George Pitcher: The toothless teddybears of competition regulation

National competition regulation is ineffective and irrelevant to today’s economy. It’s time for it to be regulated on a pan-European level, argues George Pitcher

Two years ago, I argued here that the Office of Fair Trading’s (OFT) suspicion that the UK superstore chains were using their power over suppliers to over-charge customers, had been voiced five years too late.

Central to my argument was that the British retail market had become considerably more complex and impenetrable. For one thing, while market researchers at AGB were able to “prove” that Tesco had an overall market share of 25 per cent, followed by Sainsbury at 20 per cent, with the majors overall apparently enjoying a stranglehold of more than 70 per cent, the superstores’ sector-by-sector market shares were a good deal more fragmented.

For another, the way in which the Office of National Statistics (ONS) compiled figures for high-street sales volumes, which in turn were used to calculate the retail prices index, was deeply flawed. Further, higher UK margins were justifiable because the cost of capital in continental markets was much lower – giving the lie to claims of sharp practice by the superstore chains.

The OFT decided to refer the issue to the Competition Commission which, in the intervening two years, finally decided that the British superstores don’t have much of a case to answer.

The Commission’s report concludes that profits earned by supermarkets “could not be considered excessive”, which indicates that suppliers aren’t being ripped off, and that “overall, excessive prices are not being charged”, meaning that a rip-off isn’t being perpetrated at the consumer end of the market either. I think one of the most telling statistics to emerge from the report – and one that should exercise what is left of the ONS – is that food prices in real terms declined by 9.4 per cent between 1989 and 1998.

Even where the report is critical of the superstores, it’s like being savaged by a teddy bear with its dentures out. The practice of selling items below cost is damaging to smaller stores (you don’t say!) and the Commission is worried about the practice of supermarkets charging differential prices across the country depending on the intensity of local competition. Oh, and there’s some stuff about asking the OFT’s permission before building stores within 15 minutes’ drive of existing outlets to avoid local monopolies developing. But the report recommends no other action.

Pusillanimous isn’t the word. The report was described on Monday as “a bit of a damp squib”. Damp squib? This report makes damp squibs look like what went off in Sydney harbour on Sunday night.

This is not to say that I think that the Commission should have been more robust in its review of the superstore industry. There probably was a case for examining superstore practices a decade ago. But for the competition authorities to have taken so long and to have achieved so little is like reporting ten years from now that Greek ferry services are safe. The time at which the inquiry could have been of use has passed.

There will be recriminations over all of this. Trade secretary Stephen Byers – who already has a reputation for being fantastically inept on competition issues, earning himself the soubriquet “Bozo” – will be accused by the superstore majors of wasting taxpayers’ money. Bozo’s position will be all the tougher on this one since the Government was an enthusiastic opponent of “Rip-off Britain”.

But the bigger question must be what role UK regulators should now play. British utility regulators were once said to be the envy of the world, rather like the National Health Service, but I’m not so sure. I think that the privatisation programme was once the envy of the world and the regulators were wrapped up in that global Thatcherite hero-worship. But what is certain is that British regulation is now a trans-national bugbear, a hindrance to inward investment.

Oftel, for example, has taken a hammering for apparently being in the pocket of BT, which is said to have exerted pressure to protect the local loop from foreign competition. In telecoms, the UK just can’t get it right. At privatisation, British Telecom was prevented from taking advantage of its monopoly and we had to endure the ridiculous spectacle of Mercury phone-boxes until market forces sorted out the industry. Now BT is said to be beating up on the regulator.

Similar stories of ineptitude and ineffectiveness emerge in the water, energy and rail industries. A case has been made for combining all regulators into a super-regulator, perhaps a revamped OFT. Heaven forbid. I think that what all this tells us is that national competition regulation is increasingly inappropriate. Regulation from Brussels may be the political bogey of the next election, but at least the EU is equipped to examine the bigger picture of international trade in a way that domestic competition authorities simply cannot. I say let competition regulation go to Europe.

George Pitcher is a partner of issue management consultancy Luther Pendragon

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