The household goods, furniture and furnishings sector may be one of the last sectors anyone would consider to be involved in illegal cartels; but several suppliers of furniture parts were found to have breached competition laws by engaging in anti-competitive behaviour.
For this, the parties were fined a total of £2,818,000.
Our Competition Act prohibits behaviour that restricts competition in any market. Such behaviour can hinder healthy competition and distort product pricing as well as innovation. These can be very bad for the consumer.
The Competition and Markets Authority (CMA) conducted their investigations over the supply of “drawer wraps to the bedding, office and domestic furniture industry”. Drawer wraps are the thinner pieces of wood that make up the side and back of the drawer. They’re usually made out of chipboard or other inexpensive wooden materials.
For something so simple, there is an abundance of factors that influence pricing, which include:
- Raw materials
- Labour
- Shipping
- Production
- Customers
- Competition
Competitor collusion
BHK UK, Hoffman Thornwood Ltd and Thomas Armstrong (Timber) Ltd all manufacture and supply drawer wraps, mainly made out of chipboard. The three furniture parts suppliers colluded to set up a cartel to facilitate the following anti-competitive actions:
- Market sharing
- Co-ordinating prices
- Bid rigging
- Sharing confidential business information
One of the emails that was shared said:
“I will be quoting during the course of today some of the large flat pack outlets on 100mm white a price indication would be appreciated.”
Sharing the market
The three companies supplied to different furniture businesses, but this was not a happy coincidence. BHK and Thomas Armstrong made sure they weren’t fighting over customers by simply dividing them up between them. On 10th April 2006, BHK and Thomas Armstrong met up in a hotel in Penrith with two senior employees representing each company. Here, they directly arranged for one company to supply for businesses in the bedding industry whereas the other would supply for domestic and office furniture businesses.
For purposes of continuity, the companies agreed to keep their own existing companies. They considered the situation where if one of their customers tried to shop around for a better deal with the other supplier, the other supplier would quote an inflated price, preventing them from leaving their existing supplier.
Clever manipulation
On the face of it, customers may feel like they are making their own choice to stay; happy that they already have a great deal going. However, this is actually the product of a cleverly manipulated situation. By bid-rigging, suppliers can keep their customers in check and never have to lower prices to compete with other businesses.
The CMA soon caught onto this and began their investigations. Not long after the investigations were started, BHK quickly admitted illegal wrongdoing and narrowly escaped a fine from the CMA. The CMA has a very generous leniency policy where a fine can be significantly reduced or even waived if a member of a cartel admits guilt early on, co-operates with CMA with the rest of its investigations, and undertakes to not get involved in any cartels ever again.