CC Finds Competition Weak
The Competition Commission (CC) has provisionally
found that there are features of the supply of domestic bulk
lpg in Great Britain and Northern Ireland that prevent, restrict
or distort competition.
These features have had an adverse effect
on competition, which has led to most lpg customers paying higher
prices than would
otherwise have been the case, it says.
Peter Freeman, chairman of the inquiry group, said: “We
have provisionally concluded that competition is not working
as effectively as it should and that consumers are losing out
as a result.
"Customers face a number of hurdles in obtaining a quote from
another supplier, let alone the best deal, and it is not necessary
to change tanks when a customer switches supplier. The market
overall is not expanding significantly. The effect of all this
is to limit competition between suppliers and discourage entry
and expansion, leading to higher prices for most consumers.
"We are now moving to remedy this."
Tom Fidell, director
general of the LPGA, said: “The LP
Gas Association and its members are cooperating fully with the
Competition Commission on this matter and will be responding,
as appropriate, by the designated deadline."
The features
that the CC has provisionally found prevent, restrict or distort
competition are:
- The way suppliers set the terms of and
control information about the process of switching supplier
- The practice
of replacing the outgoing supplier’s tank
with a tank belonging to the incoming supplier and
the resulting costs to suppliers, and charges and inconvenience
to customers,
which discourages suppliers from competing for existing
lpg customers and customers from switching suppliers
- The limited information
available to customers on their ability to switch suppliers,
their liability for charges, the inconvenience
of the process, and the alternative suppliers to whom they
might switch
- Contractual restrictions, including minimum
terms and notice periods
- The limited ability of suppliers to
identify and target marketing efforts on customers
- The modest
prospects for growth in the market, which act as a barrier
to entry and expansion by smaller suppliers.
The CC has also provisionally
found two further features that reduce competition only in
Great Britain:
- Low customer awareness of other
suppliers’ offers
and difficulties in comparing prices due to the lack of transparency
- The offering of selective discounts to
customers that threaten to switch, enabling suppliers to deter
competitors from
winning their customers and to sustain higher standard or
average prices
than would otherwise be the case.
The CC acknowledges the need
to ensure safety in the supply of lpg, but has provisionally
found that none of the adverse
effects
identified in the lpg market stem from safety requirements.
The
CC has published a notice of the actions that might be taken
to remedy the adverse effects. The view of the CC is
that the
features can be remedied by behavioural undertakings and
that structural remedies will not be necessary.
The CC has
asked for suggested remedies that would:
- Arrange for the ownership
of the tank to be transferred to the incoming supplier
or the customer when the customer
switches
supplier
- Standardise the process of switching
supplier
- Improve the information available on
the switching process
- Improve the information available on other
suppliers and their offers
- Address barriers to switching
through contract terms
- Reduce contractual notice periods.
www.competition-commission.org.uk/inquiries/current/gas/index.htm
Return to October/November
2005 News
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