OFT probe into supermarket price fixing claims
shelved
A multi-million pound investigation by the Office of Fair Trading into
allegations of price fixing in the supermarket sector has been pulled
in the latest blow to the embattled regulator.
The OFT launched dawn raids at Tesco,
Asda, Sainsbury's and Morrisons. Photo:
PA
By Jonathan Sibun 6:00AM GMT 18 Nov
2010
The Daily Telegraph can
reveal that the investigation,
believed to be one of the
largest
in
the
consumer
watchdog’s history, has been
quietly shelved after the Office
of Fair Trading (OFT) failed to
find sufficient evidence of
wrongdoing.
The OFT raided a number of supermarkets and consumer goods companies in April 2008
after receiving information suggesting possible price collusion.
Dawn raids were launched at Tesco, Asda, Sainsbury’s and Morrisons, while suppliers
including Procter & Gamble, Coca-Cola, GlaxoSmithKline, Unilever and Kimberly-Clark
were also targeted.
The watchdog can levy fines of up to 10pc of annual sales on companies found guilty of
price fixing, a threat that has hung over the grocery sector since the raids.
In a report detailing its closure of the investigation, published on the watchdog’s website
late last night, the OFT said that it had received “substantial evidence from more than
one source” into “suspected indirect retail price co-ordination” between 2005 and 2008.
The allegations centred on so-called “A-B-C information exchanges”, where retailers
allegedly passed information on to suppliers which passed them on to other retailers to
help set prices. The OFT said it had reviewed material from a number of different
companies, including some which had applied for leniency, but decided not to proceed.
“The OFT ... concluded that it was appropriate to close the investigation on
administrative priorities grounds,” the report said.
The investigation’s closure comes at a difficult time for the OFT, which is set to be
merged with the Competition Commission next year. Any loss of face for the OFT will
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also be heightened by the high-profile and controversial manner in which the
investigation was launched.
The raids took place just a day after the OFT was forced to issue an apology to Morrisons
and pay the group damages of £100,000 after admitting that a press release published
in 2007, following an investigation into the alleged price-fixing of milk, contained
“serious errors”. Senior retailers subsequently accused the watchdog of “abusing its
powers” and being “out of control”.
OFT orders Asda to dispose of 25pc of its Netto
stores
The Office of Fair Trading (OFT) has ordered Asda to dispose of
almost a quarter of the Netto stores that it bought in the spring in
order to satisfy competition concerns.
Asda said it would meet its obligations to
the OFT and convert the remaining Netto
stores to the Asda fascia by late summer
2011 Photo: Alamy
By James Hall, Retail Editor 6:00AM BST
24 Sep 2010
The OFT on Thursday gave
Asda the green light for the
£778m deal on the condition
that it sells 47 of the 194
Netto stores it purchased.
The figure is significantly
higher
than
observers
expected. Clive Black, a retail
analyst at broker Shore Capital, had expected Asda to be ordered to ditch between 25
and 30 stores.
Asda admitted that 47 disposals is "at the high end of its expectations". However, it said
that it was confident it would meet its obligations to the OFT and convert the remaining
stores to the Asda fascia by late summer 2011. Asda said it has "already begun
discussions" with prospective buyers for the stores. Analysts expect Tesco, J Sainsbury,
Wm Morrison, Iceland and Waitrose to express interest.
Wal-Mart, Asda's parent company, paid £778m in cash for the Netto stores from Dansk
Supermarked A/S, the Danish retail group, at the end of May. Dansk is 68pc owned by
AP Moller-Maersk, the world's largest container ship and supply vessel operator.
The deal is a transformative one for Asda, giving it a portfolio of far smaller stores than
it traditionally holds. The retailer plans to open a smaller chain of supermarkets.
2
Such a large number of disposals was not expected by industry insiders. Shore Capital's
Mr Black said he was "surprised" at the figure: "We thought that they would have to
dispose of 25 to 30. However, they will want to recoup as much [money] as possible
from the forced sales."
Recent supermarket takeovers have resulted in far fewer forced disposals. When the Coop bought Somerfield in 2008 it was ordered by the OFT to dispose of 126 out of 877
stores, equivalent to 14pc. When Wm Morrison bought Safeway in 2003 it was told to
divest just 52 Safeway stores out of 480 stores, some 11pc.
The OFT said it had concluded that the Asda-Netto acquisition would "not give rise to
competition concerns at a national level because Netto's market share in the UK as a
whole amounts to less than 1pc". However, the OFT said that it was concerned that
competition could be substantially reduced in around one in four of the local areas where
there are overlapping stores.
Amelia Fletcher, senior director of mergers for the OFT, said: "Although Asda and Netto
offer somewhat different propositions for customers, the evidence from our investigation
indicated that Asda did provide a significant competitive constraint on Netto in a number
of local areas where they overlapped."
Andy Clarke, Asda's president and chief executive, said: "The OFT announcement paves
the way for us to bring Asda to thousands of people in England and Wales and create a
significant number of new jobs in an increasingly tough economy."
Hotels investigated by OFT
Some hotels are to be investigated by the Office of
Fair Trading over allegedly fixing the price of their
hotel rooms.
The OFT did not name any individual
hotels or hotel companies
By Harry Wallop, Consumer Affairs Editor 6:34PM BST
16 Sep 2010
The investigation has been sparked over
allegations that some hotels, unhappy at
the way booking websites offer their
rooms at a discount, have put pressure
on third parties to raise their rates.
3
The OFT has started the investigation after months of lobbying from a discount website
called Skoosh.com. Its managing director, Dorian Harris, claimed his website was being
put under pressure to offer rooms at a standard price.
"We were openly discounting and hotels would email, call and threaten legal action," he
told the BBC.
"Either we'd have to raise prices or take the hotels off our list."
Hotels often sell many of their rooms to wholesalers at a discount, who then sell on the
rooms to travel agents. However many websites now buy rooms from the wholesalers
and offer rates far lower than those offered by travel agents or the hotels themselves,
because they operate on lower profit margins.
It is understood that some hotels are unhappy that their own prices are being undercut
but no individual hotels or companies have been named by the OFT.
Within the travel business the practice of keeping prices at a preset level is talked about
openly and is called "rate parity". It is possible that this would be a breach of
competition law because it would be price fixing.
If the Office of Fair Trading finds that there have been breaches of the Competition Act,
it can impose penalties of up to 10 per cent of a company's turnover.
A spokesman for the OFT said: "The OFT is conducting a formal investigation into
suspected breaches of competition law in the hotel online booking sector and has written
to a number of parties in the industry to request information.
The investigation is at a very early stage and the OFT will not be in a position to
conclude whether it considers the law has been infringed until it has completed its
investigation and assessed the available evidence."
OFT raids Mercedes-Benz offices in truck pricefixing investigation
The
Office
of
Fair
Trading has raided the
UK offices of German
vehicle
maker
Mercedes-Benz as part
of an investigation into
alleged price-fixing in
the trucking industry.
The raid at Mercedes-Benz offices in Britain took place this week.
4
By Alistair Osborne 7:00AM BST 16 Sep 2010
In what could prove the watchdog’s most high-profile criminal cartel case since the
collapse of the British Airways price-fixing trial, the OFT is understood to have also
requested information from Sweden’s Scania and Germany’s MAN.
The raid at Mercedes-Benz, owned by Daimler, took place this week.
One individual has been arrested and released on bail.
Italy’s Iveco, the truck brand owned by Fiat, and Volvo could also become embroiled in
the investigation should it encompass the entire trucking industry - though the OFT
cautioned it was yet to conclude if any laws had been broken.
The OFT confirmed last night that it was “investigating suspected cartel activity involving
commercial vehicle manufacturers in the UK”.
The watchdog added: “Investigations are being carried out under both the Enterprise Act
2002 and the Competition Act 1998. The investigations are at an early stage.
“The OFT will not be in a position to conclude whether it considers the law has been
infringed until it has completed its investigations and assessed the available evidence.”
Companies involved in price-fixing can be fined 10pc of their turnover.
Executives guilty of criminal cartel behaviour face up to five years jail.
All articles from: http://www.telegraph.co.uk/finance/
Questions
1. Why is competition important in markets?
2. What is meant by collusion / price fixing?
5
3. What is a cartel?
4. Why are cartels illegal?
5. What powers does the Office of Fair Trading have that are mentioned in the
article?
6. What are the consequences for firms caught colluding/ operating a cartel in the
UK?
7. If you worked for the Office of Fair Trading can you think of three pieces of
evidence that you could gather that could suggest a lack of competition / collusion
in a market?
6