Pub Companies - Business and Enterprise Committee Contents


Memorandum submitted by the Office of Fair Trading

SUMMARY

  1.  The Business and Enterprise Committee asked the Office of Fair Trading (OFT) on 14 October to provide them with background information on the OFT's activities in the beer and pub market for their follow-up inquiry into pub companies.

  2.  The OFT previously submitted evidence to the Trade and Industry Select Committee during its original inquiry in 2004. In both the evidence given to that Committee, and subsequent evaluations, the OFT concluded that, under the Competition Act 1998 (CA98) and Enterprise Act 2002 (EA02), there was no competition problem in relation to the beer and pub market.

  3.  The beer and pub market has been examined extensively by the Competition Commission and OFT. We have received no evidence or complaints that lead us to alter the position we submitted to the Trade and Industry Select Committee in 2004 that there is no significant competition problem in relation to the beer and pub market.

INTRODUCTION TO THE OFT

  4.  The OFT is a non-ministerial government department, originally established by statute in 1973 and subsequently transferred to a body corporate by the same name in 2003. The OFT's mission is to make markets work well for consumers. Markets work well for consumers and contribute to the health of the wider economy when they are efficient and productive.

  5.  As an independent professional organisation, the OFT plays a leading role in promoting and protecting consumer interests throughout the UK, while ensuring that businesses are fair and competitive. Our tools to carry out this work are the powers granted to the OFT under a wide range of consumer and competition legislation.

  6.  Competition law prohibits anti-competitive agreements and abuses of a dominant position. We can also carry out market studies and/or ask the Competition Commission to carry out a market investigation where we have reason to suspect that the structure of a market or the conduct of suppliers or customers is harming competition. We are also required to consider whether mergers will lead to a substantial lessening of competition. If that is the case we can refer them to the Competition Commission for investigation or seek suitable undertakings in lieu of such a reference.

  7.  In seeking to target both our resources and enforcement strategy, the OFT needs to consider a range of factors including impact on consumers, strategic significance, risks and resources. We also need to take account of the activity, capacity and interests of our partners. In October 2008 we set out eight principles for prioritising our work under the four headings of Impact, Strategic Significance, Risks and Resources. We will not apply the principles in a mechanical way: judgement and a reasoned balancing exercise are required for each case which necessitates that we consider the principles in the round and on a case-by-case basis. Where appropriate, we may also consider other relevant factors.

INVESTIGATIONS INTO COMPETITION CONCERNS INTO THE BEER MARKET

  8.  The beer and pub market has been examined comprehensively by competition authorities.

  9.  The beer market was referred to the (then) Monopolies and Mergers Commission (MMC) in August 1986. The MMC's 1989 report was born out of competition concerns about the extent of the tie between brewers and pubs and led to the beer orders.[53]

  10.  The OFT reviewed the beer orders in 2000[54] and, because of the changes in the beer supply and pub market, made recommendations to remove most of the provisions in them. The OFT found the market generally to be competitive. Both Orders were revoked in 2003.

  11.  In 2004 the OFT submitted evidence to the Trade and Industry Select Committee[55]. In the submission, the OFT noted that the European Commission and European Courts had considered in detail tied pub tenancy arrangements as operated in the UK. We concluded that the prohibition under Chapter I of CA98 of anti-competitive agreements (which is closely modelled on the equivalent prohibition under EC law) was not engaged and that there was no case for action under the market investigation provisions of the EA02.

  12.  In 2005 the Competition Commission blocked SEDL's takeover of Coors' technical services and equipment assets. In doing so, it suggested that the OFT should consider making a market investigation reference (MIR) to the Competition Commission of the supply of beer to retail outlets.

  13.  The OFT examined the case for a MIR of technical services and technical services equipment and the case for a MIR of the wider supply of beer sector.

  14.  The OFT found that a narrow market focus could not be justified because:

    —  there was inconclusive evidence of the presence of features which prevented, restricted, or distorted competition in connection with the supply of technical services equipment;

    —  no complaints from third party technical services providers had been received; and

    —  the scale of detriment in this aspect of the market was small.

  15.  The OFT also found that a wider market investigation could not be justified. We had examined the tied pub system in 2004 (see above) and examined the market for the distribution of draught beer as part of the assessment of the Interbrew/TradeTeam takeover in 2002 (which the OFT did not refer to the Competition Commission).

  16.  The OFT continues to examine beer and pub markets within its general duty to consider mergers in all sectors. For example, recent cases in this market include Punch/Avebury Holdings (2005), Greene King/Hardys and Hansons (2006) and Punch/Spirit (2006).[56] We are currently evaluating the anticipated acquisition by Inbev N.V/S.A of the Anheuser-Busch Companies Inc.

CONCLUSION

  17.  The beer and pub market has been examined extensively by the Competition Commission, the European Commission and OFT. We have received no evidence or complaints that lead us to alter the position we adopted before the Trade and Industry Select Committee in 2004 that there is no significant competition problem in relation to the beer and pub market.

12 November 2008







53   See the beer orders at http://www.opsi.gov.uk/si/si1989/Uksi_19892390_en_1.htm and http://www.opsi.gov.uk/si/si1989/Uksi_19892258_en_1.htm Back

54   See the Supply of Beer (OFT 317-December 2000) at http://www.oft.gov.uk/shared_oft/reports/comp_policy/oft317.pdf Back

55   See http://www.publications.parliament.uk/pa/cm200405/cmselect/cmtrdind/128/128ii.pdf, Volume I, at "Ev232" Back

56   See www.oft.gov.uk for all OFT decisions on mergers within the beer and pub market. Back


 
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