Monopolies / Cartels

Victor

Two interesting piecees from the weekend - it is widely viewed that cement and concrete suppliers operate a price cartel.

Separately on the grocery side, there seems to be a "phoney war" between the major retailers - Tesco are selling beer as "less than half the RRP", which would indicate normal mark-ups in excess of 100%, which is proabably milking things a bit.

http://www.thepost.ie/web/DocumentView/did-654054539-pageUrl--2FThe-Newspaper-2FSundays-Paper-2FNews.asp

Concrete firm brothers get court award of €500,000
21/12/03 00:00

By Kieron Wood
Two brothers who are suing the major concrete firms for anti-competitive practices settled a related case in the High Court on Friday for an estimated €500,000.

Framus directors Seamus and Francis Maye of Sligo are now awaiting the outcome of a Supreme Court judgment in their case against CRH, Readymix, Kilsaran and CPI for predatory pricing and anti-competitive behaviour.

Framus Ltd (formerly Dublin Concrete Products Ltd trading as National Concrete) sued Jons Civil Engineering Ltd for breach of a "1.3 million contract made in 1992.

Framus directors Seamus and Francis Maye of Sligo said their company had entered into a pre-tender contract to supply Jons with concrete at a set price for the Northern Cross route in Dublin.

In an affidavit, Seamus Maye said: "Normally, the largest concrete suppliers, such as Roadstone, Readymix and Kilsaran would favour the larger civil engineering contractors when offering prices on jobs, i.e. Ascon, SIAC, PJ Walls etc.

"This makes it extremely difficult for smaller companies such as Jons Civil Engineering to tender successfully for a major job.

"The Northern Cross route was by far the largest contract entered into by [Jons] at that time and [managing director John] Pentony was very anxious to firmly tie down the concrete prices prior to submitting his tender.

"I had made it very clear that I was only prepared to talk on the basis of a binding pre-tender deal."

Maye said the Northern Cross contract was worth "11 million. Pentony told him that the other concrete suppliers were giving him the ""50 and "60 per metre treatment", which would have added up to "300,000 to his tender price. National Concrete and Jons signed an agreement on June 26, 1992, and the Jons tender submitted to Dublin County Council was "40,000 less than the lowest of the other 14 tenders.

In January 1993, according to Maye, Pentony said the council had told him that, while they could not stop him using National Concrete, "they would make it very difficult for him".

On January 21, Pentony said he could not use National Concrete because of "pressures". According to Maye: "He needed Dublin County Council to cooperate fully with him to make money on the job. If they were with him, he could make minor adjustments along the way which would make the job pay. If not, they would make him stick rigidly to his tender."

Pentony "shook his head and said he was sorry, he said that he had had a sick stomach over Christmas because of this issue and had discussed the matter at length with his wife but there was nothing he could do. He stated that if I wanted to hit him, I could hit him there and then. I said there would be no point in doing that."

Jons subsequently obtained its concrete from another supplier. Maye said the Jons contract was an "anchor contract".

His company was in a vulnerable position because it had been subject to predatory pricing over several months. National Concrete was eventually forced to sell its assets to CRH.

After four days at hearing in the High Court last week, the claim was settled. Maye told The Sunday Business Post: "My legal team - barristers Bill Shipsey and Brian Cregan and solicitor Philip Lee - did a great job, but I can't tell you the outcome because it was subject to a confidentiality agreement."

It is understood that Jons agreed to pay National Concrete €500,000 in damages, plus costs.

The judgment in the Supreme Court appeal is expected early in the New Year.

http://archives.tcm.ie/businesspost/2003/12/21/story131023439.asp

Dunnes to take legal action against Foley
21/12/03 00:00
By Simon Carswell

Dunnes Stores is taking a High Court action against the Director of Consumer Affairs, Carmel Foley, to prove that nappies are not included in the Groceries Order.

The order - introduced in 1987 after the collapse of the H Williams super market chain following a price war with Dunnes - bans below-cost selling by retailers.

Foley has investigated Dunnes and Tesco in recent months for alleged below-cost promotions.

It is believed that the Office of the Director of Consumer Affairs (ODCA) has demanded invoices and documents from Dunnes as part of its investigation, but the store has challenged the demand, as it is entitled to do under the 1972 Restrictive Practices Act.

A spokesman for the ODCA would only say that the case related to the interpretation of household goods in the Groceries Order.

The order says "grocery goods", which are covered by the order, include "household necessaries (other than foodstuffs) as are ordinarily sold in grocery shops".

Goods that do not come within the scope of the order are fresh fruit, vegetables and meat (including frozen meat and fish, which has undergone no other processing).

Foley has come under pressure in recent months from retail grocers' lobby group RG DATA to investigate claims that Dunnes Stores and Tesco are selling below cost.

Last October, Foley examined whether Dunnes had been breaching the Groceries Order on frozen food and baby food. A month later, she hinted in an interview with The Sunday Business Post that the Competition Authority should police the order, as it dealt with competition.

Dunnes' case will be heard on January 19.

star gazer

It's not exactly going to mean much if The Minister for Enterprise revokes the below cost selling ban. Although it might get good press and look like something is being done to benefit the consumer it wouldn't help the consumer in the medium or long term. It's much easier to squeeze the little guy when a big player can use some reserves to sell below cost. After a while of this the little player loses customers and has to close. Having spent all this money on getting the little guy out of the market the big player will then want to get the money lost back plus some extra for being so 'enterprising'. Ireland would then end up with the big players even bigger and more dominant in the market. Below cost selling is by definition unsustainable, but sometimes it's perception and not real results that counts.

antoinolachtnai

What little guys are left now in the price-sensitive end of the grocery business? It seems to me that the small players are all now either convenience-focused or closed.

Victor

Hmmm, are we seeing teeth or a new press release policy?

http://home.eircom.net/content/unison/national/2367150?view=Eircomnet

Car dealers face probe
From:The Irish Independent
Sunday, 18th January, 2004

A NUMBER of car dealers may face prosecutions for price fixing following an investigation by the Competition Authority and the gardai.

Searches were carried out in a number of car dealerships, mostly in Dublin and Cork, in November and December last year.

http://home.eircom.net/content/irelandcom/topstories/2362407?view=Eircomnet

Car dealers may face prosecution after inquiry by competition body
From:ireland.com
Saturday, 17th January, 2004

A number of car dealers may face prosecution for price-fixing following an investigation by the Competition Authority and the Garda Bureau of Fraud Investigation (GBFI), writes Colm Keena.

A file is being prepared for the Director of Public Prosecutions in relation to a possible cartel operation or operations.

Seventeen raids were carried out last November and December. As well as car dealerships a raid has also been carried out on the home of a man who acts as secretary to a number of car dealers' associations, including the Citroen Car Dealers Association.

It is understood the inquiry includes an investigation into the possibility that a secret monitoring system has been established to check on the prices dealers are charging.

A spokesman for the Competition Authority confirmed that in co-operation with the Garda fraud bureau, it had conducted searches related to the motor vehicle industry. "These relate to possible breaches of the Competition Act 2002. A file is being prepared for the DPP, " he said. A spokeswoman for the Garda fraud bureau said there would be no comment.

It is legal for recommended retail prices to be agreed for goods but it is illegal for individual retailers to be prohibited by contract or agreement from selling below that price.

Dealers whose premises were raided and who spoke to The Irish Times said there was no price cartel in operation.

An evening raid was carried out on the Templeogue, Dublin, home of Mr John McGlynn, a retired car sector worker who acts as a consultant to a number of car dealer associations. He works from home and Competition Authority officials along with members of the Garda fraud bureau took away papers and a computer. He was away at the time and his wife was in the house alone, he said. "They literally pulled out every drawer and cabinet in the house," Mr McGlynn said. He said that when he arrived home he was cautioned before being questioned. He added that he had "nothing to hide".

Documents relating to his work for the Citroen Car Dealers' Association were taken from his home as were other documents linked to his work for dealers in Mitsubishi, Volvo and Hyundai.

Mr McGlynn said there was absolutely no involvement by any association in any alleged price-fixing.

A number of Citroen car dealers are known to have been raided in the weeks before Christmas as part of the inquiry. They included the Lusk Motor Group, Lusk, Co Dublin; the Rochestown Auto Centre, Rochestown, Co Cork; and Jack Doran Motors, Drogheda, Co Louth. Spokesmen for all three outlets said they knew of no anti-competitive practices.

http://www.thepost.ie/web/DocumentView/did-544565163-pageUrl--2FThe-Newspaper-2FSundays-Paper-2FNews.asp

Car price fixing probe expands
18/01/04 00:00
By Ed Micheau

The widespread investigation into price fixing in the motor industry by the Competition Authority and the Garda Bureau of Fraud Investigation includes an examination of activities by dealers selling Peugeot and Seat marques, The Sunday Business Post has learned.

The Competition Authority confirmed last Friday that it had conducted 17 raids on motor dealers around the country before Christmas and that the searches had focussed on Citroên dealerships.

The selling practices of four different marques are being examined in what reliable sources have described as "one of the biggest cartel investigations" in the history of the state. The investigation will be widened to include other popular brands when resources allow.

"There are a number of other marques to which a similar scenario would apply. There is the possibility of further raids," said a well-placed source.

One industry source claimed that price fixing and the operation of cartels was widespread in the business. The source told how dealers met up several times a year to agree on minimum prices for new cars sold with a cash discount. "Dealers who sold cars below the fixed price were fined €1,500," he said.

The practice of imposing fines on dealers who break pricing arrangements is believed to be one of the areas under investigation by the Competition Authority. The authority is believed to be examining the regionalisation of dealerships and dealers' associations.

Under tough new legislation introduced in 2002, those found guilty of participating in a cartel can be fined up to €4 million or 10 per cent of turnover, whichever sum is greater. Similar fines may also be imposed on individual managers or directors of such an undertaking, together with a maximum of five years' imprisonment.

The scale of the probe into the motor industry is evidenced by the fact that it accounted for most of the 20 raids conducted by the Competition Authority last year.

Dealers raided before Christmas are believed to include the Lusk Motor Group, Co Dublin; the Rochestown Auto Centre, Co Cork; and Jack Doran Motors, Co Louth.

star gazer

The competition Authority are showing signs of life, but activity doesn't alsways equate to achievement. We're in the midst of a raft of allegations and anecdotes about numerous industries being anti-competitive, either the claims are false and there is no such thing as rip-off ireland or there is a huge amount the compteition authority should be doing. If they don't have the resources, they should be screaming their heads of looking for them, their job is to protect the consumer and businesses from anti-competitive markets. Even after all the Hear-say we still wait for convictions, or at least threats of convictions we should be hearing a case a day being prgressed substantially.

Victor

I wonder how CRH and Readymix share prices will do in the next while.

http://www.thepost.ie/web/DocumentView/did-769329853-pageUrl--2FThe-Newspaper-2FSundays-Paper-2FNews.asp

Cement firm chief welcomes €110m EU fine on cartel
18/01/04 00:00
By Kieron Wood

The owner of an independent Irish cement company, who is suing the major cement firms for alleged anti-competitive practices, has welcomed the decision of the European Court of Justice to impose fines of €110 million on a cement cartel.

In its decision, the ECJ substantially upheld the ruling of the Court of First Instance against Irish Cement and five other European cement companies for anti-competitive practices.

The court said: "Harmful effects for the markets and for consumers are particularly serious in the cement sector, since they are passed on to the construction and housing sector and to the real estate market in general."

The Irish Supreme Court is due to deliver judgment within the next few weeks in the case of Framus Ltd (formerly Dublin Concrete Products, trading as National Concrete), Wilbury Ltd (formerly trading as Galway Readymix) and former cement importer Amantiss Enterprises against Irish Cement, CRH, Roadstone, Kilsaran Concrete, Readymix and CPI.

Almost two years ago in the High Court, the plaintiffs were ordered to pay €70,000 in relation to security for costs of discovery. Framus appealed this and the discovery order to the Supreme Court.

Framus director Seamus Maye said: "We are claiming that the use of hidden ownerships or secretly-controlled subsidiaries in the cement conversion or concrete sector was a key tool in restricting or eliminating competition in the market. CRH admitted a pattern of hidden ownerships to theTanaiste in 2000.The extent of this pattern is the only outstanding question.

"We were greatly encouraged by the recent decision in Ryanair v Aer Rianta where the Supreme Court acknowledged the special case for discovery in competition cases. We believe that the ECJ decision is yet another significant milestone in our action against CRH and others."

Victor

Conclusion to part of the second article.

http://home.eircom.net/content/irelandcom/topstories/2390226?view=Eircomnet

Dunnes, Tesco get fines for below-cost selling
From:ireland.com
Thursday, 22nd January, 2004

The Competition Authority has urged the abolition of the ban on below-cost selling by supermarkets after Dunnes Stores and Tesco were yesterday convicted of illegally discounting baby foods.

In a robust attack on the controversial Groceries Order, Mr John Fingleton, chairman of the authority, said the prohibition was unfair to shoppers and undermined the competitiveness of the Irish food industry.

"A system that fines supermarkets for reducing prices doesn't operate in the interest of the consumer... If this logic was applied in other sectors - for example clothing - it would make post-Christmas sales illegal," he said.

Tesco and Dunnes were convicted on seven counts of selling baby foods below cost and fined €2,100 each in a District Court prosecution taken by the Director of Consumer Affairs, Ms Carmel Foley.

Both retailers had cut the price of baby food by more than half during 24-hour sales in October. Dunnes has been separately charged with illegal discounting of frozen foods in November in a case that has yet to come before the courts.

Rather than safeguarding consumer rights, such prosecutions undermined competition and were a slight to shoppers who are made to pay some of the highest food prices in Europe, said the Competition Authority.

"The law places the Director of Consumer Affairs in the uncomfortable position of having to protect consumers from low prices," said Mr Fingleton.

"\ also affects the competitiveness of the Irish food sector. Providing a vibrant and competitive marketplace at home is the best way to ensure that Irish companies are in a position to compete in the international marketplace," he said.

Tesco said it was not its policy to flout the Groceries Order and that the below-cost selling of baby food had been an accident. But it defended its policy of price cutting, saying the consumer was the ultimate winner.

In a statement, the company said: "In this case, it seems we reduced the price of seven items of baby food lower than that allowed under the Groceries Order. It was an exceptional and unintentional case."

Dunnes said it would not comment on the ruling.

RGDATA, the lobby group for independent grocers, welcomed the verdict. It noted that the court had rejected attempts by Dunnes Stores to argue that certain categories of goods were outside the scope of the order

Ms Ailish Forde, director general of RGDATA, said: "All these two retailers are doing is trying to increase their dominance, halt competition and reduce consumer choice in the process.

"Today's court decision is very welcome. It shows that Dunnes Stores and Tesco will not be allowed to abuse their market power at the expense of suppliers, competitors and ultimately consumers."

The Government is considering whether to lift the order. A decision is expected after the completion of a review on the prohibition by the Department of Enterprise, Trade and Employment. The Groceries Order was introduced in 1987 following the collapse of the H Williams chain in a price war.

star gazer

In a robust attack on the controversial Groceries Order, Mr John Fingleton, chairman of the authority, said the prohibition was unfair to shoppers and undermined the competitiveness of the Irish food industry.

That's right give the dominant players more power over the market, that's really going to solve the problems surrounding competition. By definition below cost selling is unsustainable and therefor is used primarily to bring in unsuspecting customers into the shop where they will also buy over-priced goods (to compensate for the loss and more). It has the added bonus of squeezing weaker players in the market place, thus in the short medium term things will get worse for consumers. Competition Authority :rolleyes:

antoinolachtnai

We already have the phenomenon you describe, except without the discounted goods. It's called a 'convenience store'.

Come on, smell the coffee. There are no small players left in food anymore. It's a big boy's game now. There is no space left for small players.

Any extra competition that comes in will be as the result of new players entering from abroad. They won't come in unless they can price aggressively.

They don't have a price order in many other countries, and they have competitive food sectors. What you say is fine in theory, but it doesn't relate very well to real life as it is lived on the streets of Ireland and Europe.

star gazer

originally posted by antoinolachtnai
They don't have a price order in many other countries, and they have competitive food sectors. What you say is fine in theory, but it doesn't relate very well to real life as it is lived on the streets of Ireland and Europe.

On the streets of Ireland we seem to have a culture of high margins, as evidenced by the numerous newspaper articles and a couple of prime time programs comparing prices here with prices in Northern Ireland, Europe and the US. Giving existing players
Lidl and Aldi seem to be doing ok with their small single figure percentage share of the market, gradually expanding.

Come on, smell the coffee. There are no small players left in food anymore. It's a big boy's game now. There is no space left for small players.

yeah they all left after the ban on below cost selling was introduced (too late). Certain key items, like bread were used to get people into the stores and the small players were sqeezed out.

price isn't the only factor in deciding where to shop, shopping centre anchors being in poll position to attract shoppers. This means premiums can be paid, depending on the location of the supermarket, the lack of competition in the area and others. Below cost selling is a marketing gimmick, not a sustainable competitive policy.

antoinolachtnai

Telling merchants how they should run their shops is a political gimmick, not a sustainable competitive policy.

star gazer

Originally posted by antoinolachtnai
Telling merchants how they should run their shops is a political gimmick, not a sustainable competitive policy.

That isn't a sustainable argument, governments are there to govern, set rules and so on, it interferes in business to try to create a fair and stable business environment. To an extent they do tell merchants how they should run their businesses, every country has rules in business. The reasons for/against the lifting of the ban on below cost selling are perhaps not as important in Irish competition policy as at least a dozen other areas where inflation is higher, everywhere from the cost of Lawyers to the recent increase in the fixed line rental price allowed by Comreg for Eircom to charge. As a political gimmick it might look like the governemnt are actually achieving something in competition polict when in truth the Competition Authority only has one conviction to it's name.

shoegirl

Take a look at stats that appeared in the Observer this weekend:

http://observer.guardian.co.uk/foodmonthly/story/0,9950,1127912,00.html

-- for every large supermarket that opens, 276 jobs are lost

These include jobs in local shops, local suppliers, local wholesalers etc who are eliminated entirely from the bread chain

-- when a large supermarket opens, it impacts shops within an 7 mile radius

It also specifies that all small shops within an 7 mile radius close - that might be an overstatement - I would guess that would be a loss in business volume to those retailers

Below cost selling is basically the use of "loss leaders" to rein in business (eg 10p slive pans etc), however the UK market shows that when below cost selling is introduced the margins on other goods are increased and this actually INCREASES rather than reduces the cost to the consumer.

Another practice that was notorious before the Groceries order was "hello money" this was basically to exclude small wholesalers (who were widely used by small retailers up until a couple of years ago, though there are still a few in the south west of Ireland). Basically you had to pay upfront around £10,000 in order to get your product on the shelf. Although this is sometimes offset by demands for "free" goods by some new shops. What was outlawed was supermarket chains actually charging cash in order to introduce new lines.

-- For every £1 spent on bananas in tesco, 1p goes to the original growers. Tesco take a massive 40p profit for every £1 spent.
Tesco make enough on bananas everyweek to provide quality jobs for 30,000 banana industry workers

-- "Between 1976 and 1989 ... 44,000 food shops and grocers went bust"

Go read, its interesting. What is different in Ireland is that we have faced massive franchisation (if that is a word) - most previously independent shops have been replacemed by franchises - this has raised prices whilst destroying small wholesalers and local producers due to central billing - the big culprit here is Musgrave, who have led the way in pushing franchises - who then buy directly from them. They have been particularly targeting the cooperative Londis, in order to gain greater control.

Take a read of the article below, its interesting . . ..

http://observer.guardian.co.uk/foodmonthly/story/0,9950,1127912,00.html

star gazer

originally posted by shoegirl
replacemed by franchises - this has raised prices whilst destroying small wholesalers and local producers due to central billing - the big culprit here is Musgrave, who have led the way in pushing franchises - who then buy directly from them. They have been particularly targeting the cooperative Londis, in order to gain greater control.

That's definitely another problem that could be looked at, but giving more power to the big supermarkets isn't going to change that. It goes to show how widespread the high price culture is, the consumer can't go anywhere without paying a reasonable price for a half decent shopping basket. As was said above, it's not the farmers or small local suppliers that are creaming it.

Victor

Originally posted by shoegirl
for every large supermarket that opens, 276 jobs are lost

This isn't all bad. Say the supermarket employ 100 people. Thats one person doing the productiity of 2.76 people.

However, if you end up having to drive to the supermarket instead of using the local conveneince store, then the true cost of supermarket goods is in (cost of goods + cost of travel + time wasted travelling).