Industry View: Predatory proprietors revel in a tussle with the law

Did you read the Times on Monday? At just 10p you could pick up several with the loose change from a packet of cigarettes. Of course Mr Murdoch is not making a profit from his latest gimmick - but keeping the daily cover price at 20p wasn't too profitable either, and he kept that up for 16 months. For all the rise in prices at the end of last year, it seems that the newspaper cover-price war is back with us once more.

Mr Murdoch's News International has been accused of unethical and anti- competitive behaviour; subsidising price cuts with profits earned elsewhere in order to bully and destroy other competitors. Predatory pricing, it's called.

The Office of Fair Trading disagrees. Called in to investigate when the Times and the Telegraph cut their prices in the summer of 1994, the then director general, Sir Bryan Carsberg, concluded that there was nothing to worry about.

It would be easy to see this as another British failure to enforce competition. Could it be that we should change our method for catching predators - perhaps along US or European lines?

Sadly it isn't as easy as that. There is, in Sir Bryan's words, "a fine line between aggressive competition and predatory behaviour". No matter how tough your laws, it can often be hard to distinguish between the two. And no matter how malign you may believe Mr Murdoch's intentions, it's almost impossible to pin anything on him.

Predatory pricing is a problem for competition authorities because in the end it is anti-competitive. Big dominant companies cut their prices to get rid of a small irritating competitor. Although both make losses in the short run, the big guy has the financial resources (the deep pockets) to hold out for longer, and the smaller company is pushed out of business. The most effective and efficient predation is swift and silent; competitors will decide quickly that they cannot win, and quietly bale out to cut their losses. Or - if they are potential competitors - they will not enter the market at all. Having dealt with the young whipper-snapper, the big bruiser can raise its prices - and its profits - once more to compensate for those earlier losses. The consumer ends up with less choice and higher prices.

Luckily for that put-upon consumer, the occasions when predation works to get rid of existing companies are extremely limited. Aggressive price wars in practice are often risky and counter-productive. If the ferocious little guy turns out to have deep pockets itself, it might decide to call the predator's bluff. And even if the victim retreated, bloodied, what would stop someone else entering the market and starting the whole chain all over again?

Companies considering predatory strategies need to feel confident that they won't topple straight into another expensive battle - perhaps because it is costly for someone new to enter the market, or because the ruthless reputation of the incumbent is too intimidating. They need also to believe they can prey covertly, without the OFT or the Monopolies and Mergers Commission catching them at it.

In the circumstances you might expect to see little evidence of predatory behaviour in practice at all. Not so. Thanks to bus deregulation in the mid-Eighties, those double-deckers and mini-buses have been at it like crazy in towns across the country. Of the eight OFT reports dealing with predation between 1988 and 1995, seven were on buses. From Inverness to Darlington, Fife to Southend-on-Sea, bus companies have engaged in all kinds of furious strategies to achieve market dominance and push each other off the streets.

When the OFT reported on Darlington buses last year, it concluded that United Bus - unlike the Times - was guilty of predatory pricing.

For a start, United was pursuing a strategy which increased its losses. When Your Bus, a new company, started up minibuses on certain Darlington routes, United Bus went ballistic. Although it didn't cut ticket prices, it did stuff the streets with extra buses of its own. According to the allegations, United minibuses even hung out on street corners to nip out in front of an on-coming Your Bus and nick all the passengers at the next bus-stop. The OFT calculated that running the extra 13 buses cost United over pounds 10,000 a month.

So far the Times would seem as guilty as United. It too increased its losses with the 20p cover price - although circulation rose from 358,000 in 1993 to around 660,000 today. And Mr Murdoch is certainly losing money on the 10p Monday edition. After all, the Times has to pay 10.4p for every copy to retailers and wholesalers.

But this in itself is not enough to find Mr Murdoch (or United) guilty of predatory behaviour. Loss-making strategies can still be competitive if they are designed to push up demand for the product to profitable levels, regardless of what anyone else is doing. Suppose, for example, the cheap Times on Monday pushes sales up throughout the week, it could be a legitimate strategy for reducing losses - a "loss leader", as it is sometimes known. Similarly the OFT adjudicated that the Times' original price cuts were a legitimate strategy to boost circulation in the face of continuing losses.

So the OFT goes searching for further evidence. The next important question is whether the companies really have market power to manipulate. United clearly was a dominant player, with its 45 per cent of Darlington bus rides. The Times has only 28 per cent of the broadsheet market - 12 per cent if you include the Express and the Mail. Even if the Independent was pushed out altogether and the Times acquired all our readers, it would still only eat up 17 per cent of the larger market. This, for Sir Bryan Carsberg, was decisive in showing that Rupert Murdoch could not be guilty of predatory pricing. If one newspaper had indeed been knocked out of the game,Sir Bryan believed competition from the remaining papers would not allow the Times to make "supra-normal" profits by pushing prices up high afterwards anyway.

In other words, as far as the OFT was concerned, predatory pricing was not a feasible strategy in the broadsheet newspaper market. The evidence appears to prove it right, if for different reasons. Price, it appears, is not sufficient on its own to win and keep readers. The Independent still survives. The Daily Telegraph - perhaps the real target or Mr Murdoch's price cuts - still sells more than a million copies each day.

So why does he keep on cutting, if he isn't making profits and he isn't pushing anyone else out of the picture? Who knows? The fact that we can't pin predatory behaviour on him is because it isn't working. It is not because our competition policy is inadequate. Should things change in the newspaper industry in future, however, the real failing in current policies on predatory pricing may become apparent. By the time the OFT reported on Darlington, Your Bus had already gone out of business and the entire market had changed. Were a Times predatory pricing strategy really to prove effective, a competitor could be long gone before the OFT ever got round to pointing out the anti-competitive practices.

As John Bridgeman, the current director of the OFT, pointed out in a lecture last month, "stronger investigatory powers and some form of interim measures", would be a help. It's all very well for economists to decide only in retrospect whether predatory pricing is taking place or not. Consumers and producers in the industry need protection rather faster than that.

News
i100
News
people Emma Watson addresses celebrity nude photo leak
News
Katie Hopkins appearing on 'This Morning' after she purposefully put on 4 stone.
peopleKatie Hopkins breaks down in tears over weight gain challenge
News
peopleHis band Survivor was due to resume touring this month
PROMOTED VIDEO
Arts and Entertainment
Robert De Niro, Martin Scorsese and DiCaprio, at an awards show in 2010
filmsAll just to promote a new casino
News
i100
News
people'It can last and it's terrifying'
News
In this photo illustration a school student eats a hamburger as part of his lunch which was brought from a fast food shop near his school, on October 5, 2005 in London, England. The British government has announced plans to remove junk food from school lunches. From September 2006, food that is high in fat, sugar or salt will be banned from meals and removed from vending machines in schools across England. The move comes in response to a campaign by celebrity TV chef Jamie Oliver to improve school meals.
science
Arts and Entertainment
tv
Life and Style
fashionModel of the moment shoots for first time with catwalk veteran
News
ebooksAn unforgettable anthology of contemporary reportage
News
i100
Sport
Tom Cleverley
footballLoan move comes 17 hours after close of transfer window
Sport
Alexis Sanchez, Radamel Falcao, Diego Costa and Mario Balotelli
footballRadamel Falcao and Diego Costa head record £835m influx
Life and Style
fashionAngelina Jolie's wedding dressed revealed
News
Boris Johnson may be manoeuvring to succeed David Cameron
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

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

iJobs Job Widget
iJobs Money & Business

C#.NET Developer

£500 per day: Harrington Starr: C#.NET Developer C#, WPF, WCF, ASP.NET, Prism...

Web Developer/UI Developer (HTML5, CSS3,Jquery) London

£55000 - £65000 per annum: Harrington Starr: A Global Financial Service Organi...

Data Scientist (SQL, PHP, RSPSS, CPLEX, SARS, AI) - London

£60000 - £70000 per annum: Harrington Starr: A prestigious leading professiona...

C# Web Developer (C#, MS Dynamics CRM, SQL, SQl Server) London

£40000 - £50000 per annum: Harrington Starr: A Global Financial Service Organi...

Day In a Page

'I’ll tell you what I would not serve - lamb and potatoes': US ambassador hits out at stodgy British food served at diplomatic dinners

'I’ll tell you what I would not serve - lamb and potatoes'

US ambassador hits out at stodgy British food
Radio Times female powerlist: A 'revolution' in TV gender roles

A 'revolution' in TV gender roles

Inside the Radio Times female powerlist
Endgame: James Frey's literary treasure hunt

James Frey's literary treasure hunt

Riddling trilogy could net you $3m
Fitbit: Because the tingle feels so good

Fitbit: Because the tingle feels so good

What David Sedaris learnt about the world from his fitness tracker
Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Saudis risk new Muslim division with proposal to move Mohamed’s tomb

Second-holiest site in Islam attracts millions of pilgrims each year
Alexander Fury: The designer names to look for at fashion week this season

The big names to look for this fashion week

This week, designers begin to show their spring 2015 collections in New York
Will Self: 'I like Orwell's writing as much as the next talented mediocrity'

'I like Orwell's writing as much as the next talented mediocrity'

Will Self takes aim at Orwell's rules for writing plain English
Meet Afghanistan's middle-class paint-ballers

Meet Afghanistan's middle-class paint-ballers

Toy guns proving a popular diversion in a country flooded with the real thing
Al Pacino wows Venice

Al Pacino wows Venice

Ham among the brilliance as actor premieres two films at festival
Neil Lawson Baker interview: ‘I’ve gained so much from art. It’s only right to give something back’.

Neil Lawson Baker interview

‘I’ve gained so much from art. It’s only right to give something back’.
The other Mugabe who is lining up for the Zimbabwean presidency

The other Mugabe who is lining up for the Zimbabwean presidency

Wife of President Robert Mugabe appears to have her sights set on succeeding her husband
The model of a gadget launch: Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed

The model for a gadget launch

Cultivate an atmosphere of mystery and excitement to sell stuff people didn't realise they needed
Alice Roberts: She's done pretty well, for a boffin without a beard

She's done pretty well, for a boffin without a beard

Alice Roberts talks about her new book on evolution - and why her early TV work drew flak from (mostly male) colleagues
Get well soon, Joan Rivers - an inspiration, whether she likes it or not

Get well soon, Joan Rivers

She is awful. But she's also wonderful, not in spite of but because of the fact she's forever saying appalling things, argues Ellen E Jones
Doctor Who Into the Dalek review: A classic sci-fi adventure with all the spectacle of a blockbuster

A fresh take on an old foe

Doctor Who Into the Dalek more than compensated for last week's nonsensical offering