Latest move renews debate over 'predatory pricing'

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The Independent Online
THE latest twist in the newspaper price war seems certain to attract the renewed attention of the Office of Fair Trading, which has been monitoring the industry since the Times's first cover price cut in September last year, from 45p to 30p.

That prompted a complaint to Sir Bryan Carsberg, director-general of fair trading, from the Independent, that News International, publisher of the Times, was engaging in 'predatory pricing', where a company deliberately sells products at a loss to drive weaker competitors out of a market.

Last October, following an informal investigation, Sir Bryan decided against instigating a formal inquiry in relation to the Times's price cut. He said he did not find it to be 'predatory' but a commercial decision. But he made it clear he would keep a watch on the industry, and might reconsider his decision if circumstances changed.

Yesterday, legal experts said they thought it likely the latest round of price cuts was likely to prompt Sir Bryan to look again at the issue.

In considering whether a company is engaging in predatory pricing - an issue which can be looked at either under the Competition Act 1980 or the Fair Trading Act 1973 - the OFT considers three issues:

The relationship between the cost of a product and its price. Of particular interest is whether behaving in a predatory fashion would be a 'sensible and feasible' business strategy;

The structure and characteristics of the market;

The intentions of the predator company.

A key element in establishing some of these criteria is the profitability - or otherwise - of pricing decisions. An important issue for Sir Bryan may therefore be the extent to which losses deepen at News International, which has already seen profitability in its UK newspapers fall by one-third as a result of its earlier price cuts. The first Times price cut to 30p is thought to have cost News International about pounds 17m a year; the further cut to 20p is expected to cost it an estimated pounds 15m.

According to industry sources, News International, which was relatively close to break-even with a 30p cover price for the Times, will now lose about 15p on each copy of the Times it sells for 20p - total production costs of 52p a copy are mitigated by the 20p cover price, and 17p of advertising revenues, leaving a 15p loss.

If the OFT were to go for an investigation under the Competition Act, it would be in two parts, first by the OFT and then by the Monopolies and Mergers Commission. But it could take more than a year to complete.