The Price Bureaus under the Provincial Development and Reform Commissions in Sichuan Province and Guizhou Province published their orders for punishment against the vertical pricing monopoly by MaoTai and WuLiangYe on their official websites. By the orders, the two distilleries were fined totaled RMB 449 million yuan (approximately $ 72, 064, 500 dollar). The following is our translation of the full text of the administrative punishments already ordered.
The punishment ordered by Sichuan Provincial Development and Reform Commission:
On 22nd February, the Sichuan Provincial Development and Reform Commission, basing on the regulation in the Anti Monopoly Law, punished Yibin WuLiangYe Alcohol Sales Co., Ltd. (the “WuLiangYe Company”), fining it RMB 202 million yuan, for it has restricted the floor price in dealer’s retails nationwide, and thereby concluded and implemented the vertical pricing monopoly agreements with the dealers.
Since 2009, WuLiangYe Company gradually entered into agreements with more than 3, 200 independent legal entities through written forms or network, limiting their minimum price when selling WuLiangYe liquor. And moreover, it has also punished the dealers who failed to implement the minimum price by means of restricting businesses, deducing the contractual plans, deposits, market supporting fees or imposing fines. In 2011, the company stopped the product supply to a big-scaled chain supermarket in Sichuan Province, forcing the market not to sell the product below the agreed floor price. In 2012, the company successively punished 14 dealers in 11 provinces, involving Beijing, Tianjin, Hebei, Liaoning, Heilongjiang, Shandong, Hunan, Sichuan, Yunnan, Guizhou, accusing them has “sold WuLiangYe product with a lower price, out of their licensed region or through other channels in addition to the ones in the contracts”, and thereby punished them the compensation, market support fee deduction and other punishments.
WuLiangYe Company took advantage of its dominant position in the market, and restricted the minimum price in its dealers’ sales of liquor by means of binding agreement, pricing control, regional supervision, examination & punishment and terminal control. And that has violated the Article 14 of the Anti Monopoly Law, as it has excluded and restricted the market competition, which would damage the interests of the consumers.
As the leading enterprise in the industry, WuLiangYe enjoys top brand effect and loyalty among the consumers. Considering these, the pricing monopoly conducted by the company would lead to negative influence with regard to the fair market competition, efficiency of economy operation and consumer interests from many aspects:
1) It excludes the competition among the dealers of the same brand. We have seen WuLiangYe Company implemented the restrictions inside the brand through restricting the floor price when reselling the liquor, and accordingly designed a set of the supervision system and punishment, which has proved to be excluding the pricing competition among the dealers and damaging the efficiency of the economy operation.
2) It limits the competition among various brands in the liquor industry. The pricing monopoly by WuLiangYe Company has served as a negative demonstration effect in the industry, and afterwards till now, we have seen other liquor brands began to set restrictions on or punish their dealers through the similar ways. And thus extended restriction and damages caused to the competition has been extended.
3) It damages the interests of the consumer. WuLiangYe Company sets the price floor of its product, and thereby takes off the chances of the consumers to buy lower priced product. Especially when further considering the dominant position of WuLiangYe Liquor in the strong-flavored white spirit market and is of low substitutability, the consumer would suffer a great restriction over their product selection.
So far, WuLiangYe Company has been actively cooperating with the pricing supervision and examination by the National Development and Reform Commission and the anti monopoly investigation by Sichuan Provincial Development and Reform Commission, and has corrected its mistake in time as has announced to the public. And it has withdrew the punishment against the dealers, returned the deduced market supporting fee and has rectified and reformed itself by law. For these reasons, the Sichuan Provincial Development and Reform Commission decided to order it a lighter punishment according to the law, fining it 1% of the annual sales occurred in last year, namely RMB 202 million yuan (approximately $ 32, 421, 000).
Guizhou Provincial Price Bureau published its decision against MaoTai Company on its official website, but was deleted shortly afterwards. And yet, we have found the full text of it through Internet search engine:
Since 2012, Kweichou Maotai Wine Sales Co., Ltd. (the “MaoTai Company”) has been restricting the floor price of its MaoTai liquor with the dealers through agreements, and has punished the retails at a lower price, and thereby has concluded and implemented the vertical pricing monopoly on its MaoTai Liquor. All these has violated Article 14 of the Anti Monopoly Law, as it has excluded and restricted the competition and damaged the interests of the consumers. As carried out the investigation over its misconducts, MaoTai Company has been actively cooperating with the investigation, and voluntarily returned the deposit previously deduced as was against the law, and has implemented further rectification and reform as required by law. Basing on these facts, the authority thereby orders it the fine of RMB 247 million yuan (approximately $ 39, 643, 500 dollar).
As checked with the punishments ordered by two provincial authorities, it could be easily concluded that the order for punishment by Sichuan Province appears to be more complete, which has detailed described the monopoly conducted by WuLiangYe Company, laws violated and the damages caused by the monopoly. But the decision made by Guizhou Price Bureau seems to be simpler. Previously, our website has posted series of analysis over the event, please click the link for more details: