Big stores and tobacco firms ‘colluded on cigarette prices’

The Times: Big stores and tobacco firms ‘colluded on cigarette prices’

April 26, 2008
Rajeev Syal

Eleven big retailers and two tobacco companies are facing a government-backed inquiry into allegations that they colluded over the price of cigarettes.

Tesco, Sainsbury’s and Asda, as well as Imperial Tobacco and Gallaher, were among those accused of increasing profits illegally by the Office of Fair Trading (OFT) yesterday. Cigarette brands at the centre of the investigation include Embassy, John Player Special, Lambert & Butler, Benson & Hedges and Silk Cut.

The initial findings are part of the latest OFT clampdown on alleged anticompetitive practices and could result in fines of tens of millions of pounds.

Anti-smoking groups said that the findings of the OFT showed the cynicism of tobacco companies and retailers that trade in cigarettes.

“The hypocrisy of the industry knows no bounds,” said Deborah Arnott, the director of Action on Smoking and Health. “While complaining bitterly about tax increases, these companies have been raising the price of cigarettes to fill their own coffers while hiding behind the screen of tax rises.”

The investigation by the OFT found that the companies were illegally coordinating the prices of brands to increase their profit margins.

Some companies coordinated to link the price of some brands to rival products. Others arranged to swap information on future pricing.

In a statement, the OFT said that the named companies struck deals that “restricted the ability of each of these retailers to determine its selling prices independently” between 2000 and 2003.

Gallaher, Imperial Tobacco, Asda, Sainsbury’s, Shell, Somerfield and Tesco were also accused of exchanging proposed future retail prices through a third party between 2001 to 2003. First Quench, which trades under several names including Threshers, Morrisons and the Cooperative Group, is also among those named in the inquiry. Each company now has about two months to respond to the OFT’s statement of objections.

Companies involved in anticompetitive pricing practices can face fines of up to 10 per cent of the relevant annual turnover. Penalties can be cut if businesses cooperate with an investigation.

The OFT declined to say whether any of the companies have applied for leniency or admitted illegal collusion. It is understood that most of the companies named in the investigation are preparing to fight the allegations.

The clampdown was prompted in part by new laws and international pressure. This month the OFT announced an investigation into price-fixing in the construction industry.

The largest fine imposed to date was the £121.5 million levied on British Airways last year over a conspiracy with Virgin Atlantic to fix passenger fuel surcharges on transatlantic flights. Virgin escaped financial penalty because it had blown the whistle to the OFT.

On Thursday the watchdog won a critical High Court ruling over its efforts to regulate bank overdraft charges. The decision clears the way for a further hearing to decide whether the charges are actually unfair and, if so, what a fair charge should be.

A final defeat for the banks in the courts would result in a bill for well over £1 billion in repayments.

Critics have complained that these costs are likely to be passed on to current account holders in charges.

Tesco denied any wrongdoing. “We do not believe that Tesco has acted in a way that has harmed consumers,” a spokesman said yesterday.

Imperial Tobacco said it would respond to the allegations in due course. “Imperial Tobacco takes compliance with competition law very seriously and rejects any suggestion that it has acted in any way contrary to the interests of consumers,” a spokesman said.

http://www.timesonline.co.uk/tol/news/uk/article3818566.ece

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