Contraceptives (Hansard, 10 February 1975)

Mr. Alan Williams

The report is being published today. The commission has found that monopoly conditions, as defined in the legislation in force when the reference was made, prevail with respect to the supply of contraceptive sheaths within the United Kingdom because one60W manufacturer, L. R. Industries Limited (LRI), supplies at least one-third of the market. As a result of its investigation the commission has concluded that the "conditions" prevailing by reason of LRI's monopoly position operate and may be expected to operate against the public interest. In addition the commission has found that:

(a) LRI's pricing policy is a thing done by the company as a result of and for the purpose of preserving the "conditions" and that this policy operates and may be expected to operate against the public interest in that:
(i) it results in excessive profits;
(ii) the differential price structure operated by LRI is both a deterrent to competitors and potential competitors and a means of exploiting the weakness of consumer pressure upon prices; and
(iii) retail prices are higher than they would otherwise be by reason of LRI's own excessive profit margins and of the consequent enlargement of distributive cash margins.
(b) LRI's policy in conducting its vending machine trade is a thing done by LRI as a result of and for the purpose of preserving the "conditions". This policy operates and may be expected to operate against the public interest in that there has been a wasteful use of resources, difficulty of entry for competitors has been increased and the level of selling prices to the public has been even higher than in the ordinary trade.

In general the commission considers that LRI's record of behaviour is one of prolonged exploitation of its dominant position for the benefit of its shareholders.

As remedies for the detriments to the public interest which they have found, the commission recommends that:

1. LRI's home selling prices for contraceptive sheaths should be so reduced as to bring about a reduction in the average price of 40 per cent. from the average obtained in the year ended 31st March 1973, or, if basic costs are shown to have risen signficantly since 31st March 1973, such a reduction as may be expected to provide a return on capital of the order of 20 per cent. The prices should in the future be kept under review.
2. The overall price reduction should be brought about by reducing the whole range of price differences—as between different brands and different customers for the same brand—not only in cash terms but also as percentages of the relevant prices.
3. LRI's selling prices when selling to the public through vending machines should be fixed so as to allow for the payment of site commissions within certain limits.
4. A maximum retail price should be specified for each brand of sheath—excluding "own brands"—which should bear the same percentage relationship to LRI's new trade selling price; in the case of LRI sheaths sold through 61 vending machines by sellers other than LRI the maximum prices should be the same as those specified for LRI when selling to the public through vending machines.

As regards retail prices the commission states the view that it may be worth considering whether it could be arranged that LRI should recommend the appropriate retail selling prices and print its recommendations upon the packages.

The commission makes it clear that the scope of its recommendations is limited to remedying the "mischief" attributable to LRI's pricing policy. However, it also states the view that the level of distributive margins, considered as percentage mark-ups on buying prices, is unreasonably high and that, although this cannot be regarded as being a "mischief" arising from LRI's pricing policy, it is a matter for public concern.

I am requesting the Director General of Fair Trading to consult LRI with a view to obtaining undertakings from it to take action requisite for the purpose of remedying or preventing the adverse effects specified in the report.

In so doing I shall indicate that I accept the recommendations which the commission has made as being requisite in the special circumstances of this market.

I am particularly concerned that there should be a substantial reduction in retail prices. To this end I am also asking the DGFT to consider whether it would not be appropriate, as an exceptional measure, for maximum recommended prices to be specified on the packets in which the goods are sold to consumers.