Discount cigarettes online blog

How tobacco price-fixing could work

The Office of Fair Trading says there are four different methods which tobacco manufacturers and retailers have used to fix the price of cigarettes.

In the case of a retailer selling two competing brands of cigarette, for example, Brand X (produced by manufacturer A) and Brand Y (produced by a different manufacturer B), the provision was that:

The retailer should sell Brand X at the same price as Brand Y (parity requirement)

This does not fix the actual price at which either brand is sold but, for example, (1) it prevents the retailer from selling Brand X at a more competitive price than Brand Y; and (2) if the retailer wishes to change the retail price of Brand Y it must also change the retail price of Brand X by the same amount.

The retailer should sell Brand X at 3p above Brand Y (differential requirement)

This does not fix the actual price at which either brand is sold but, for example, (1) it prevents the retailer from selling Brand X at a more competitive price than Brand Y; and (2) if the retailer wishes to change the retail price of Brand Y it must also change the retail price of Brand X such that Brand X is 3p more expensive than Brand Y.

The retailer should price Brand X at ?3.59 (fixed price requirement)

In this example the price at which Brand X is sold is expressly fixed to a specific amount.

The retailer should price Brand Y no cheaper than ?3.59 (minimum price requirement)

In this example a minimum retail price is imposed on Brand Y.

Some of the firms accused - Gallaher, Imperial Tobacco, Asda, Sainsbury, Shell, Somerfield and Tesco - are also accused of sharing information about proposed future price changes.

The OFT says that none of the accused have yet been found guilty of any breach of the law. Tesco and Imperial Toabcco have already denied acting against the interests of consumers.