This article is the second installment in our FAQ on merger control in Taiwan (Here you can read part one).  Here, we set out in broad brush strokes the factors and methodologies that the Fair Trade Commission (the “FTC”) and Taiwan courts use to determine the relevant market in horizontal merger cases.

The Fair Trade Act (the “FTA”) defines the relevant market with respect to any particular product or service as the geographic area or scope in which firms compete with respect to such product or service.  In 2015, the FTC issued relevant market definition guidelines (the “Taiwan Guidelines”) based on the European Union’s Commission Notice on the Definition of the Relevant Market for the Purposes of Community Law, the United States’ Federal Trade Commission’s 2010 Horizontal Merger Guidelines, and the FTC’s own past cases.[1]

According to the Taiwan Guidelines, demand substitution is the primary market constraint that the FTC evaluates in its analysis of relevant markets; however, the FTC may also evaluate supply substitution as part of its analysis.

The FTC evaluates the effect of these competitive constraints to define the relevant market both in terms of the nature of the product or service being offered and the geographic sales area of such product or service.  The Taiwan Guidelines separately list the factors used to assess (i) product or service scope and (ii) the appropriate geographic sales area.  However, these factors are largely the same and are each aimed at providing information as to the substitutability of a product or service within a geographic area.  According to the Taiwan Guidelines when establishing the appropriate relevant market, the FTC will typically consider a variety of factors, including:

1. the general nature of the product or service and its use;
2. views of customers and competitors regarding substitutability of the product or service generally and specifically within a particular geographic area;
3. historical data on past substitution of similar products or services;
4. the cross-price elasticity of demand;
5. effects of price variation generally, the effect of price changes in different regions and related transportation costs between such regions, and the diversion of orders to other geographic areas in response to price changes; and
6. costs to customers associated with switching to different products, including ease with which customers can obtain products from different regions and transaction costs for customers purchasing products from different regions.

When assessing the considerations listed above, the FTC employs familiar qualitative and qualitative analysis methodologies including (i) reasonable interchangeability of use; (ii) the hypothetical monopolist test (and the related concept of a small but significant non-transitory increase in price); and (iii) cross elasticity of demand measurements.  It is important to note, however, that the FTC emphasizes that it may use other tests depending on the particular circumstances of each case.

In most cases, we recommend that the best practical approach to determining the relevant market in Taiwan for any particular product or service is to begin by analyzing the relevant market as if preparing for an antitrust inquiry in the United States or the European Union.  However, each case is unique and we strongly recommend anyone contemplating a business combination that may impact the Taiwan market to contact us to get more specific advice as to how the relevant market should be defined for the purposes of (i) determining whether a Taiwan merger control filing is required and (ii) making any such filings, if required.

To read the third installment on procedural issues related to merger filings, click here. For more information on mergers and acquisitions in Taiwan, please contact Gregory A. Buxton at gbuxton@winklerpartners.com.

[1] 公平交易委員會對於相關市場界定之處理原則.   No English translation available.