Exclusivity deals go up in smoke

Central Cigarettes, which produce the popular Rothmans brands, will be forced to have competing cigarettes sold in their vending machines following a judgment by the Commission for Fair Trading.

The commission concluded that exclusivity agreements the company entered into with vendors in Paceville and St Julians were an obstacle to fair competition and constituted an abuse of a dominant market position on the part of Central Cigarettes.

On this basis, the company was ordered to reserve 15 per cent of the capacity of their vending machines for other cigarette brands other than theirs.

The case started in 1995 when Interbrands Ltd (formerly Austria Tabak (Malta) Ltd) filed a complaint with the Director of Fair Competition against Central Cigarettes.

Interbrands claimed Central Cigarettes was entering into exclusivity agreements with commercial outlets in the areas in question whereby cigarette vendors would bind themselves only to stock cigarettes manufactured by Central Cigarettes.

The director had found in favour of Interbrands and the case was then referred to the Commission for Fair Trading.

Magistrate Silvio Meli, presiding over the commission, pointed out that any agreement or practice intended to limit fair competition was null and void according to law.

Central Cigarettes had entered into agreements through which a commission would be paid to outlets on condition they would only stock the company's products.

They would receive other benefits, such as travel allowances and money for refurbishment works. As a result of such agreements, the outlets would only use vending machines belonging to Central Cigarettes and would only sell cigarettes produced by the same company.

Such agreements, the commission ruled, were objectively aimed at hindering fair competition in a way that made it practically impossible for competitors to penetrate the market in St Julians and Paceville.

Moreover, the commission noted that the Director for Fair Trading had concluded, after carrying out investigations, that Central Cigarettes held 96.4 per cent of the cigarette market when Malta was examined as a whole. With regard to the St Julians and Paceville areas, Central Cigarette enjoyed 82 per cent of the market in these products.

This meant that Central Cigarettes enjoyed a dominant position in the cigarette market and, therefore, a position of economic strength, which enabled it to hinder effective competition. It was empowered to behave in a manner that was independent of competitors and consumers, the commission ruled.

Such a dominant market position was detrimental to the consumer and to competitors who would not be able to penetrate the market.

The Commission confirmed the director's findings and declared that the agreements entered into by Central Cigarettes were null and void.