Fines Levied on Imperial Tobacco, Gallaher, and Five UK Cigarette Retailers
An Office of Fair Trading investigation into price fixing resulting in fines totaling £132 million for Imperial Tobacco, Gallaher and five tobacco retailers, ASDA, First Quench, One Stop Stores, Somerfield, and TM Retail, this past July. Six other corporations are implicated, but dispute the OFT’s findings.
Imperial is the world’s fourth-largest tobacco producer and the UK’s second largest. It is behind many popular cigarette lines, including Lamber & Butler, John Player Special and Superkings, and boasts a distribution license for Malborough. Gallaher is the largest tobacco producer in the Kingdom, behind brands such as Benson & Hedges, and was acquired by Japan Tobacco in 2007. The two together account for nearly 85% of the Kingdom’s cigarette and tobacco product sales, and each the two conglomerates possess substantial international market share.
OFT officials have concluded that cartel was responsible for a large tobacco price fixing operation. Cartel members are alleged to have raised prices cooperatively according to a pre-ordained schedule and fee, and to have minimized competition among the retailers.
Gallaher was hit with the largest fine, £93 million. The OFT is authorized to impose fines up to 10 percent of a cartel member’s annual profits.
J Sainsbury, a sixth corporation involved in the cartel, is receiving reduced fines as part of the Kingdom’s leniency program. Corporations who acknowledge involvement in a cartel and provide full cooperation with an anti-trust investigation may see fines reduced up to 10 percent. The European Commission offers a similar program for inter-state anti-trust involvement.
The cartel’s anti-competitive commercial behavior is believed to have distorted prices for cigarettes in the UK, which are among the highest in the world. The cost for a pack of 20 cigarettes commonly costs around £5. Taxes make up much of the cost, but tobacco remains a lucrative market as profit margins are estimated at approximately 50 percent.
The investigation was originally spurred by evidence that Imperial’s Rizla tobacco rolling papers were being sold at anti-competitive prices. Other tobacco manufacturers including British American Tobacco were investigated for a vertical price fixing agreement but have not been implicated in the final report.
The Office of Fair Trading is the United Kingdom’s premiere competition improprieties regulator, and has been responsible for dozens of successful investigations in previous years. Its reach has recently seen sustained growth in both breadth of investigative authority and the ability to pursue punitive measures. It is increasingly cooperating with international anti-trust bodies. Executives responsible for the conduct of cartel members in the now face the additional penalty of criminal proceedings under the UK’s Enterprise Act.
About the author: Jason Hardy is an avid writer on legal issues, including international writing about many subjects including european antitrust lawsuits. Eu competition law interests Jason particularly. He resides in Seattle, Washington.
Imperial is the world’s fourth-largest tobacco producer and the UK’s second largest. It is behind many popular cigarette lines, including Lamber & Butler, John Player Special and Superkings, and boasts a distribution license for Malborough. Gallaher is the largest tobacco producer in the Kingdom, behind brands such as Benson & Hedges, and was acquired by Japan Tobacco in 2007. The two together account for nearly 85% of the Kingdom’s cigarette and tobacco product sales, and each the two conglomerates possess substantial international market share.
OFT officials have concluded that cartel was responsible for a large tobacco price fixing operation. Cartel members are alleged to have raised prices cooperatively according to a pre-ordained schedule and fee, and to have minimized competition among the retailers.
Gallaher was hit with the largest fine, £93 million. The OFT is authorized to impose fines up to 10 percent of a cartel member’s annual profits.
J Sainsbury, a sixth corporation involved in the cartel, is receiving reduced fines as part of the Kingdom’s leniency program. Corporations who acknowledge involvement in a cartel and provide full cooperation with an anti-trust investigation may see fines reduced up to 10 percent. The European Commission offers a similar program for inter-state anti-trust involvement.
The cartel’s anti-competitive commercial behavior is believed to have distorted prices for cigarettes in the UK, which are among the highest in the world. The cost for a pack of 20 cigarettes commonly costs around £5. Taxes make up much of the cost, but tobacco remains a lucrative market as profit margins are estimated at approximately 50 percent.
The investigation was originally spurred by evidence that Imperial’s Rizla tobacco rolling papers were being sold at anti-competitive prices. Other tobacco manufacturers including British American Tobacco were investigated for a vertical price fixing agreement but have not been implicated in the final report.
The Office of Fair Trading is the United Kingdom’s premiere competition improprieties regulator, and has been responsible for dozens of successful investigations in previous years. Its reach has recently seen sustained growth in both breadth of investigative authority and the ability to pursue punitive measures. It is increasingly cooperating with international anti-trust bodies. Executives responsible for the conduct of cartel members in the now face the additional penalty of criminal proceedings under the UK’s Enterprise Act.
About the author: Jason Hardy is an avid writer on legal issues, including international writing about many subjects including european antitrust lawsuits. Eu competition law interests Jason particularly. He resides in Seattle, Washington.
Labels: eu competition law, eu law, european antitrust lawsuits
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