Monopolies and Mergers Commission (Hansard, 25 February 1987)

§ Mr. Howard

The report is published today.

The commission found that a monopoly situation existed in favour of TWIL Limited and its subsidairies, which in 1984 together supplied two thirds of the £42 million United Kingdom market for steel wire fencing (SWF), defined as comprising barbed wire, chain link, stock fencing, welded mesh, wire netting and plain wire fencing. the remaining third was supplied in roughly equal proportions by 19 other (independent) United Kingdom producers and by imports. SWF accounted for 25 to 30 per cent. of the wider fencing market.

The commission concluded that only one of TWIL's practices—that of paying secondary rebates to certain 300W distributers—was a step taken to maintain its monopoly situation, but since this method of price discrimination has been discontinued the commission found that it did not operate against the public interest. The last matter apart, the commission did not find that there had been any action or omission on the part of TWIL which was attributable to the monopoly situation, nor any facts which operated or might have been expected to operate against the public interest.

The commission also concluded that in spite of its dominant position in the SWF market TWIL faced a significant degree of competition because of the availability of substitute products, persistent overcapacity, relatively easy entry into the market, and the incidence of imports.

Although they found no evidence that TWIL priced below its estimates of total costs, they found that TWIL seemed to have priced according to what the market would bear. This was reflected in its varying profit margins for the different reference products. The commission also found that TWIL had responded to rather than initiated price competition. One result of this was that it had experienced a significant loss of market share. The company had also experienced a decline in return on capital, from over 26 per cent. for SWF in the two years ended 31 July 1984, to 21.2 per cent. in the following year. This could not now, in the commission's view, be regarded as excessive. Having taken these matters into account the MMC considered that TWIL's pricing policy had not been a step taken to exploit the monopoly situation. It suggested, however, that it would be in the company's own interests to publish full details of its standard wholesale discounts and its rebates with its price lists.

The commission was disturbed by the weight of complaints about TWIL's commercial practices. The commission received and investigated 83 complaints from 38 firms, most significantly about difficulties in obtaining steel wire, aggravated by TWIL's alleged refusal to supply on reasonable terms; and about TWIL's pricing and marketing policies.

Problems over the supply of steel wire disappeared during the inquiry and the commission concluded that there is at present effective competition between TWIL and other steel wire suppliers. TWIL assured the commission of its willingness to supply the independent producers at reasonable prices. The commission attached great importance to this and said that the provisions of the Competition Act 1980 could be invoked if TWIL failed to supply steel wire on a satisfactory basis. The Director General of Fair Trading has indicated that he would be prepared to make full use of his powers under the competition legislation if these problems recurred.

The largest number of complaints which the commission received was to the effect that TWIL's policy was to deal directly only with a limited number of distributors. TWIL said that it was willing to deal on wholesale terms with any distributor which met its criteria. The commission believe that TWIL's stated criteria for selection of wholesalers are reasonable. Nevertheless, the commission suggested that TWIL should explain its reasons for refusing wholesale terms to potential customers, and TWIL has agreed to do this.

I accept the findings of the commission's report. Because the commission found that the monopoly situation under reference did not operate against the public interest, there is no statutory basis on which to take 301W further action. However, I attach importance to the assurance given by the company to the commission that it would supply steel wire to independent producers of steel wire fencing at reasonable prices. The commission also made some suggestions about TWIL's dealings with its wholesalers which I hope the company will adopt.