Campaign For Real Ale (CAMRA

The Campaign For Real Ale (CAMRA) filled a super complaint at the Office of Fair Trade (OFT) concerning the abuse of dominance by the pub industry or the pub companies. Their plight was that the small companies and the consumers had been affected negatively by the terms put in place by the pub companies on the lessees and hence they had to be done away with.

The UK’s beer market comprises of many players: the brewers, the pub companies, the retailers and the lessees. There are 30 800 tied pub business in the country.  This practice of tying up pubs has been present in this country for the last 400 years. There are reported instances of some brewers being denied access to the ‘tied pubs’ which discourages competition. The pub companies through their lease agreements with the tied pubs are able to dictate the prices for the lessees who are under them. This beer industry has been criticized by competition authorities for its monopolistic tendencies.

This particular market encompasses the general public of the United Kingdom, which also represents the potential market for the beer products. The product in this market consequently, is beer. The main players in this market on the other hand are the pub companies or the pub industry. The brewers and the pub owners play a vital role in the market as they determine the price of beer [vertical price fixing]. This points out to a case of vertical practices which results in anticompetitive effects being introduced in the market (Kühn, K. et.al, 2005, 85-121)

Vertical relations is the most appropriate theory for describing the forces in play in the UK’s brewery industry. The comparable horizontal practices which necessitated the filling of the complaint by the CAMRA are a clear evidence of the existence of this theory. The tying up of the lessees by the pub companies for instance has ensured that the new entrants keen on gaining entry into this market do not find it easy to do so. This points out to a case of exclusive dealings. Not only does the rule restrict the selling of beer from small brewers but it also ensures that no new pubs are established within the neighborhood of the pub company’s tenant. This therefore serves to ensure that the pub companies and the breweries remain the only players in the industry. In essence the market is closed for any new breweries desiring entry into the market.

The price determination which is made by the pub companies is also another pointer to the existence of the theory stated in this market. As outlined in the complaint, the pub companies have been accused for their act of setting prices at a higher rate than the wholesale price. This therefore has rendered the goods of the lessees to be more expensive as compared to the other outlet. For instance, the prices offered by Pubco per point is 1.7 pounds while the same at the Fosters [lessee] goes for 97 pounds per pint. This is quite expensive and unaffordable for most individuals. As a result of the high cost prices pub closures have characterized the UK’s beer market with the telling decline of their numbers from the highs of 69000 to the of 50000 (Slade, M, 2001, 173-195).

The other pointer to the vertical relations theory is the laws determining the volume production levels of the breweries which is required for them to be able to trade to be able to trade directly in the market. This among other restriction of entry rules deters the small brewers- those producing less than 200,000 hectoliters of beer per year- from getting access to the beer market. This is a direct indication of monopolistic characteristics of the pub companies who already control a large fraction of the market. This can also be interpreted as a case of exclusive territory as the pub companies do not want the small brewers to gain access into their market.

The demand and supply theory can also explain the market conditions in the country. The brewers for instance cannot over produce their products, the beer without it having a negative effect on their profit margins. They therefore are restricted by the demand and supply laws which dictate the whole market by extension.

In making the decision concerning the CAMRA’s complaint, the OFT did not act overly objective as required by law. However, there are instances of goodwill which can be attributed to the ruling. For instance market which is not made up of monopolies should be allowed to regulate itself through the laws of demand and supply. Had the pub industry been comprised of monopolies the case could have been different as the rules of demand and supply rarely applies in such a market. As stated by the OFT, the UK market is made of many pub companies which means that none can make a decision which will affect the market substantially (Lyons, B, 2003, 13).

Apart from the above stated reason, it was also noted that there was no collusion or negotiation between the pub companies or cartels in the determination of the prices. This therefore is another proof of the laws of demand and supply. The consumers in their own volition could easily opt for the cheapest outlet where they could get the products [beer]. This was informed by the fact that different companies were offering different prices for the same products.

Moreover, the price offered by the lessees which the CAMRA claimed was higher, could not have solely been dictated by the pub companies pricing but rather the rising cost of service. Generally, the cost of living is rising and so there should be a corresponding increase in the earnings of those who serve in those stores. This therefore is a general rise as a result and in response to the welfare of the service providers. Therefore, the pub companies could not have been attributed or blamed for the general rise in their prices. This also factor is also reinforced by the fact that the services being offered at the lessees were the best. The fact that customers were willing to pay more for the same products which they could have acquired somewhere else shows that they were attracted by the services being offered by the well remunerated and motivated workers.

On the other hand, the OFT decision and verdict can be put into question basing on the following points. The first instance or a glaring issue which should have been addressed differently is the issue of bundling of TSE and TS cost on the product final price. This is an issue which should have treated with disdain. The small brewers’ products would have to be subjected to a price which would not reflect on the books of accounts of the small brewers. The money generated from this factor solely belongs to the pub companies. This is an instance or a case of unfair practices in the market. The big pub companies tend to benefit at the expense of the small and struggling brewers. The OFT ought to have addressed this issue and not justify it.

The other fact which should have been addressed by the OFT is the powers and privileges which the tenants had. Their power to determine the establishment of competing pubs in the neighborhoods is of a monopolistic nature as this could have served to deny the entry of new sellers. As a result the consumers would be subjected to exorbitant prices from the one seller as they had no option. Not only does this spell doom for the consumers but also the competitors. The small brewers’ ability to gain entry into such an environment could also prove difficult as the lessees’ shops had a lot of conditions and bottlenecks which generally discouraged the sale of their beer. As a result, the small brewers ended up losing in such an account as they had been denied of the option which was to be brought by the competitor who was denied access be the tenant (GREAT BRITAIN, 2010, 10)

Generally the conclusion made by the OFT was impartial and done in good faith as evidenced by the statements they made in their response to the CAMRA’s complaint. The UK’s beer market is clearly made up of many players in all the levels. Hence a healthy competition is ensured. The complaints which had been advanced were pointing generally to a case of monopoly which is not an issue at hand in the mentioned situation.

By the OFT declining to intervene, it was therefore ensuring that the laws of demand and supply which were definitely in play all this time in the market were not interfered with in any way. Such a market can regulate itself on its own. For instance, the shift from in the pub consumption of alcohol to house and home alcohol consumption of alcohol could have easily ensured that the small brewers who were finding it hard to penetrate the pub market could have easily created a niche for their products. As a result they could have competed favorably with the pub companies and established companies.

The OFT’s decisions concerning the complaint could have impacted on the market in many ways. The decisions not to uphold or meet the CAMRA’s demands meant that the market could be allowed to play out on its own with the laws of demand and supply in place. As it had happened in the past the OFT’s intervention could not have necessarily led to the reduction in the prices of beer and related products. When the demand and supply laws are allowed to play out, it will result in a harmonized market.

On the other hand if the rules governing the rental of the stores are not looked into, a monopolistic aspect can come about in the society. This is probably the major reason for the current decrease in the number of stores operating in the United Kingdom from a high of 69,000 in 1980 to a low of 50,000 in 2015. The OFT should have therefore looked for a way of ensuring that the powers of the tenants are clipped in order to improve on the creation and the investment in this industry.

In essence the main disadvantage of the UK’s beer industry is the powers given to the tenants at the bottom of the supply chain. As it is, the retailers are the only people who are in contact with the customers; hence the limitation of their powers could have meant a lot the industry. The small brewers could have easily come up with suppliers at the different places in order to present competition against the pub companies.

The other aspect which is most likely to take place in the short run as a result of the decision not to clip the powers of the tenants is that the pub companies could have become much richer and stronger when compared with the small brewers whose access to the market has been limited by the monopolistic tenant. However, the development of the at home sector of the market could have come to the relive of the small brewers as this market is not limited or subject to any restriction by the pub companies.

In the long run, the UK’s market will see a shift from the pub based beer market to a home based market. This can be attributed to the society which is changing at a first rate heralded by technological advancements. The reduced movement and the general attitude of people to stay indoors unlike the past has greatly contributed to this factor and it is a pointer to what will happen in the future. The reduction in the number of pubs over the years with a rise in the number of small breweries coming up points out to an underlying fact that there is a market which is driving the industries. That specifically is the at home beer consumption.

In the wider market, the decision points out that markets generally should be allowed to run on its own and specifically that is when there are many players. Such a market will always regulate itself and the consumer in the end will tend to benefit while the market developing to the best as the interventions when they are uncalled for can easily bring about a negative impact than the one it was desired. The government and the other oversight bodies should only ensure that the necessary laws have been followed and that a monopolistic regime is not created. This is sure to instill confidence in the market as they will not be operating in constant fear of external influences from the government and the over sighting bodies.

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