The Competition and Markets Authority (CMA) has concluded their investigations into suppliers of galvanised steel tanks after over 3 years of investigations.
The CMA has issued a series of penalty fines to four suppliers, reaching £2.5million in total. Details of the investigation and reasons for the size of the fine were published on the CMA’s website on 29th March 2017.
The galvanised steel tanks are mostly used for water storage in fire suppression; connecting to sprinkler systems in UK buildings in case of a fire. In compliance with health and safety regulations, many large private and public buildings are required to have sprinklers installed on ceilings. The steel tanks are often found in large schools, hospitals and factories.
Unsurprisingly, not very many companies make and sell these fire suppressant devices, and start-up costs are also extremely high as the CMA reported that one steel sheets punching machine could cost up to £1.5 million. When there is a small and ‘niche’ market, it’s often easy for the major players to manipulate prices to suit their needs.
Artificially inflated prices
The suppliers concerned in this case found that, as the main players in the industry, they could significantly increase their prices, and their contractors would continue using their tanks.
The Government body began their investigations in to five suppliers of the metal tanks after one company stepped forward and informed the Authority of what they were involved in. In March 2016, a statement of objections was issued by the CMA.
Bid rigging and formal cartels
CST UK, Franklin Hodge, Kondea and Galglass were all found to be involved in engaging in illegal cartel behaviour by picking and choosing who should get which customers and then agreeing to bid prices for the steel water tanks. The companies reportedly rigged bidding by each offering a high price to contractors for their tanks, forcing them to pay an inflated price whilst thinking no other supplier would provide the tanks for a lesser price.
The companies also attended meetings with each other and regularly kept in contact by way of emails and text messages to discuss their cartel activities. The CMA found incriminating documents such as “customer allocation lists and price lists”.
Illegal cartels
Cartel behaviour like this is illegal in under competition laws in the UK and EU. By rigging prices and supply levels, companies can easily take advantage of their consumers and make bigger profits by inflating prices.
In a healthy competitive market, consumers should have a variety of choice and pay a fair price for the quality of their product with companies competing on price against each other. However, by making all of the products expensive regardless, of how much it cost the manufacturer/supplier to produce them, and not competing on price, consumers are paying above and beyond.
Cartel broken up and perpetrators fined
Thanks to the CMA’s efforts, this particular cartel was broken up and three companies admitted to participating in an illegal anti-competitive arrangement.
They agreed to pay the reduced £2.6 million penalty fine having admitted liability.
The fourth company, CST, managed to escape paying a fine under the CMA’s leniency policy. CST came forward before investigations had properly begun and informed the CMA of the cartel in the first place. All four companies must still continue co-operating with the Authority and keep on top of compliance with competition regulations.
At the conclusion of the investigations, the Senior Director for the CMA’s Cartels and Criminal Group made a clear statement on the necessity of competition, and the damage anti-competitive behaviour has:
“Strong competition between businesses has clear benefits for customers, such as lower prices, better quality and more choice. Any weakening of competition that maintains or increases prices will ultimately be at the expense of consumers of tax payers.”