OFT launches probe into cigarette pricing

SUPERMARKET giants Morrisons and Asda were today accused of unlawful cigarette pricing by the Office of Fair Trading.

Leeds-based Asda and Bradford-based Morrisons are two of 11 retailers – including Safeway which Morrisons bought in 2004 – which have been named in the investigation which accuses them of  colluding with two tobacco manufacturers to set the price of cigarettes.

The OFT alleges that from March 2000 until at least mid-2003 Gallaher and Imperial Tobacco linked the retail price of their brands to the retail price of a competing brand of another manufacturer at Morrisons and Asda stores.

Other retailers named in the OFT’s statement of objections include the Co-operative Group, First Quench, Sainsbury’s, Somerfield and Tesco.

The OFT said the alleged practices comprised arrangements between each manufacturer and each retailer that restricted the ability of each of the retailers to determine its selling prices independently.

The investigation has also accused tobacco manufacturers Gallaher and Imperial Tobacco and retailers Asda, Sainsbury’s, Shell, Somerfield and Tesco, of “the indirect exchange of proposed future retail prices between competitors”.

John Fingleton, the OFT’s chief executive, 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.

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

The OFT said that at this stage of the investigation it should not be assumed that the parties involved have broken the law, and that it will decide if the law has been broken after it has reviewed any responses to the statement of objections.

The OFT’s allegation that tobacco firms and supermarkets swapped pricing information should alert Yorkshire businesses to the potential dangers of discussing pricing strategies, according to regulatory expert Ed Conybeare of Leeds-based Shulmans Solicitors.

Mr Conybeare said: “Essentially this investigation is about anti-competitive behaviour, not price-fixing. It’s a fairly rare form of breach of competition law – prosecutions are more likely to be linked to price-fixing cartels. 

“However, the consequences of prosecution are potentially huge as the OFT has sweeping powers to punish anti-competitive behaviour and fines can be up to 10% of annual turnover.”

Earlier this week, Morrisons was given an apology by the OFT which also agreed to pay the supermarket chain £100,000 after admitting that it was wrong to name the supermarket chain in an ongoing investigation into the price-fixing of milk, butter and cheese.

Morrisons launched a libel suit earlier this year accusing the OFT of damaging its reputation by naming it in a list of firms provisionally found guilty of colluding to increase dairy prices.

Morrisons has always denied the price-fixing allegations despite rivals, including Asda and Sainsbury’s and a number of dairy firms, agreeing to pay fines totalling at least £116m.

The defamation victory by Morrisons follows a press release issued by the OFT last Septemember into the issue.