Competition Policy
Organic growth for Costa
It is early days yet, but the new Costa Coffee store on my local high street seems to be bedding in nicely. The passing trade has been boosted by providing free wifi access in store (I am sat here now enjoying a small latte writing this blog article) and there is a really nice open patio area behind the building for coffee-lovers to sit watching the Thames go by. The Starbucks over Windsir Bridge is fast becoming a distant memory.
Whitbread, the owners of Costa Coffee and Premier Travel Inn has announced plans today for a very large organic growth of their business - the number of Costa stores worldwide is set to double and the room capacity of their budget hotel business may grow by 50% over the next five years. How recession-proof are these businesses? Despite the increasingly congested markets for retail coffee sales (McDonald’s is making a strong pitch for some of the action) I reckon they are a decent bet providing Whitbread can keep their costs under tight control and limit price rises on the high street. With a weakening pound against the Euro, many more people are likely to holiday at home this year and next boosting the demand for good value budget hotel accommodation en route or at chosen destinations.
Yes sir, yes sir, 20,000 bags full.
They’d be in Milan too. Following on from the Terminal 5 fiasco, the Competition Commission has been triggered to publish a damning “emerging thinking” report on the (in)competence of BAA’s airport monopoly. It criticises them for “failing airlines and customers” and may eventually lead to the forced sale of several airports.
read more...»Learning Lessons from: Cento Veljanovski
On Wednesday, Cento Veljanovski spoke at the Institute of Economic Affairs on the topic of “Catching Cartels”. Dr. Veljanovski is the Managing Director of Case Associates and an IEA Fellow in Law & Economics. He has been selected as one of the “most highly regarded” competition economists globally and one of the top five in Europe by the 2006 Global Competition Review survey.
read more...»The Costs of Red Tape
David Smith, writing in the Sunday Times, examines recent data regarding the burdens barometer - the cost of regulation to UK business.
The article places the cost of regulation at £66 billion per year, some £10 billion higher than last year.
The British Chambers of Commerce’s burdens barometer, published annually, shows Labour is not meeting its pledge to reduce the bureaucratic burden on business. While there have been tiny reductions in minor areas, this is balanced by the rising tide of regulation in others.
read more...»Supermarket Sweep
The long awaited Competition Commission report on the market power of the major supermarkets is published today. There is loads and loads of coverage of this .... so this blog will try to keep track of it and provide a gateway to some of the resources and comment available on the web
read more...»Clearing a merger - Game and Game Station
It was a close run thing but on the casting vote of the chairman of the investigation, the Competition Commission has cleared the merger between Game Group plc and Game Station the two largest specialist retailers of new and pre-owned video games (including new PC games), video games consoles and related accessories in the UK.
It seems that the willingness of computer games buyers to spend time looking for the best deal was the decisive factor behind the decision to allow the horizontal integration of these two businesses to go ahead.
The Enterprise Act 2002 empowers the Office of Fair Trading (OFT) to refer to the Competition Commission any completed or proposed mergers for investigation which create or enhance a 25 per cent share of supply in the UK or where the UK turnover associated with the enterprise being acquired is over £70 million.
Europe’s cartelbusters get tough
Europe’s cartel busters get tough
“Over the past three years I have made a priority of the fight against cartels. Cartels artificially increase prices of products at the expense of the European consumer, whether as direct purchasers or because companies in the middle of the supply chain have to increase their prices to pay for unfair price rises further up the chain. That’s not just illegal, it’s also deeply unfair.” (Neelie Kroes)
From condom manufacturers to producers of car windscreen-wipers, the European Union Competition Commission has been spreading its net widely in a bid to unearth and punish businesses guilty of anti-competitive behaviour within the single market. Last year alone the competition authorities levied fines on cartels of several billion Euro, the money goes into the general pot of finance available to fund EU spending.
Peter Day’s In Business programme this week interviews Neelie Kroes, the Dutch-born Competition Commissioner. It is well worth listening to. It was interesting to hear Neelie Kroes spell out very clearly how they made a conscious decision to increase the scale of the fines on firms guilty of cartel behaviour in order to change the incentives for businesses – they wanted to tip the balance between the rewards from price-fixing (higher profits during the duration of a producer cartel) set against the cost of being found out and exposed. Businesses can be fined up to 10 per cent of their annual turnover (in the USA there is also the risk of imprisonment for executives caught up in individual cases) and there is also the risk of a loss of business reputation and goodwill from being flagged up as guilty of price collusion to the detriment of the consumer.
The programme can be listened to here: http://www.bbc.co.uk/radio4/news/inbusiness/archive.shtml
EU Competition Commission
http://ec.europa.eu/comm/competition/index_en.html
Rubber firms fined over condoms
http://news.bbc.co.uk/1/hi/business/7129480.stm
BBC Radio 4 In Business
http://www.bbc.co.uk/radio4/news/inbusiness/inbusiness.shtml
Cartels in the News
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An interesting day for students and teachers of A2 microeconomics!
There were three examples today of alleged producer cartels working in different sectors of the economy. This BBC news online article reports that ‘Four of the world's biggest glass manufacturers have been fined a total of 486.9m euros (£348.2m) for illegally co-ordinating price rises.’ The colluders included Pilkington Glass based in the <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />
Across the water in
Mergers and takeovers - further evidence that they rarely work out
A report, conducted by the management consultancy Hay Group, has tried to find why mergers so often fail to live up to their hype. Their key finding was that the ‘culture shock’ caused by bringing together two organisations is the biggest reason for failure. In other words, the marriage is between a couple who can’t or won’t get on. Apparently, the <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />
This news comes at an especially depressing time, coming just as the global mergers and acquisitions boom has ground to a halt since the ‘credit crunch’ triggered by problems in the money markets. Now investors have to ask if the hugely expensive era of ‘merger mania’ will deliver any of the promised benefits. In 2006 alone, deals worth about £966bn were concluded.
The Hay Group report which analysed more than 200 major European mergers and acquisitions found that about 28% of business leaders who had been involved said that the deal had failed to create "significant new value". The director of the Hay Group is quoted as saying (Deals fail 'after culture shock' - BBC),
"Companies should be examining the compatibility and differences between the two firms well before the deal is made public, in order to have a clear plan of action in place right from the start."
But the survey also found that about 70% of senior management believe that it is too difficult to get information on a firm's business culture, staff and organisational structures before they make a bid.
It added that after a deal is completed, only 13% of mangers put a high priority on engaging and integrating executives and the workforce as a whole. The report suggested this had a "disastrous impact" on the successful integration of firms with 78% of employees at a company being bought opposing the mergers. Many managers also said that the atmosphere at work after a merger was also unsatisfactory, with 22% of those asked talking of a ‘culture shock’ and 16% describing the situation as "trench warfare".
The report can hardly come as a surprise. It only serves to reinforce the finding of dozens of reports and studies which have found the same thing over the last few years. Perhaps the surprise is that this knowledge has done little, or nothing, to dampen the merger frenzy.
