OFT launches probe into cigarette price-fixing: *Shell accused along with other retailers

Times Online: OFT launches probe into cigarette price-fixing

April 25, 2008
Angela Jameson

Smokers may have been overcharged for cigarettes after the Office of Fair Trading (OFT) accused two major tobacco companies and 11 retailers of alleged unlawful co-ordination of prices.

The OFT has issued a statement of objections detailing the charges against Gallaher, which makes Silk Cut and Benson & Hedges brands, and Imperial Tobacco, whose brands include Lambert & Butler and Embassy.

The retailers who have been issued with a statement of objections include all four major supermarket groups: Tesco, Sainsbury, Asda and Morrisons, as well as the Co-operative Group, off-licence group First Quench, Shell, Somerfield and convenience store groups T& S Stores and TM Retail.

The competition watchdog alleges that at various times between 2000 and 2003 these tobacco manufacturers and retailers made arrangements that restricted the ability of each retailer to determine its selling price independently.

This was achieved by linking the retail price of a manufacturer’s brand to the retail price of a competing brand of another manufacturer.

In the case of Gallaher, Imperial Tobacco, Asda, Sainsbury, Shell, Somerfield and Tesco, the OFT also alleges that they indirectly exchanged information on proposed future retail prices.

Tesco immediately indicated that it would dispute the charges. A spokesman for the UK’s biggest supermarket group said: “The OFT’s investigation appears to centre on major tobacco companies. We do not believe that Tesco has acted in a way that has harmed consumers and we will make this clear to the OFT when we see the details of their allegations.”

John Fingleton, chief executive of the OFT, said: “For markets to work well for consumers, it is a fundamental principle that pricing decisions should be made independently. If we find evidence of anti-competitive activity, we are prepared to use the appropriate powers to punish the companies involved and to deter other businesses from taking part in such behaviour.”

He added: “If proven, the alleged practices would amount to a serious breach of the law.”

The OFT’s allegations against the supermarkets and tobacco companies come just 48 hours after it was forced to pay £100,000 plus costs to settle a defamation case from Morrisons, the supermarket group, over mistakes in a press release about alleged milk price-fixing.

The cigarette announcement is the latest front the OFT has opened up in its campaign against anti-cartel activity. It has already fined British Airways more than £100 million over fixing the level of fuel surcharges with its rival Virgin Atlantic, it has taken on the supermarkets over alleged fixing of milk prices and is currently waging war on 112 construction companies which it accuses of cover-pricing.

Yesterday, the OFT was granted permission to pursue a case against the UK’s high street banks over overdraft charges.

The focus of the OFT’s tobacco investigation, which began in 2003, appears to centre on the tobacco groups which between them dominate the British cigarette market.

The tobacco groups and retailers now have a month to respond to the charges. If any companies are found guilty of a breach of the law they could be fined up to 10 per cent of relevant turnover, although the penalty could be reduced if they help with the investigation.

Cigarettes are generally sold for very similar prices and generate a particularly slim profit margin for both wholesalers and retailers.

http://business.timesonline.co.uk/tol/business/industry_sectors/retailing/article3813495.ece

*added by John Donovan of www.royaldutchshellplc.com

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