Outlook: OFT challenge

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The Independent Online
REMEMBER THE cement cartel? Every year, Britain's three cement producers (four until one was taken over by another) sat round a table and discussed by how much each other's costs had risen that year. The more costs rose, the more the price of cement would be increased to compensate. To the extent that there was any competition at all, it was determined only by speed of delivery and quality of service.

Astonishingly, this cartel continued to exist in publicly blessed form right up until the mid-1980s. It is hard to recall all these years later what the supposed public benefits were meant to be, but it had something to do with maintaining the quality of the product so that our buildings didn't fall down, and so that customers could rely on a guaranteed maximum price however far from the cement works they were.

All this sounds very old-fashioned thinking. But the truth of the matter is that there still are only three cement producers in the UK. They don't meet in smoke filled rooms to discuss costs any longer, and considerable improvements in efficiency have been achieved as a result of price competition. But nor can the industry be seen as a properly competitive one.

All three understand and know each other's businesses perfectly and like petrol retailers, the cement producers tend to move their prices in line with one another. In a sense, they don't need formally to act as a cartel in order to carry on effectively being one. Moreover, they all enjoy a degree of local monopoly which makes fully fledged competition virtually impossible.

Cement is perhaps an extreme example but similar monopolistic abuse of the market continues to exist across a whole range of other businesses. Often what passes for vibrant competition at national level, with participants appearing to have publicly acceptable market shares, gives way to extreme market dominance at a local level.

Gordon Brown, the Chancellor, is right to want to root out and attack these continuing monopolies. They may not be the main cause of Britain's poor record on productivity and efficiency, but they are certainly a part of it.

Less clear is whether boosting the Office of Fair Trading's budget by a fifth is going to do much to correct the position. One thing Mr Brown and Peter Mandelson at the Department of Trade and Industry can do, however, is to put the brakes on future industry consolidation. It will be hard for them legitimately to break up existing dominant market positions, but they can do more to address abuse of those positions. They might usefully start with predatory pricing in the national newspaper market.

Nonetheless, these are difficult issues, for the pressure for consolidation across a vast swathe of business is now greater than ever. Moreover, most of it is justified in the name of greater efficiency and competitiveness. Never before has the central dilemma of competition policy been put more starkly. Free market purists insist that only vibrant competition is capable of the job and wealth creation all politicians crave; but many business leaders insist that only by becoming bigger and more dominant can they compete adequately on the global stage.

The rhetoric in Tuesday's pre-Budget statement and report could hardly have been clearer. Mr Brown is a cartel-busting Chancellor who believes competition provides the best route to prosperity. For all those planned consolidating mergers, the message is uncomfortable. Why, Mr Brown is so worried about competition in retail banking, where margins remain excessive, that he's appointed Don Cruickshank to undertake one of those dastardly government reviews.

Plainly the Government will continue to allow some deals to pass through the net. But if anyone still harbours hopes of a Barclays/ NatWest, or even a Halifax/Royal Bank of Scotland get-together, they can probably forget it.