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Price Fixing in Cheap Hotel Rooms Is a Myth – Oh No, It Isn’t!

Hotel roomThe image of businessmen carrying black briefcases meeting up in cheap hotel rooms in order to carve up markets and fix prices is something of a cliché. However, that is exactly what happened in one case in which the Competition and Markets Authority (CMA) used covert surveillance to unmask a pernicious cartel.

The case concerned a cartel formed by a number of manufacturers of galvanised steel tanks used as part of fire suppression sprinkler systems. They regularly fixed prices and divided up the market by allocating customers between them. Their unlawful arrangement hit difficulties, however, when a new entrant to the market began competing vigorously and undercutting their prices.

A meeting between members of the cartel and a senior manager of the new entrant was arranged at a hotel. Unknown to those present, their discussion was covertly filmed by the CMA.

The cartel was subsequently broken up and the main participants were fined sums ranging between £2,015,135 and £22,248. The CMA took the view that, during the meeting, the senior manager had exchanged confidential pricing information with members of the cartel. In those circumstances, the new entrant was fined £130,000.

In challenging that decision before the Competition Appeal Tribunal (CAT), the new entrant characterised its treatment as deeply unfair. It had done everything possible to promote competition for the benefit of customers and the senior manager had specifically refused to join the cartel during the meeting. Any pricing information exchanged was of a vague and generic nature and it was unjust that the new entrant had been fined more than some of the main participants in the cartel.

In dismissing the appeal, however, the CAT found on the basis of the covert recordings that the manager had engaged in more than merely innocuous conversation during the meeting. Although he had refused to join the cartel, he had reassured participants that the new entrant would not charge prices that would render the continuation of the cartel entirely impossible. The fine imposed was fair and proportionate and there was no basis for criticising it.

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