Tobacco Groups Face Price Allegations

Source from:  By Michael Peel, Tom Braithwaite and Megan Murphy April 24 2008 04/25/2008

The competition watchdog is on Friday expected to unveil wide-ranging allegations of cigarette price-fixing involving tobacco companies and retailers, days after it was forced to make a humiliating apology over incorrect accusations in another antitrust probe. People familiar with the tobacco investigation say the Office of Fair Trading will name leading supermarkets, 48 hours after it agreed to pay Wm Morrison £100,000 damages and costs over mistakes in a statement about alleged milk price-fixing. The cigarette announcement – the latest sign of the OFT's increasing clampdown on antitrust activity – relates to alleged deals between the tobacco companies and a broad spectrum of retailers, people familiar with the investigation say. Companies involved in price-fixing can face fines of up to 10 per cent of annual turnover, although penalities are generally less if businesses co-operate with an investigation. Cigarette suppliers are the main focus of the OFT's inquiry, according to people familiar with the matter. Several retailers said they had been surprised to receive notice of the OFT's findings in the same week that the watchdog had accepted fault and paid damages to Morrison. Both Gallaher and Imperial Tobacco – which between them dominate the British cigarette market – have previously said they have complied with requests from the OFT for information since it started its probe in 2003. Imperial said: "We take compliance with competition law very seriously and we reject any suggestion that we have acted in a way that's contrary to the interests of our customers." Gallaher – owned by Japan Tobacco – could not immediately be reached for comment. Although there is typically little difference in price at retail of cigarettes and tobacco, they are products that generate a particularly slim profit margin for both wholesalers and retailers. Action on Smoking and Health, the anti-smoking pressure group, said it was concerned that cigarette prices were rising faster than justified by levels of taxation and inflation. The OFT is coming into conflict with big companies as it pursues a strategy of taking on high-impact investigations in industries that resonate with consumers. Companies privately say they are increasingly responding to the watchdog's more aggressive approach by exploring the possibility of legal actions, such as that launched by Morrison. The watchdog on Thursday won a crucial round in the legal battle over its effort to regulate bank overdraft charges. Other big industries that have been targets of recent price-fixing probes include airlines and construction. In December, supermarkets and dairies agreed to pay fines totalling up to £116m over milk price-fixing. Tesco and Morrison continue to deny wrongdoing in that investigation. Enditem