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Formerly editor of a national business lifestyle magazine, Jez Davison is a business writer for the Evening Gazette in Teesside »
Ian Brown, Northumberland farmer and businessman writes about the agricultural industry »
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Marion Bernard is from NorthStar Equity Investors »
Paul Williamson is from Deloitte »IN TODAY'S so-called free trade market, JEZ DAVISON questions the wisdom of punishing firms for price-fixing....
ANOTHER week, another blow for business. A tobacco manufacturer and five retailers have been stung for the biggest collective penalty handed down by the UK's competition watchdog for price-rigging.
The Office of Fair Trading (OFT) slapped a £132m fine on Asda, Somerfield, First Quench, TM Retail, One Stop Stores and tobacco firm Gallaher after they admitted they had tried to inflate the cost of cigarettes.
While some would champion the case as a moral victory for fair play, I would ask whether clamping down on price-fixing is really necessary.
The reason is that companies don't set prices; consumers do.
If the companies in question continue to artificially inflate prices, consumers will eventually walk away.
Even if smoking is considered necessary in these stressed times, there is a limit to people's budgets. Consumer loyalty counts for nothing when disposable income dries up. Regulars in local pubs, for example, are starting to seek cheaper alternatives or are simply refusing to go out.
The other main justification for stamping out price-fixing is that it protects small firms from being squeezed out of the tendering process and squandering a fortune in submitting bids that have no chance of being accepted.
But in practice, many Teesside contractors say they don't bother bidding for large-scale public tenders because the cost is too prohibitive and fees aren't reimbursed if they don't win the work.
In addition, they say that joining a tender consortia - often the best way to win these contracts - poses unnecessary risks to their business and often results in them not being paid on time.
"Tobaccogate" also highlights the wider issue of competition law and in particular, the worry that one company (or group of companies) could dominate the market.
In retail this is already happening, with the large sheds pricing some smaller firms out of business.
At the risk of sounding harsh, however, all's fair in love and business and savvy firms have shown they can survive by diversifying their product range.
And if a company was to capture, say, 80% of its market, shouldn't we be celebrating the management's shrewd entrepreneurialism rather than sending for the heavy mob?
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