTC Conditionally Approved of the Merger Between PX Mart and RT-Mart”.
[2] Please refer to our newsletter in June 2023 “Taiwan Fair Trade Commission Approved of the Merger of Uni-President and PresiCarre” for an introduction and comparison of the obligations imposed in the TFTC’s recent merger cases.
[3] Please refer to the TFTC’s 1696th commission meeting minutes on April 17, 2024.
[4] Please refer to the introduction in footnote 1.
[5] Da Fu Media Corporation, Kbro Co., Ltd., and its 12 affiliated cable TV system operators have been fined a total of NT$100 million (NT$50 million each for Da Fu and Kbro) for failing to fulfill the obligations specified in the TFTC’s merger decision No. 099004 dated October 29, 2010, in violation of Article 39, Paragraph 1 of the Fair Trade Act.
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