Grounds for reference of rolling stock leasing

ORR decision (179 pages, PDF) to refer the leasing of rolling stock for franchised passenger services to the Competition Commission for a market investigation under the Enterprise Act 2002.

The decision recalls the market features identified in ORR's November 2006 consultation (with only minor changes and a loss of numbering), and ORR's grounds to suspect that these market features prevent, restrict or distort competition.

ORR (and not the Competition Commission) has powers to enforce the competition law prohibition on the abuse of a dominant position, which includes a prohibition on excessive pricing. But ORR states that:

5.57 We have considered whether the concerns identified (for example, about pricing) should be investigated as an abuse of a dominant position under the Competition Act 1998, but consider that many of the competition problems in these markets are inherent to the operation and structure of the markets rather than the direct result of abusive conduct of one or more players.

Given this focus away from allegations about the conduct of rolling stock leasing companies, and since the market features identified by ORR are primarily caused by history, technical fact and Government policy, rather than by decisions made by leasing companies, some respondents had argued that ORR should not make a reference, as the Competition Commission would have no greater powers or expertise than ORR to study or remedy these features. But ORR states that:

5.50 Our view is that a more detailed examination of the relevant issues would be necessary in order to reach a fully developed view on remedies. The [Competition Commission] is a specialist second stage investigatory body and so is best placed to carry out a detailed investigation of this sort. Moreover, our sectoral expertise will be available to the [Competition Commission] during the course of its investigation.

5.51 Further, it is far from certain that a full investigation would conclude by identifying changes to the franchise system that would be feasible and sufficient to introduce effective competition into these markets. If so, behavioural remedies of the sort discussed below [i.e. price controls] may prove necessary. Whilst the [Competition Commission] has the powers to impose such remedies, we can only take undertakings that have been offered voluntarily ...

5.59 In the weeks following the publication of our minded to refer decision, we had a number of discussions with the DfT and the ROSCOs regarding the possibility of finding a resolution to the various stakeholder concerns that we had identified by means other than a [Competition Commission] reference. These discussions have been an important factor in forming our view that voluntary undertakings would not be a realistic means by which to arrive at a solution that was acceptable to all parties.

Anyone aggrieved by ORR's decision has two months to seek a judicial review at the Competition Appeal Tribunal. If the decision stands, the Competition Commission has two years to report.

The Competition Commission has a home page for this inquiry.

For further information or advice please contact Franck Latrémolière.

Filed under Competition Commission, ORR, Price controls, Public transport.

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