Consuming Issues: The cartels that keep cashing in on consumers
Saturday 15 May 2010
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
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.
- 1 Malaysia Airlines MH17 crash: Pro-Russian rebel 'admits to shooting down plane'
- 2 Israel has discovered that it's no longer so easy to get away with murder in the age of social media
- 3 Israel-Gaza conflict: The myth of Hamas’s human shields
- 4 Amy Winehouse unpublished 2004 interview: ‘Ten years from now I’ll be 30, so I’ll maybe have one baby’
- 5 Dutch paedophile club to fight their ban at the European Court of Human Rights
Malaysia Airlines flight MH17 crash: 'Nine Britons, 23 Americans and 80 children' feared dead after Boeing passenger jet is 'shot down' near Ukraine-Russia border
Malaysia Airlines MH17 crash: Vladimir Putin is given 'one last chance' to end hostilities in Ukraine
The 'scroungers’ fight back: The welfare claimants battling to alter stereotypes
The truth about conspiracy theories is that some require considering
Malaysia Airlines MH17 crash: Ukrainian military jet was flying close to passenger plane before it was shot down, says Russian officer
Malaysia Airlines MH17 crash: Massive rise in sale of British arms to Russia
iJobs Money & Business
£350 - £400 per day: Orgtel: PMO Analyst - Banking - London - £350 -£400 per d...
£300 - £350 per day + competitive: Orgtel: Cost Reporting Manager - MI Packs -...
£35000 - £40000 Per Annum plus 23 days holiday and pension scheme: Clearwater ...
£475 - £525 per day: Orgtel: Test Lead, London, Investment Banking, Technical ...
Day In a Page
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion
Enjoy summer by the Thames in this two double-bedroom converted warehouse in Rotherhithe village
A one-bedroom, luxury apartment with private gym and concierge service in Moorgate
A four-bedroom house in Hermitage Gardens with three reception rooms and landscaped gardens
A seven-bedroom Grade II-listed property with a separate self-contained apartment
A five-bedroom Victorian house with three reception rooms and galleried landing, £695,000
A six-bedroom farmhouse with five acres of land in a former cloth-making village
A secluded seven-bedroom detached house with large private garden, £490,000
A three-bedroom cottage overlooking Sarratt village green with open fires and solid oak floors
A three-bedroom maisonette flat in a Grade I-listed, Georgian townhouse in a sought-after location
A one-bedroom apartment located within a private gated development, north of Turnham Green
Look forward to a brighter future at two-bedroom Sunny Cottages, ideal for Londoners looking to downsize
A three-bedroom red-brick cottage with outbuildings and pretty gardens, £200,000
This three-bedroom flat within a former textile factory spans the corner of the fourth floor and has a balcony
A charming four-bedroom Oxfordshire cottage with oak floors and chunky-beamed ceilings, £465,000
A beautiful one-bed flat in a sought-after portered block, with access to Norland Square communal gardens
A one-bedroom flat within a Sixties school conversion with high-spec design and open-plan kitchen, close to Lambeth North Tube, £435,000
A 17th century four-bedroom house, with open fireplaces, cellar and pool, £600,000
A three-bedroom, coach house with luxury open-plan living space and contemporary breakfast bar