Making sure consumers do not lose out

Palmer and Harvey and Makro were widely reported last year as having formed their own buying group. Joining or forming a consortium can leverage the combined volumes of the members and secure better buying terms.

On the credit side this drives down cost and the savings and other benefits can be shared between the buyers and their customers. Competition among manufacturers may be increased, against the risk of buyers switching sources. Smaller businesses get a seat at the top (or at least a better) purchasing table.

But competition can be stifled, and thus the benefits to consumers, where joint purchasers additionally enter into some form of collusion that, for example, causes damage to their competitors or drives up prices.

Purchasing consortia therefore give rise to competition law questions, so it was wise P amp;H and Makro asked the Office of Fair Trading for guidance. A balance has to be struck by weighing up the net benefits and disadvantages for the ultimate consumer. This requires an assessment of the precise market each of the members operates in, whether any member has significant market power in its market and the extent of any adverse effect on competition.

Absence of market power unsurprisingly points to absence of any material adverse effect on competition. In particular, joint purchasing agreements are not generally considered to harm consumers (and so are ‘safe’) where the combined shares of the parties in both the buying and selling markets do not exceed 15%. Small to medium size businesses are also generally ‘safe'; these are businesses with less than 250 people and either a turnover less than 40m or balance sheet assets of less than 27m (about pound;30m and pound;20m respectively).

copy; S Calnan 2011

Sebastian Calnan specialises in supply chain and distribution law at Calnan Cox Solicitors in Northamptonshire and can be contacted at scc@calnancox.co.uk or on 01604 882287

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