Case Study Regulation on Predation in Japan ’ s Retail Sector 13 October, 2006 Tsuyoshi OKUMURA...

Case StudyCase StudyRegulation on Predation inRegulation on Predation in

Japan’s Retail SectorJapan’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 FrameworkRegulation Framework

Unjust low price salesUnjust low price salesOne of the Unfair Trade PracticesOne of the Unfair Trade Practices Prohibited by Section 19 of the AntimonopolyProhibited by Section 19 of the Antimonopoly Act (AMA)Act (AMA)

Subsection 6 of the “Designation of Unfair Trade Subsection 6 of the “Designation of Unfair Trade Practices”Practices”

6. Without proper justification, supplying a commodity or 6. Without proper justification, supplying a commodity or service continuously service continuously at a price which is excessively at a price which is excessively below costbelow cost incurred in the said supply, or otherwise incurred in the said supply, or otherwise unjustly supplying a commodity and service at a low unjustly supplying a commodity and service at a low price, thereby tending to cause difficulties to the business price, thereby tending to cause difficulties to the business activities of other entrepreneurs.activities of other entrepreneurs.


GuidelinesGuidelines ““Guidelines concerning Unfair Price Cutting Guidelines concerning Unfair Price Cutting

under the Antimonopoly Act”under the Antimonopoly Act”

（（ November 20, 1984November 20, 1984 ））

Three requirementsThree requirements

(1)(1) Supplying commodities or services at markedly Supplying commodities or services at markedly lower prices than the cost of supplylower prices than the cost of supply

(2)(2) Continuing such supplyContinuing such supply

(3)(3) Tending to cause difficulties to the business Tending to cause difficulties to the business activities of other entrepreneursactivities of other entrepreneurs


(1) (1) Price which is excessively below costPrice which is excessively below cost Lower than purchase pricesLower than purchase prices

(2) (2) Continuing such supplyContinuing such supplyA considerably long period of timeA considerably long period of time

(3) Tending to cause difficulties to other entrepreneurs(3) Tending to cause difficulties to other entrepreneursRecognized possibility of disruption on business activitiRecognized possibility of disruption on business activiti

es (not necessarily an actual disruption)es (not necessarily an actual disruption)

< Justifications >< Justifications >Meeting CompetitionMeeting CompetitionPerishable or Obsolete commoditiesPerishable or Obsolete commodities


Discriminatory PricingDiscriminatory PricingSubsection 3 of “Designation of Unfair Trade Subsection 3 of “Designation of Unfair Trade

Practices”Practices”

3. Unjustly supplying or accepting a commodity or 3. Unjustly supplying or accepting a commodity or service at prices which discriminate between service at prices which discriminate between regions or between other parties.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?


Guidelines on specific sectorsGuidelines on specific sectors

““Approach to Unjust Low-Price Sales and Approach to Unjust Low-Price Sales and Discriminatory Pricing in the Distribution of Discriminatory Pricing in the Distribution of Gasoline etc.”Gasoline etc.”

(December 2001)(December 2001)

““Approach to Unjust Low-Price Sales and Approach to Unjust Low-Price Sales and Discriminatory Pricing in the Distribution of Discriminatory Pricing in the Distribution of Liquors etc.”Liquors etc.”

(November 2000)(November 2000)


Case LawCase Law

Those relevant factors such as intentions, Those relevant factors such as intentions, objectives, and details of the concerned conduct, objectives, and details of the concerned conduct, actual competitive relationship, and situations of actual competitive relationship, and situations of the market should be taken into account in a the market should be taken into account in a comprehensive way.comprehensive way.

(December 14, 1989, Supreme Court)(December 14, 1989, Supreme Court)

Specific Cases (food retailers)Specific Cases (food retailers)

Case against food retailers (1982)Case against food retailers (1982)Maruetsu and Hello MartMaruetsu and Hello Mart

- Both are Japanese retailersBoth are Japanese retailers- Large-scale retailersLarge-scale retailers- Compete each other in the relevant marketCompete each other in the relevant market

The JFTC ordered both companies to take The JFTC ordered both companies to take necessary measures to ensure it would not necessary measures to ensure it would not happen againhappen again


Situation on the market (1981)Situation on the market (1981)

A branch of Maruetsu A 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


Maruetsu’s branchMaruetsu’s branch

- The number of customers declined due to - The number of customers declined due to the impact of the Hello Mart’s branchthe impact of the Hello Mart’s branch

- Maruetsu Headquarters designated the - Maruetsu Headquarters designated the branch to take a loss leader strategybranch to take a loss leader strategy

Reduction of milk price per cartonReduction of milk price per carton


Reduction of Milk priceReduction of Milk price

Purchase price = around 155 yen to 160 yen per cartonPurchase price = around 155 yen to 160 yen per carton

TermsTerms Maruetsu’s branchMaruetsu’s branch Hello Mart’s branchHello Mart’s branch

Until JuneUntil June

19811981

Around 178 yenAround 178 yen

per cartonper carton

Around 178 yenAround 178 yen

per cartonper carton

July to Aug.July to Aug.

19811981

158 yen158 yen 160 yen160 yen

Sept. to Nov.Sept. to Nov.

19811981

100 yen for the first 100 yen for the first carton, and 150 yen carton, and 150 yen thereafterthereafter

Same as the leftSame as the left


Findings of factFindings of factTwo branches continued to sell milk at prices Two branches continued to sell milk at prices

significantly below the purchase pricessignificantly below the purchase prices

Selling below the purchase prices are continued Selling below the purchase prices are continued during long period of timeduring long period of time

For Maruetsu and Hello Mart, loss occurred by For Maruetsu and Hello Mart, loss occurred by the strategy can be compensated by other sales.the strategy can be compensated by other sales.

On the other hand, small milk-specialized On the other hand, small milk-specialized retailers cannot compete at such a reduced price.retailers cannot compete at such a reduced price.


Findings of fact (cont.)Findings of fact (cont.)Market effects of the conductMarket effects of the conduct

TermTerm Maruetsu’s branchMaruetsu’s branch Hello Mart’s branchHello Mart’s branch

Sept. to Nov. in Sept. to Nov. in previous yearprevious year

12,700 cartons12,700 cartons 15,000 cartons15,000 cartons

Sept. to Nov. in Sept. to Nov. in 19811981 34,000 cartons34,000 cartons 39,000 cartons39,000 cartons


Findings of factFindings of factMarket effects of the conduct (Cont.)Market effects of the conduct (Cont.)

In contrast, the numbers of milk cartons, home In contrast, the numbers of milk cartons, home deliveries, and sales from milk of small milk-deliveries, and sales from milk of small milk-specialized retailers within the district had all specialized retailers within the district had all decreased decreased

Other large retailer’s branch had also Other large retailer’s branch had also experienced the decreaseexperienced the decrease

Tending to cause difficulties to the businessTending to cause difficulties to the business

activities of other entrepreneursactivities of other entrepreneurs


Application of the lawApplication of the law

Maruetsu and Hello Mart had supplied milk at Maruetsu and Hello Mart had supplied milk at unjustly low price.unjustly low price.

The above act falls under “The above act falls under “Unjust low price Unjust low price salessales” and violates the provision of Section ” and violates the provision of Section 19 of the AMA.19 of the AMA.

Specific Cases (fuel retailers)Specific Cases (fuel retailers)

Case against Hamaguchi Sekiyu (May 2006)Case against Hamaguchi Sekiyu (May 2006)Hamaguchi SekiyuHamaguchi Sekiyu

- A Japanese fuel retailerA Japanese fuel retailer- Relatively large-scale retailer in the marketRelatively large-scale retailer in the market

The JFTC ordered the company to stop “unjust loThe JFTC ordered the company to stop “unjust low sales price” and to take necessary measures tw sales price” and to take necessary measures to ensure it would not happen againo ensure it would not happen again


Market situationMarket 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 )


Conducts of the 2 Hamaguchi’s gas stationsConducts of the 2 Hamaguchi’s gas stationsWith intention to exclude its competitors in the cWith intention to exclude its competitors in the c

ommercial district:ommercial district:

- Selling gasoline below the purchase cost for Selling gasoline below the purchase cost for 80 days from August 2005 to January 2006 a80 days from August 2005 to January 2006 at the one gas station in the districtt the one gas station in the district

- Selling gasoline below the purchase price for Selling gasoline below the purchase price for 30 days from November 2005 to January 2030 days from November 2005 to January 2006 at the other gas station in the district, and 06 at the other gas station in the district, and so on.so on.


Findings of factFindings of factWith intention to exclude competitors in the district, With intention to exclude competitors in the district,

two gas stations continued to sell gasoline at pricetwo gas stations continued to sell gasoline at prices significantly below the purchase pricess significantly below the purchase prices

Selling below the purchase prices are continued dSelling below the purchase prices are continued during long period of timeuring long period of time

Hamaguchi could compensate for the losses in the Hamaguchi could compensate for the losses in the district with sales in other district.district with sales in other district.

In contrast, other fuel retailers, which had no statioIn contrast, other fuel retailers, which had no stations in other district, could not compete at such a lons in other district, could not compete at such a low price. w price.


Findings of fact (Cont.)Findings of fact (Cont.)Market EffectsMarket Effects

Sales of the other gas stations had declined Sales of the other gas stations had declined compared to the same term in the previous year.compared to the same term in the previous year.

Tending to cause difficulties to the business Tending to cause difficulties to the business

activities of other entrepreneursactivities of other entrepreneurs


Application of lawApplication of law

Hamaguchi Sekiyu had supplied gasoline at uHamaguchi Sekiyu had supplied gasoline at unjustly low price.njustly low price.

The above act falls under “The above act falls under “Unjust low price Unjust low price salessales” and violates the provision of Section 1” and violates the provision of Section 19 of the AMA.9 of the AMA.

Thank you for your kind attention.

Case Study Regulation on Predation in Japan ’ s Retail Sector 13 October, 2006 Tsuyoshi OKUMURA...

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