Contraceptives (Report) (Hansard, 4 November 1982)

§ Dr. Vaughan

The report is published today. The commission found that a scale monopoly situation existed in favour of LRC Products Ltd. (LRC). This report is a sequel to an earlier report—publication of which was announced on 6 February 1975—which identified LR Industries Ltd. (LRI), a subsidiary of LRC International plc and the precursor of LRC Products Ltd., as a monopolist in the supply of contraceptive sheaths and found both the monopoly it enjoyed and the prices it 3W charged to be against the public interest. After that investigation LRI and LRC International gave various undertakings to the Secretary of State, the main effect of which was that any changes in the home prices of contraceptive sheaths had to be approved by the Director General of Fair Trading. In 1981 LRC International claimed that the limitation placed upon its profits through regulation of its pricing policy was inhibiting necessary investment and other developments in its business. LRC was none the less still the dominant supplier in the market. The Director General considered that it was appropriate, in view of the passage of time and the changing economic climate, for a reassessment to be made of the extent to which controls were necessary; and he therefore re-referred the subject to the commission. In this second investigation the commission was asked to report on whether a monopoly situation existed and if so whether the current or proposed prices charged for contraceptive sheaths operated, or might operate, against the public interest.

In its present report the commission concluded that LRC's prices were not effectively constrained by market forces and, having borne in mind the history of very high profit levels as recorded in the earlier report, it thought it likely that in the absence of control the company's prices for contraceptive sheaths might be expected to become excessive. It concluded that this would adversely affect the public interest.

In order to remedy this adverse effect the commission recommended that LRC should undertake that its United Kingdom average realised prices of contraceptive sheaths would not increase at an annual rate greater than 1.5 percentage points less than any percentage rise in a special index constructed to reflect LRC's costs of production. It also recommended that LRC should provide the Director General with details of sales, price changes and other information to enable him to monitor the undertaking. The undertaking should be reviewed after five years. If the company failed to give or failed to abide by the undertaking it should be required to make no price increases without the prior approval of the Director General, who would need to be satisfied that a proposed increase would be in line with the proposed undertaking.

I accept the findings of this report, and am asking the Director General of Fair Trading to enter into discussions with the company with a view to agreeing on measures to implement the commission's recommendations.