Match Industry (Commission's Report) (Hansard, 13 May 1953)

§ Mr. P. Thorneycroft

The report was published today.

The Commission have found that conditions to which the Monopolies and Restrictive Practices (Inquiry and Control) Act, 1948, applies prevail as respects both the supply and export of matches and the supply of match-making machinery. About 87 per cent. of all matches (including imports) supplied in the United Kingdom are supplied by the group of firms controlled by the British Match Corporation Ltd. (B.M.C.). Agreements restricting competition in relation to exports are operative as respects all matches produced by the group; and about 86 per cent. of all match-making machinery supplied in the United Kingdom is supplied to members of the group.

Describing the relationship between B.M.C. and the Swedish Match Co. (Swedish Match), whose world-wide match-manufacturing interests (allied to production of match-making machinery) include a 30 per cent. interest in B.M.C.'s equity capital, the Commission report that trading agreements between the two "partners" provide for the sharing of certain markets, including the British 79W Isles, and, in effect, assign all other markets (except the United States of America) to one party or the other. One of these complementary agreements—the Trading Agreement (British Isles)—provides for B.M.C. subsidiaries to have the sole agency for imports supplied to this market from the Continental factories controlled by Swedish Match, with the right to determine the prices at which these matches are sold; for division of sales in an agreed ratio between these imports and matches produced by B.M.C.'s manufacturing subsidiaries; and for payment of compensation on either party's excess sales.

The agreements provide for a full exchange of technical information, and B.M.C. are to enjoy access on the most favourable terms to machinery from Swedish Match: such machinery must not be supplied to firms competing with B.M.C. either here or overseas.

In the home market, about two-thirds of the supplies of matches are at present home produced and one-third imported. Of the home production, B.M.C. and its associates contribute about 95 per cent:; and as sole selling agents for Swedish Match, B.M.C. companies import and distribute about 85 per cent. of the imports. B.M.C. also has important interests in firms supplying materials and machinery for match manufacture.

The Commission conclude that the arrangements they describe form a complete and integrated monopoly and need to be judged as a whole. They give full weight to B.M.C.'s arguments in support of their contention that the system was built up to prevent the possible collapse of the British match industry and has been advantageous not only to the shareholders of B.M.C, but also to the nation; and, as regards the arrangements for markets outside the British Isles (governed by the provisions of the Trading Agreement (Overseas)), the Commission say (paragraph 209) that it seems to them "extremely doubtful" whether free competition in these markets would increase this country's earnings from the match trade. Thus they cannot say that the Trading Agreement (Overseas) considered by itself is operating against the public interest.

Nevertheless, they find that the present system as a whole 80W operates, and is likely to operate, against the public interest as respects the supply both of matches and match-making machinery.

They base this conclusion on the following main grounds:

(i) the absence of competition amongst manufacturers within the United Kingdom, and between these manufacturers and the principal importers to this market, has resulted in profits, prices and at times costs being higher than they would otherwise have been;
(ii) the development of competition by independent British match manufacturers has been hampered by inability to buy machinery from manufacturers controlled by Swedish Match and by local under-selling of competitors, and differential pricing of materials on the part of B.M.C.;
(iii) subject to limitations imposed at times by import licensing, the decision as to the proportion of the United Kingdom market to be supplied from imports rests, in effect, with B.M.C.;
(iv) payments are made to Swedish Match as a method of reducing supplies of foreign matches to this country;
(v) payments are made to a Finnish manufacturer to prevent the supply of matchmaking machinery.

The Commission are not satisfied that, even if they were practicable, the measures which would be necessary to obtain effective free competition would bring benefits to the public commensurate with the disturbance that would be caused, or that the results would prove lasting. In particular, the majority of the Commission are not satisfied that, on balance, they would be justified in making any recommendation which would involve a serious risk of the present agreements being terminated. In the Commission's view, the alternative is to set up machinery for regulating the monopoly in the public interest.

They recommend that the Government should assume a continuing responsibility for the supervision of the costs and prices of manufacturers, importers, and distributors of matches; and that maximum prices (related to the costs of the lowest cost domestic factory and conforming to other principles set out in the report) should be fixed for both home-produced and imported matches at all stages of distribution. Other recommendations are:

(a) B.M.C. subsidiaries should charge the same prices for materials to all United Kingdom match manufacturers, subject only to a reasonable (and uniform) extra charge for purchases in small quantities;
(b) full details of changes in the existing agreements, and of any new agreements, should be lodged with the Board of Trade, together with the annual statements of settlement between B.M.C. and Swedish Match;
(c) B.M.C.'s contribution towards sums paid to the Finnish company for refraining from supplying machinery should cease, and no further agreements of this kind should be entered into;
(d) B.M.C.'s offer to release Swedish Match from its undertaking not to manufacture match-making machinery in the United Kingdom, and to make certain other detailed changes in the existing agreements, should be accepted.

In an Addendum to the Report, Professor Allen, Mr. Gallie and Mrs. Robinson express grave doubt whether price control can stimulate improvements in the industry, and say that in their opinion it is wrong that B.M.C. and Swedish Match decide, in effect, what proportion of the home market is to be supplied by home production. They suggest for further examination by the Government the question whether the public interest would not be better served by abolition of the quota arrangements between B.M.C. and Swedish Match, and deliberate promotion of competition between suppliers—to be brought about by creating a purchasing agency under Government sponsorship to act as exclusive purchaser either of all matches (home-produced and imported) or else of imported matches only.