Consuming Issues: The cartels that keep cashing in on consumers

A gambler would not back a horse in a race that has been nobbled by someone else, and the same is true of shoppers. One wouldn't knowingly buy goods whose price had been covertly fixed. Yet in recent years UK consumers have been scammed by several cartels – and we may only know the half of it.

One such price-fixing arrangement hit the headlines this week. Between 2004 and 2006, Virgin and British Airways secretly discussed the imposition of fuel surcharges on transatlantic routes. Over the two years, these charges rose from £5 to £60 per flight, adding £35m to fares. We know this because Virgin blew the whistle on the arrangement, in exchange for immunity from further action. There was no such exemption for BA, which was fined £121m by the Office of Fair Trading and £149m by the US Justice Department.

Such was the severity of the cartel that the OFT believed there was a criminal case to answer and, last month, it put four BA executives on trial accused of price-fixing. On Monday the four walked free from court with their "reputations unsullied", in the words of the trial judge, after the OFT said it would not have time to review 70,000 previously undisclosed emails sent by Virgin.

Why did the OFT bring this mishandled prosecution? Despite heavy criticism from the trial judge, the OFT insisted the case "was merited on both an assessment of the evidence and provided a realistic prospect of conviction". It also stated the outcome would not affect its previous civil case, unless it subsequently emerged that Virgin had withheld evidence, though it did not say this was so.

Aside from the scale of the BA- Virgin price-fixing, what was interesting about it was that it had been happening in a sector where there was said to be fierce competition. And there was an irony in the identity of one of the fixers, Virgin. Richard Branson, a public favourite, founded Virgin Atlantic in 1984 in a direct challenge to the dominance of BA and US carriers, who controlled the Atlantic routes. As a plucky underdog, Virgin had championed "open skies", successfully demanding access to Heathrow landing slots, whose granting led to a BA "dirty tricks" campaign in the early 1990s.

Yet here were BA and Virgin, supposedly the bitterest of rivals, discussing price rises just a decade later. (By coincidence, the OFT announced last month it was investigating whether Virgin had been colluding "over a number of years" with Cathay Pacific to fix fares between London and Hong Kong. The OFT has said that it was tipped off by Cathay, a commercial partner of BA.)

So, how common are cartels? How often are we, the public, cheated when we hand over money to companies? We have only fragmentary evidence. We know that the OFT has found several businesses entering covert price deals. In the past five years it has fined Asda, the tobacco giant Gallaher and others £173m for fixing the price of cigarettes, and Sainsbury, Asda and dairies £116m for fixing the price of milk. A current investigation involves the price of about 100 leading household product brands. Other cases have involved recruitment agencies and builders, including Mansell, a subsidiary of Balfour Beatty, which was fined £5.2m last year for rigging tenders for building contracts.

Julian Joshua, a lawyer at Howrey in Brussels, formerly a top cartel-buster at the European Commission, says price-fixing often involves manufacturing industries selling to other producers, who pass on the extra costs to their own customers. He told me that whatever the outcome of the OFT's criminal case "price-fixing does appear to be widespread" in spite of stronger enforcement, immunity programmes and heavy fines.

"Some cartel regulators think that for every cartel that's uncovered there are another five out there," he said. "So they believe that ideally you have to have to overpunish the ones you find in order to deter the others."

Heroes & villians

Some Direct action for ash cloud sufferers

Villain: Barclays

No need to read the leaked internal document on commission rates for staff, one of whom complained to a national newspaper about "a very high pressure environment." Instead read Barclays response: "Our staff are not incentivised to sell riskier, more expensive products.... 'Conquest' is a long-standing generic term for new business."

Hero: Direct Travel

A letter pops onto the doormat: Direct Travel is paying out to air passengers stranded by volcanic ash. Hats off to similarly generous Columbus Direct, Direct Line, HSBC/First Direct, Marks & Spencer, and Saga. Insurers who won't be paying out: AXA, Aviva, Endsleigh, Europ Assistance, and Swinton.

m.hickman@independent.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: Are you passionate about sale...

    Ashdown Group: Graduate Developer (Trainee) - City, London

    £25000 per annum + benefits: Ashdown Group: A large financial services company...

    Ashdown Group: Marketing Assistant - Financial Services Sector - London

    £20400 per annum: Ashdown Group: An established and highly reputable organisat...

    Recruitment Genius: Financial Services Graduate Training Scheme

    £20000 - £100000 per annum: Recruitment Genius: We are a successful and establ...

    Day In a Page

    War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

    Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

    Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
    Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

    'A subversive brothel keeper and Communist'

    Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
    Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

    BBC heads to the Californian coast

    The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
    Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

    Victorian fraudster who shook the Bank of England

    Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
    Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

    Car hacking scandal

    Security designed to stop thieves hot-wiring almost every modern motor has been cracked
    10 best placemats

    Take your seat: 10 best placemats

    Protect your table and dine in style with a bold new accessory
    Ashes 2015: Alastair Cook not the only one to be caught in The Oval mindwarp

    Cook not the only one to be caught in The Oval mindwarp

    Aussie skipper Michael Clarke was lured into believing that what we witnessed at Edgbaston and Trent Bridge would continue in London, says Kevin Garside
    Can Rafael Benitez get the best out of Gareth Bale at Real Madrid?

    Can Benitez get the best out of Bale?

    Back at the club he watched as a boy, the pressure is on Benitez to find a winning blend from Real's multiple talents. As La Liga begins, Pete Jenson asks if it will be enough to stop Barcelona
    Athletics World Championships 2015: Beijing witnesses new stage in the Jessica Ennis-Hill and Katarina Johnson-Thompson heptathlon rivalry

    Beijing witnesses new stage in the Jess and Kat rivalry

    The last time the two British heptathletes competed, Ennis-Hill was on the way to Olympic gold and Johnson-Thompson was just a promising teenager. But a lot has happened in the following three years
    Jeremy Corbyn: Joining a shrewd operator desperate for power as he visits the North East

    Jeremy Corbyn interview: A shrewd operator desperate for power

    His radical anti-austerity agenda has caught the imagination of the left and politically disaffected and set a staid Labour leadership election alight
    Isis executes Palmyra antiquities chief: Defender of ancient city's past was killed for protecting its future

    Isis executes Palmyra antiquities chief

    Robert Fisk on the defender of the ancient city's past who was killed for protecting its future
    Berlusconi's world of sleaze: The astonishing lifestyle once enjoyed by Italy's former PM

    Berlusconi's world of sleaze

    The astonishing lifestyle once enjoyed by Italy's former PM
    Disney plans galactic domination with endless Star Wars spin-offs

    Disney plans galactic domination with endless Star Wars spin-offs

    Films and theme parks are just the beginning. Disney believes its control of the now decades-old franchise can bring in merchandise and marketing millions for years to come
    Could the golden age of the gaming arcade ever be revived in the era of the Xbox?

    Could gaming arcades be revived?

    The days when coin-ops were the only way to play the latest video games are gone. But a small band of enthusiasts are keeping the button-pushing dream alive
    Edinburgh Fringe 2015: The 'tampon tax' has inspired a new wave of female comedians to reclaim period jokes

    Heard the one about menstruation?

    Yes, if you have been at the Fringe, where period pieces are taking centre stage