1. businesscafé Category: External Environment: Regulation
This article describes how well-known businesses
involved in football have recently been heavily fined because
OFT Sees Red with Manchester United and the Football they broke laws that seek to protect consumers by ensuring
Industry Cartel there is fair competition in a market
Manchester United has been fined nearly £2m for fixing the sell at; how much output to make; discounts offered
price of their replica football kit. Customers had no choice to customers; which customers are supplied; where
but to pay £39.99 in all the outlets selling the strip. But the products are sold; who will win a contract
world’s best-known football club was not alone in this illegal Cartels are prohibited by competition legislation in the
price-fixing cartel... UK and in Europe. In the UK, the new Enterprise Act 2002
makes it a criminal offence for individuals to dishonestly
Red Card for Big Names Caught Offside take part in cartels that involve price fixing, market sharing,
limitation of production or supply or bid rigging.
In August 2003, the Office of Fair Trading (OFT) imposed
fines totalling £18.6m on a cartel of ten businesses that Cartels can occur in almost any industry and can involve
were fixing the prices of replica football shirts. These goods or services at the manufacturing, distribution or retail
included Manchester United, retailer JJB Sports (fined the level.
most at £8.37m) and Umbro, the licensed manufacturer of Some sectors are more susceptible to cartels than others
premiership shirts (fined £6.64m). because of their market structure or the way in which they
In a normal market, retailers should be free to decide what operate. Cartels are more likely in industries where:
price they sell goods at. However in this case, the leading There are few competitors (making it easier to collude)
retailers involved in the top selling short sleeved England and The products made are similar, leaving little scope for
Manchester United shirts agreed to set the price at £39.99. competition on quality or service
The agreement also involved the clubs, manufacturers and
the Football Association (FA). With no effective competition, The industry is suffering from excess capacity or there is
customers could not buy these shirts at a lower price. general recession
These were not the only incidents in an investigation started Jargon Buster
in 2000 when the OFT first received a complaint about price
fixing. At that time, the FA and clubs assured the OFT that Cartel A cartel is an agreement between businesses
they would “root out” such anti-competitive practices. not to compete with each other.
Office The OFT has two main purposes (1) to protect
The main incidences of price-fixing discovered by the OFT of Fair consumers and explain their rights and (2) to
were: Trading ensure that businesses compete and operate
(1) Fixing the price of shirts at key times, e.g. at new shirt fairly.
launches or during key competitions such as Euro 2000 Price Where competitors act together to stop a
fixing product being sold below an agreed price
(2) An agreement to keep prices high of kits sold on the
Internet.
Cafe Comment
The OFT ultimately has the power to fine businesses up
to 10% of their turnover and the potential to prosecute top This case illustrates some important legal and ethical
management, leading to jail on conviction. With this case the points. The OFT has acted to protect consumers and
OFT is sending out a strong message to others not to infringe warn other businesses who might be tempted to try
competition rules. price-fixing. But will the fines imposed be a deterrent?
The Consumer Association, a leading consumer-rights Businesses should not “collude” over prices. However, managers
presssure group, has been campaigning for five years over are under pressure from shareholders to perform well. In fast-
the issue of high kit prices. They highlighted the poor ethical moving markets, businesses need to maximise their profits over
stance of these sports businesses in exploiting a key family a short period. Football is still a boom consumer market, so the
market.
profits can be high for the best operators. The cartel thought they
John Vickers, OFT chairman, said: “The fines imposed reflect could get away with price-fixing because demand was so strong .
the seriousness of the price fixing in this case. Since we
Is it right to fix prices high? Ten well-known businesses thought
launched our investigation the prices of replica football shirts
have fallen and consumers can now shop around and get a it was - and were happy to break the law in the pursuit of profit.
better price.” How much regulation should businesses face? The laissez
You can now buy an England replica shirt in Asda for £24. faire argument suggests that customers recognise price-
fixing, refuse to buy the merchandise, and force prices down.
What is a Cartel? However, even the Football Association (which is
In its simplest terms, a cartel is an agreement between supposed to look after the interests of the game and its
businesses not to compete with each other. supporters) colluded with the price-fixers. No-one acted
in the best interests of the paying customers - the fans
Typically, cartel members may agree on: what price to themselves. In the end - the law was their only protection.
Sources used in this article: Office of Fair Trading Announcement; Consumer Association; Various Newspapers
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