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OFT refers supply of domestic bulk LPG to the Competition Commission

103/04     5 July 2004

The OFT has today referred the market for the supply of domestic bulk liquefied petroleum gas (LPG) to the Competition Commission.
Download our paper on our reasons for making a reference to the CC (pdf 143 kb).

This follows a preliminary review of the market by the OFT which found that there are features of the sector which appear to prevent, restrict or distort competition and which may lead to customers paying higher prices for their household LPG supply.

LPG is used for heating, cooking and heating of water. Customers tend to be based in rural areas with no access to mains gas. Most suppliers retain ownership and responsibility for the maintenance of the tanks, with a small minority of customers owning their tanks. The review was prompted by a number of complaints to the OFT from consumers about this market.

Customers wishing to change supplier typically face sizeable switching costs with the current and new suppliers often charging for the removal and installation of their respective tanks.

Other obstacles to customers switching supplier identified by the OFT include:

• lengthy contracts, with customers often incurring charges for early termination
• long notice periods for contract termination and the possibility of a break in supply as a new supplier's tank is brought into use
• consumers may have difficulty in finding out all the information about possible deals with alternative suppliers.

Rates of switching by customers between suppliers are low. Many customers are signed up to companies and the obstacles to switching make it difficult for any new entrant to the market to win customers from existing suppliers. The OFT believes that the obstacles to switching restrict competition by making it difficult for new suppliers to enter the market.

John Vickers, OFT Chairman, said:

'There are several features of this market which appear to restrict competition and customer choice. The Competition Commission will now investigate further and determine whether any remedies are required.'

NOTES

1. This market investigation reference to the Competition Commission is made under section 131 of the Enterprise Act 2002. This states that the OFT may make such a reference where it has reasonable grounds for suspecting that any feature, or combination of features, of a market in the United Kingdom for goods or services prevents, restricts or distorts competition in connection with the supply or acquisition of any goods or services in the UK or a part of the UK.

2. The OFT has published guidance about the making of market investigation references to the Competition Commission. Download Market investigation references (pdf 208 kb)

3. This is the second market investigation reference to the Competition Commission under the Enterprise Act 2002. The supply of store card services was referred in March 2004.

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