Memorandum submitted by the Office of
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.
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
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
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.
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.
10. The OFT reviewed the beer orders in
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.
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
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
We are currently evaluating the anticipated acquisition by Inbev
N.V/S.A of the Anheuser-Busch Companies Inc.
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
See the Supply of Beer (OFT 317-December 2000) at http://www.oft.gov.uk/shared_oft/reports/comp_policy/oft317.pdf Back
Volume I, at "Ev232" Back
See www.oft.gov.uk for all OFT decisions on mergers within the
beer and pub market. Back