Ⅰ．Analysis of Price Monopoly Agreement Types in Automotive Industry
On August 6th of 2014, National Development and Reform Commission announced the progress of anti-monopoly probe, stipulating that Audi and Chrysler would be fined by anti-monopoly law．On August 13th of 2014, Audi's horizontal and vertical price monopoly behavior was affirmed and then fined 0.24858 billion yuan．Car manufacturers like Chrysler, BMW, and their franchisers in mainland China received various anti-monopoly penalties as well because of their illegal price agreement.[1]On Aug.20th, 2014, National Development and Reform Commission issued announcement that eight Japanese car part makers including Sumitomo Corporation and four bearing makers including NSK were diagnosed price monopoly behavior and fined 1.2345 billion yuan, a huge amount of anti-monopoly penalty.[2]On April 23rd, 2015, Jiangsu Provincial Price Bureau published the final penalty of BMW's monopoly case that BMW was fined 0.357 billion yuan and meanwhile imposed 7.869 million fine on BMW's franchisers in Nanjing, Wuxi and Suzhou, which on the whole is the highest anti-monopoly financial penalty that our anti-monopoly law enforcement agencies have ever imposed on an individual company's vertical monopoly behavior.[3]Recently, a series of price anti-monopoly cases in the automotive industry have aroused concern from all sectors of the society．Judging from the anti-monopoly practice available, there is price monopoly agreement in sales of whole cars, car parts, and after sales maintenance and service．The nature and indication of these behaviors vary and hence must be categorized and analyzed combined with practice.
A．Horizontal Price Monopoly Agreement
Monopoly agreement is also called an agreement eliminating and restricting competition．Based on the relationship of agreement subjects, we can categorize it into horizontal and vertical agreements．A horizontal agreement means operators that compete with each other or are parallel with each other making a monopoly agreement together．For example, manufactures, retailers or wholesalers of the same stage during the manufacturing and marketing process make an agreement amongst themselves．In a horizontal monopoly agreement, price monopoly agreement falls into the illegality type of the most central and loathsome, that draws a lot of attention．The horizontal price monopoly agreement we discuss in this thesis refers to monopoly agreement made between car manufacturers (including whole cars and car parts), or between car franchisers．But under practical market conditions, due to the fierce competition between manufacturers (i.e．between different car brands with reference to whole car manufacturers instead of car part makers), and due to the fact that car brands, quality and technology content vary, it is not likely they make a price agreement on the sales price in the market．On the contrary, franchisers of the same brand are likely to attain a price monopoly agreement in various forms．For example, since 2013, ten-odd Audi franchisers including Hubei Dingjie, Huaxing Handi, Hubei Zhongji, Hubei Aoze, Wuhan Aolong, Wuhan Aojia, Xiangyang Dongfu, Yichang Aolong, Huangshi Aolong, and Shiyan Aolong convened and formed the conference minutes on uniform sales princes, formulating a Franchisers' Alliance Price List in Wuhan and an Audi Limit Price List in Wuhan District, and attaining and putting into practice a price monopoly agreement of whole cars．At the beginning of 2014, the afore-listed companies fixed the working hour price of after-sales repair, maintenance, and prices of car parts and set the lowest price for car insurance.[4]
In August of 2014, four BMW franchisers in Hubei province agreed to charge PDI (Pre Delivery Inspection) and were fined by the related anti-monopoly law enforcement agency．In the same month, the afore-mentioned eight car part makers including Sumitomo Corporation and four bearing makers including NSK were convened and agreed to fix the price of their products, forming an agreed order price list toward car part and bearing makers of mainland China．They also discussed the guidelines and timing of price rise．These price agreements violated Item 1 of Article 13 of Anti-monopoly Law the People's Republic of China with reference to “Any of the monopoly agreements among the competing business operators on fixing or changing prices of commodities shall be prohibited”．Meanwhile, they also violated Articles 5 and 7 of Rules on Anti Price Monopoly issued by NDRC, and deteriorated the free competition order of parts supply and after-sales service in the automotive industry.[5]In the automotive industry, manufacturers and franchisers have information superiority over ordinary consumers and have a dominant position concerning information on sales of whole cars, part supply, after-sales service, auxiliary commodities such as automobile insurance and decoration．Explicit and implicit price agreements (usually presented as price alliance, price limit list and so on) are easily made to encroach on consumers' interests.
B．Vertical Price Monopoly Agreement
A vertical agreement refers to two or more than two operators of different operation levels without direct competitive relations, such as the agreement to restrict competition that is attained between manufacturers and franchisers, wholesalers and retailers in an explicit or implicit manner.[6]Generally speaking, the early-stage operators are called “upstream operators”and the late stage operators “downstream operators”．The differences between a vertical monopoly agreement and a horizontal monopoly agreement lie in the prices of commodities or service and the manner to set those prices．The vertical monopoly agreement is also called vertical price monopoly agreement．The two typical illegality forms are fixing prices of commodities sold to a third party and limiting the lowest price of commodities sold to the third party and these illegal conducts are explicitly prohibited by Items 1 and 2 of Article 14 in Anti-monopoly Law of the People's Republic of China．They can also be called Resale Price Maintenance, RPM in short, which refers to the conduct of manufacturers and suppliers when they sell commodities to franchiser and retailers that restricts prices of the same commodities to be sold to a third party．The vertical monopoly agreement is manifested in a way to limit the highest price or lowest price, to maintain resale prices and recommended prices．In some detailed cases, RPM is considered to deteriorate the competitive environment and encroach on consumers' interests and therefore falls into the scope of anti-monopoly probe.[7]
In the automotive industry, car manufacturers belong to upstream operators, franchisers (the prevailing 4S shops[8]) belong to downstream operators．Since 2012, as Audi's manufacturer, FAW Volkswagen convened franchisers within Hubei province many times and directly issued The Notice of Strict Implementation of Audi's Standard Price System in Mid-China, Hubei Province, and Marketing Management Regulations in Hubei Province．These documents fixed the sales price of whole cars and car parts for franchisers and urged them to sign the Price Agreement Guarantee in Mid-China．At the same time, the commission to regulate competition order was established, urging dealers to comply with the price strategy of FAW Volkswagen．If dealers do not comply with the provisions made by manufacturers, the supply of products will be reduced or the dealer qualifications will be revoked．From 2012 to 2014, Chrysler signed with dealers the distribution agreement containing RPM in the automotive sales process and released commercial policies with RPM．If dealers issued telephone quotes below Manufacture Suggested Retail Price, they are to receive a rebate deduction, fines and other forms of punishment, which will also be announced to all dealers; for the dealers whose actual transaction price is lower than or slightly higher than the wholesale prices, the manufacture will take some punitive measures against the dealers by postponing delivery of hot car models or by suspending the supply of cars for test drive．From January of 2013 to July of 2014, Benz Corporation limited the lowest resale prices of E-class and S-class whole cars across different regions in Jiangsu Province by telephone, verbal notification or organizing dealer meetings．Through the top-down price direction, Benz Corporation managed to control prices．In the above three cases, upstream automobile manufacturers imposed different forms of RPM on the downstream franchisers to reach the goal of limiting competition and expanding their own interests, which objectively damaged the legitimate rights and interests of consumers.
Objectively speaking, there are reasons accounting for the rampant use of vertical price monopoly agreements in the automotive industry．Scholars believed that the enforcement of the Administration of Automobile Brand Sales Implementing Procedures (formulated by the Ministry of Commerce, National Development and Reform Commission, the State Administration for Industry and Commerce jointly, Administration for short in the following paragraphs) since April 1st, 2005 has impeded and restricted competition in the automobile sales market and this negative effect has largely stimulated monopoly conducts in the automotive industry.[9]The Administration stipulates that car brand dealers are not allowed to sell cars of the corresponding brand without the permission from suppliers (including car manufacturers and sole distributors) and can only engage in relevant business activities authorized by the suppliers.[10]The absolute advantage of automotive suppliers, mainly manufacturers, has been established, to whom dealers are often placed at a passive position．For example, the vast majority of car manufacturers will set the market guidance price for their cars before they enter the market．The market guidance price refers to “the suggested sales price to dealers by the manufacturer based upon calculation of the production cost”．The act of manufacturers' setting market guidance price belongs to price suggestion, an act that is not mandatory．If the dealer does not comply with the set price, he will not be sanctioned or punished by the manufacturer．Some car manufacturers have abused the price guidance, and their price guidance behavior has gone astray in practice; i.e．the price guidance has imposed actual binding and mandatory force on dealers' sales price in various ways．For example, in 2011, the Beijing Benz Automotive Company Limited set a market guidance price and forced the dealers to comply with it by applying pressure to them or by providing them with a reward.[11]Undoubtedly, this type of price guidance is equivalent to RPM rules in a disguised form．The facts also show that although dealers have the right not to comply with the market guidance price and sell with their own pricing, but almost all the dealers have chosen to follow the market guidance price．If the dealer accepts the price guidance, it means an implied vertical price agreement is made between the manufacturer and dealer．This type of conduct will limit and eliminate competition to a great extent, harm the interests of consumers, and hence shall be prohibited.
[1] See Audi's Monopoly Conduct will Be Fined 0.2 Billion, 6％ of Annual Sales in Hubei, http:/finance.qq.com/a/20140814/014770.htm, visited on Apr.29, 2015.
[2] See The Biggest Anti-monopoly Penalty, http://www.chyxx.com/news/2014/08211275197.html, visited on Apr.29, 2015.
[3] See Benz Was Fined 0.357 Billion—The Biggest Anti-monopoly Penalty in Automotive Industry, http://auto.ifeng.com/pinglun/20150423/1039463.shtml, visited on May 24, 2015.
[4] See Many Car Manufacturers Were Probed and Audi's Monopoly Case in Hubei Was Completed, http://www.cb.com.cn/economy/2014_0808/1076431.html, visited on May 21, 2015.
[5] Rules on Anti Price Monopoly (NDRC No.7) has been implemented since Feb.1st of 2011．Article 5 stipulates: “Price monopoly agreements in this Rules refer to agreements, decisions and other coordinated behavior that eliminate and limit competition.”Article 7 stipulates: “Prohibit price monopoly agreements made between competitors: (a) fix or change the price of commodities or services (hereinafter referred to as the commodities); (b) fix or change the price fluctuation range: (c) fix or change fees, discounts or other expenses that influence prices of commodities; (d) use the agreed price as a basis for dealing with third parties; (e) agree to use the standard formula to calculate prices; (f) make other business operators beyond the agreement agree to fix the price; (g) fix or change prices in other ways; (h) other price monopoly agreements affirmed by the price administrative department of the State Council.”
[6] See Qiu Ben, Research on Economic Law (Volume II: Research on Market Competition Law), China Renmin University Press, 2008, pp.176-181.
[7] See Huang Yong, Liu Yannan, On the Law Applicable to the Resale Price Maintenance Agreements Based on Anti-monopoly Law of the People's Republic of China, Social Science, 2013(10).
[8] 4S refers to a mode of operation which equals an automotive franchise model with “four in one”as the core encompassing sales of whole cars, spare parts, after-sale services and survey．Its operators are called 4S shops.
[9] See Su Hua, Han Wei, The Anti-monopolistic Analysis of Administration of Automobile Brand Sales Implementing Procedures, China's Price, 2014(1).
[10] See Articles 15, 16, 25-29 of Administration of Automobile Brand Sales Implementation Procedures.
[11] See The Lowest Sales Price Set by Beijing Benz Was Considered to Violate the Anti-monopoly Law, http://finance.qq.com/a/20110330/000125.htm, visited on Jun.18, 2015.