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Lord Simon of Highbury: I think it is unlikely, but I shall confirm that point later. I am glad that the noble and learned Lord has noted our thought processes with regard to the issue of scale monopolies. I have tried to explain why I believe that it would be unwise of the Committee to throw out the baby with the bath water at this stage. I have listened carefully to the arguments that have been made and shall certainly reflect on them, but for the present I ask the noble and learned Lord to withdraw his amendment.

Lord Fraser of Carmyllie: I am grateful to the Minister for his response, which reveals a rather surprising lack of confidence in the efficacy of the two prohibitions which are at the core of the Bill. The noble Lord, Lord Borrie, seemed to be promoting not so much a belt-and-braces approach to the problems, but rather an approach based on handcuffs, manacles, shackles and leg-irons.

Although I listened to what the Minister said and we certainly do not intend to press the amendment this evening, we remain to be convinced that there is anything like the gap or the risk at which both the noble Lord, Lord Borrie, with his great experience, and the Minister hinted. If I understood the noble Lord, Lord Borrie, correctly, he was getting pretty close to conceding that, at least as far as scale monopolies are concerned, it is more difficult for him to advance any particularly obvious gap. If that is the case, we shall want to consider this more carefully. It will be unfortunate if we do not have the utilities review by the time that we return to this amendment at a later stage. We shall certainly want to examine whether there are any gaps to be filled, because if there are any gaps we want them to be filled.

For the sake of UK business we should not have unnecessarily heavy regulations and any duplication must be kept to the bare minimum. In our view, it is probably highly unnecessary to retain this set of complicated legislative provisions at the same time as

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introducing the two prohibitions. We shall want to return to this but, for this evening, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 17 agreed to.

Clause 18 [Abuse of dominant position]:

The Deputy Chairman of Committees (Lord Strabolgi): I have to inform your Lordships that if Amendment No. 17 is agreed to, I cannot call Amendments Nos. 18 and 24.

Lord Fraser of Carmyllie moved Amendment No. 17:

Page 10, line 18, leave out subsections (1) and (2) and insert--
("(1) Predatory pricing or price discrimination by a dominant firm, which is carried out with the intention and has the effect of eliminating a competitor or of substantially lessening competition in the relevant market, shall be prohibited.").

The noble and learned Lord said: As I said earlier, although we now come to a fairly extensive grouping it seems more desirable if I speak to my Amendments Nos. 17 and 24, leaving the other amendments for debate in another grouping. I hope that the reasoning behind my suggestion will emerge from what I am about to say.

Our concern is that the present basis of the introduction of a prohibition into the United Kingdom of abuse of a dominant position, if it is directly based on the wording of Article 86, means that there will be insufficient clarification and inadequate precision with regard to the type of conduct being prohibited. We are concerned that uncertainty as to the reach of the prohibition will not have the intended effect of deterring anti-competitive behaviour. I am sure the noble Lord, Lord Clinton-Davis, appreciates that we share his objective of deterring anti-competitive behaviour.

A further concern which I expressed on Second Reading is that where there is uncertainty there is a risk of a "chilling effect"--if I may use again the language of the CBI--on competition and commercial responses in the market place. If that were to be the case, it would be very unsatisfactory and ultimately damaging for the UK economy.

Our next concern is that business should be clear about exactly what type of behaviour will give rise to the use of the powers of investigation, including the potential for criminal penalties, and which will potentially be subject to large fines.

I could provide the Committee with a number of examples to demonstrate our concerns, but at this stage it may be sufficient for me to limit myself to the case of Tetra Pak II, with which I believe a number of your Lordships are familiar. It was concluded that if a company is dominant in one market it can infringe Article 86 by its conduct in other, separate markets which are linked to the first, but where the company is not dominant.

Following that through, let us take as an example a company which is dominant in one market and makes vehicles which rely on the internal combustion engine. Would there be a real risk of the company being

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severely constrained if it wished to innovate and enter a new market--again, providing vehicles, but where the movement was powered by electricity? In such a new market, the company will have to act from day one as if it were dominant. It would not, for example, be able to select its customers freely, establish prices freely or target discounts at particular sectors.

On the basis of what I understand to be a correct interpretation of the Tetra Pak II case, that would have the effect of reducing such a company's incentive to innovate and invest in the other market. Accordingly, we would suggest that a better way to achieve deterrence of anti-competitive behaviour would be to rely instead on the definition in my Amendment No. 17.

Perhaps I may turn now to my next amendment in the grouping, Amendment No. 24. The effect of the amendment would be to ensure that for the purposes of a Chapter II prohibition abuse cannot be found unless dominance is used to achieve it. It requires that dominance must be the cause of the abuse. We had some exchanges at Second Reading on this with the noble Lord, Lord Borrie. In our view, there is nothing wrong with a company being big. That should not make it subject to penalty or prohibition. The problem occurs when a company has dominance in a market place and abuses that dominance. We believe that the amendment would spell that out more clearly and thus improve the Bill. I beg to move.

7 p.m.

Viscount Waverley: Perhaps I may weigh in on these issues. What guides me is the underlying principle of there being a social duty to pay a fair value for a product and so, by extension, a general duty to prevent producers or providers of services going bankrupt or facing undue financial hardship through any particular buying or anti-competition strategy.

I have two principal areas of concern. I deal with one of them in a substantive way and touch on the other, not least to register a potential problem area. My first point stems from a circumstance that arose in 1995 with Asda supermarkets. I mention Asda simply to give relevance to my short case study. One of Asda's operations totally undermined the political efforts of the government of the day to defend the European Union banana import regime which honoured the Lome commitment to provide an accessible and viable market for traditional ACP producers. That policy has been confirmed by both the Lord Privy Seal and the noble Lord, Lord Whitty, on a number of occasions when I have raised this issue in your Lordships' House.

Asda took a marketing decision to offer certain heavily discounted merchandise to draw customers into their stores. Its rationale in taking that policy decision was to use bananas as a loss leader in an attempt to improve overall store revenues. My involvement arose when it became clear that Caribbean banana growers were suffering acutely as that policy placed immense downward pressure on retail and wholesale prices, and ultimately on the returns to those producers; in other words, ultimately the growers paid for this marketing

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strategy. I believe that Asda could have been charged with manipulating the banana market in a cavalier fashion without due regard to the consequences. I recall that the noble Lord, Lord Carter, while in opposition, put the matter in the following way in a Question to the noble Baroness, Lady Chalker, asking if the Minister was aware,

    "that the situation involves apparent predatory pricing by powerful supermarkets?".--[Official Report, 2/11/95; col. 1501.]

The previous Administration felt that it would be difficult for them formally to intervene as technically Asda was not operating outside the rules. A suggestion had been made that the Office of Fair Trading's rules on predatory pricing had been broken either by a breach of the Fair Trading Act 1973 or the Competition Act 1980. To test that would have meant taking initiating action in the courts similar to that initiated by the leading manufacturers of over-the-counter drugs. All of those major multinational pharmaceutical companies were able to secure an injunction which prevented Asda from selling over-the-counter drugs at reduced prices. It was with regret that the high cost of litigation dissuaded the Caribbean interested parties. I should like to be assured that that does not happen again. I should be grateful if the Government--and indeed the noble and learned Lord, Lord Fraser, if he were able--could assure me that my concerns will be appropriately addressed.

From a recent editorial it has come to the attention of many that British Airways is considering setting up its own low-cost carrier, with the fear that it is prepared to lose money to eliminate small competitors. Once they have been eliminated fares will be raised again. The European Commission has stated that it wishes to operate an open skies policy with free and fair competition within Europe. Article 86 of the Treaty of Rome already outlaws predatory pricing, with the effect that a dominant player in a market may not sell its products below cost price with the intention of eliminating a smaller competitor.

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