Supermarkets to face monopoly investigation

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BRITAIN'S pounds 60bn supermarket industry is facing another lengthy investigation into alleged profiteering after the Office of Fair Trading yesterday referred the sector to the Competition Commission.

The commission has been given 12 months to report on whether a monopoly exists amongst the supermarkets and whether they exploit that power against the public interest.

The referral follows an eight-month investigation by the OFT into the big four supermarkets - Tesco, Sainsbury's, Asda and Safeway. It indicated last month that a referral was likely. The investigation by the Competition Commission, formerly known as the Monopolies and Mergers Commission, has been widened to include all UK food retailers with more than 10 stores.

John Bridgeman, the director general of the OFT, said: "After analysing the profits of the four largest supermarket chains ... I have to conclude that there is a level of profitability here which requires further investigation."

He added that the OFT inquiry had raised several competition issues. They include the extent of barriers to entry; the extent to which land prices and site availability affects the cost structure of competing firms; the intensity of price competition at a local, regional and national level and the relationship between big multiples and their suppliers, including farmers.

Mr Bridgeman said the supermarkets had become increasingly powerful but that he had been concerned for some time "that this power might have become exploitative".

The big supermarkets reacted calmly to the news, which had been expected. Tesco said it had "every confidence" that the inquiry would give the industry a clean bill of health. Asda said it had "nothing to fear", indicating it had been told by the OFT there would be no problem if the rest of the industry's profit margins were like Asda's.

Some supermarkets complained that the investigation was politically motivated as the Government champions the cause of price comparisons ahead of the UK's potential adoption of the euro. They also said the economic model used by the OFT to examine prices has been "inadequate".

Supermarket shares were unruffled by the news with Asda trading slightly higher.

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