HC Deb 22 July 1980 vol 989 cc593-5W

The commission acknowledged that the present practices of BGC had provided the public with a nation-wide retail and advice service which the public had found of high value and which had concerned itself, to the great advantage of all, with ensuring that the supply of gas was safe. However, regarding the effects of BGC's monopoly on manufacturers of appliances the commission considered that BGC exercised excessive control over the conduct and performance of the appliance industry, and that, as dominant retailer, it was the principal arbiter of models offered to the public. The commission found that manufacturers were unduly subservient to BGC in that their designs gave undue weight to the BGC's views of marketability of certain characteristics—for example eye-level grills, electronic ignition. They accorded delivery and price preference to BGC and were so heavily dependent on its marketing that any change of BGC's market policy had a serious effect on their whole prospects. Indirectly, this had contributed to the industry's poor export performance, and had been a prime cause of conduct in restraint of competition within the industry. The level of dependence into which the appliance manufacturers had fallen restricted competition between manufacturers by reducing incentives to improve efficiency, and depressed investment, which in turn deprived consumers of the advantages of competition and so operated as a further disincentive to efficiency.

The commission found that BGC's domination of the retailing of these appliances had also had the effect of re-tricting competition in retailing. The commission noted that BGC had successfully insisted that manufacturers should increase price differentials in its favour and to the detriment of competing retailers; it had implemented the "Superflame" scheme, the effect of which after 1975 was to deny retailers other than BGC the right to stock many of the up-to-date cooker models in current production, and also some space heaters; BGC's insistence on delivery preference from the manufacturers and the occasions when it had cut prices to meet or beat retail com- petition which it saw as a threat to its own position had caused smaller retailers to find themselves unable to compete. For the buying public the effect of these practices and activities had been to limit the number of independent outlets supplying gas appliances, and thereby to suppress competition, to limit consumer choice and possibly to increase the price of appliances.

The commission also took into account BGC's conviction that, in the allocation of costs, appliance marketing was inextricably linked with promoting the sales of gas. The consequence was that some costs which, if incurred by an independent retailer, would have had to be regarded as costs of selling appliances had been regarded as costs of selling gas. This difference in the basis of calculating costs distorted competition between BGC and independent retailers.

The commission noted that the situation now appeared to be changing as larger retailers such as Currys, Comet, Co-ops and Trident had entered the market, as had a few more small retailers and builders' merchants. Their market share was modest but increasing slowly. The commission noted that BGC had changed its attitude to independents, particularly in the period since the inquiry was set up, and that the "Superflame" scheme was being phased out. The commission could not judge the reason for these developments; and BGC had not acknowledged any essential rethinking of its retailing policies. The commission could not ignore the possibility that the BGC might be tempted to employ again some of the commercial tactics which it had criticised. In the present circumstances the public was losing the benefit of competition. In the commission's view this made it impossible to know whether BGC's retailing system was cost-effective or provided for consumer demand at the cheapest prices; it appeared to threaten the longer-term efficiency and viability of the appliance industry.


In relation to the monopoly of Thorn Gas Appliances Ltd. (Thorn) in the supply of cookers the commission commented that it had no reason to believe that Thorn had been earning excessive profits. It also noted that Thorn's rate of investment had been rather higher than average in the industry and that Thorn had been more alert in organising itself to meet certain of the new demands emerging both in relation to home and export markets. With regard to pricing and selling policies, however, the commission noted that Thorn, in co-operating with policies introduced by BGC in 1973, had made increases in differentials against independent retailers comparable with those of other manufacturers and had appeared to give BGC first call on its production. The commission found it a matter for regret that Thorn had not felt able to adopt a more independent role, particularly in relation to sales to other retailers, and said that it could have used its power as the largest supplier with considerably more effect than it had. It accordingly concluded that the Thorn's monopoly in the supply of gas cookers had operated against the public interest in that the company had, by its pricing and selling policies, acted in such a way as to uphold the monopolies enjoyed by BGC in the supply of gas cookers and to discourage the growth of independent retailers.

On the complex monopolies in favour of members of the Society of British Gas Industries (SBGI) and the Gas Stove Makers Panel (GSMP) the commission noted that BGC's dominant position made it almost inevitable that the manufacturers should combine to protect their own interests. The activities of these groups had included discussions on the levels of differential between prices to be offered to BGC and those charged to other retailers, on the advance notice of price increases to be offered to BGC, and on matters connected with the entry to the retail market of the Co-operative Wholesale Society. Although satisfied that these discussions did not amount to an agreement the commission concluded that the complex monopoly situations had operated against the public interest in that they had tended to restrict competition and that they had served to support and enhance the BGC's monopolies.


The commission found that monopoly situations existed in favour of Thorn in relation to the supply of gas cookers; Thorn and Chaffoteaux Limited in relation to the supply of water heaters, and BGC in relation to the supply of cookers, water heaters and space heaters both by and to BGC. The commission also found that complex monopoly situations existed in relation to the supply of each of the three classes of goods in favour of all manufacturers who were members of SBGI and the GSMP.

The commission concluded that all the monopolies they found to exist, except those enjoyed by Thorn and Chaffoteaux in respect of water heaters, operated against the public interest.


The commission found that the adverse effects of those monopolies which operated against the public interest centred on the dominant position which BGC exercised as both a monopoly buyer and retailer of appliances, and that BGC's position was underlined by its role as the statutory supplier of the fuel. The commission has recommended either of two options to remedy the adverse situation created by the BGC monopolies as being worthy of consideration but has not expressed any opinion as to the choice between the two favoured options. However, the commission made no direct recommendations to remedy the adverse effects it found in relation to monopolists other than BGC, as it considered that remedying the adverse effects in respect of BGC would result in remedying the adverse effects of the other monopoly situations also.

The commission considered how the present position might be improved, and in particular looked at three possible changes: a. that BGC should discontinue its retailing functions and that the retailing of gas appliances should become exclusively a private sector activity; or b. that the retailing operation should be transferred to one or more distinct or virtualy distinct bodies, which should be separately accountable; or c. that there should be a modification of BGC's accounting and other procedures with a view to reducing its power in the retailing sector and thereby its influence over manufacturers. This would involve seeking more fully to achieve and taking further the objective of the Department of Trade and Industry in 1971 when it was decided that BGC should publish separate accounts for its appliance retailing and installation and contracting services. This might involve more precise directives setting out different and clearer arrangements for the allocation of costs and for BGC's accounting system, but leaving the retailing activities with BGC, as was agreed in 1971.

The commission considered the advantages and disadvantages of the three options in detail in paragraphs 13.88 to 13.106 of its report. Its conclusion was that the choice lay between the first and third courses. It rejected the second as retaining the possibility of many of the disadvantages of the present system, and as being unlikely to operate successfully.

The commission recorded that it recognised that the Government, in deciding what course to adopt in relation to BGC, might have to take into account political considerations on which the commission did not normally form a view. It therefore did not see fit to express any recommendation between what it described as the "radical" course ((a) above) and the "less radical" course ((c) above). It commented that it must be for Ministers, if it accepted the commission's view of the effect of the existing state of affairs upon the public interest, to decide which remedy to adopt. However, two Commission members—Miss Stephen and Mr. Ashford—expressed a preference for the less radical solution.

We welcome this comprehensive report by the Monopolies and Mergers Commission. The Government find its conclusions extremely interesting; and they will be swiftly examined, in the light of the public debate which will no doubt follow publication, with a view to taking appropriate measures.

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