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For the purpose of this Decision, 'electronic games' are console games, handheld electronic games and personal computer (PC) games. 'Traditional games' are defined as all games excluding electronic games. There are many clear differences between electronic games and traditional ones. Currently, there is little overlap between the suppliers of electronic games and the traditional toy manufacturers. Nintendo, Sony and Sega Enterprises Ltd dominate the market for electronic games. Electronic games are often supplied through different retailers, such as specialist electronic games retailers, audiovisual retailers or electrical goods retailers. Many such games require expensive hardware before they can be used. They are sold at price points that are much higher than those associated with most traditional games. Research conducted for Hasbro by Griffin Bacal states:
'principles of this [electronic games] differ from traditional board game play: mainly solo play manual dexterity/skill pace, speed mastery/control fast moving visual images Office of Fair Trading 16
visual and sound elements integrate as enhancers of excitement/ reward.'
The research goes on to say 'Handheld electronics deliver similar styles and types of game play, but are generally viewed as separate additional items not substitutes.' A comment from Hasbro in a Key Note report supports the view that traditional games form a separate market from electronic games. It believes board games will remain popular even in the Internet age, stating that 'the social interaction that board games bring is unique to home entertainment.'18 RELEVANT GEOGRAPHIC MARKET
As noted in paragraph 22 above in this case the OFT is under no obligation to come to a conclusion as to market definition for the purposes of establishing an infringement of Chapter I of the Act. However, market definition is the first step in assessing penalties. The OFT considers that it is unlikely that the market can be defined more narrowly than national. If a wider geographic definition were adopted this could have the effect of increasing the parties' relevant turnover and therefore penalty. For the purposes of calculating penalties the OFT is proceeding on the basis that the relevant market is that for toys and games in the UK. CONCLUSION
In the circumstances of the present case, the OFT does not consider it necessary to choose between the wider definition of all toys and games or the narrower definition given below of separate markets for each separate category. It is not necessary in this case to arrive at a precise definition in order to demonstrate an infringement of the Chapter I prohibition. However, the calculation of level of penalties depends partly on definition of the relevant market.The OFT has taken a narrow view of the market which results in penalties which are lower than if a broader definition had been adopted. Therefore, for the purposes of this Decision and in particular for the purpose of assessing the level of penalties the OFT has considered the relevant turnover of the parties in each of the following 10 categories of toys and games: 1) Infant and pre-school 2) Infant Pre-school
Initial arrangements regarding Action Man and Core Games only (see from paragraph 42 above) 17 common products are at the same price, 1 (Walkie Talkie) is priced at 12.99 by Argos and 14.99 by Littlewoods 16 of 17 common products are at the same price
All 12 common products are at the same price
7 common products, only one of which is at the same price
All 9 common products are at the same price
4 common products, only one of which is at the same price
Witness statement of David Bottomley, paragraphs 12 and 14; witness statement of Neil Wilson, paragraphs 27 and 30. Office of Fair Trading 28
E-mails of May 2000 extending arrangements to products other than Action Man and Core Games (see from paragraph 62 below) A/W 2000 All 14 common products are at the same price All 8 common products are at the same price 20 of the 21 common products are at the same price 13 of the 14 common products are at the same price 17 common products, 14 of which are at the same price** All 5 common products are at the same price***
Source: catalogues of Argos and Littlewoods, as summarised in Document D.5 of Annex A. * 'Additional Toys' are the toys mentioned in the e-mail of 18 May 2000 from Hasbro to Littlewoods (see paragraph 69 below). ** This includes Interactive Pikachu which was priced by both Argos and Littlewoods at 23.75 (see paragraph 75 below). *** This includes the two Tweenies dolls (Tweenies Pop Star Poseable Plush and Tweenies Doodles) that were the subject of discussions in the autumn of 2000 and which were subsequently priced by Argos and Littlewoods at the same price (see further at paragraph 107 below).
Autumn/Winter 1999 catalogues 57 The Argos and Littlewoods Autumn/Winter 1999 catalogues were the first catalogues for which the Hasbro account managers for Argos and Littlewoods had applied the process that is described in paragraph 53 above. When the catalogues were published in July 1999, it became clear to Hasbro that Argos and Littlewoods had priced nearly all the Action Man products and core games at the levels they had indicated to Hasbro, normally at Hasbro's RRPs.52 This had been very different in the three previous catalogues, as shown in Table 3 (paragraph 56 above). Before the Autumn/Winter 1999 catalogues came out, there was uncertainty about whether Hasbro's pricing initiative would work. The actual price levels in the catalogues reassured both Hasbro and retailers that the price levels of Hasbro products would be at or close to RRP. As indicated at paragraph 55 above, Ian Thomson says in his witness statement:
not do that, to tell him so he could take account of that in his pricing. It was clear from this that he knew that Hasbro was persuading accounts to go to RRP.' 'I understand that Vanessa Clarkson of Argos is suggesting that when she made a call such as this to me, it was to enquire about whether or not we had a special deal on cost price with that retailer (i.e. was this retailer being treated by Hasbro in a more advantageous way as compared with Argos). That may have been the case. However, in my conversations with Argos representatives, including Vanessa Clarkson and Andrew Needham, focus was more on retail price than cost price. They wanted to know if Hasbro could get the other retailer to move up to the RRP.'102
Further evidence of Argos's monitoring can be found in an e-mail of 22 May 2001 sent by David Snow, Hasbro's National Account Executive for Argos, shortly after the first OFT visit to Hasbro. In his e-mail, he reports to Charles Cooper on a conversation with his Argos counterpart:
'I had a call today from Jacqui Wray at Argos stating that the following items are on sale in the trade at prices lower than recommended retail prices. They are as follows Walmart Jnr Monopoly 9.88 Pictionary 17.72 Payday 13.44 Twister 6.81 Asda Kart Extreme 19.98 Motorbike Extrme 14.47 I stated that Hasbro cannot control retails prices due to it being illegal.'
David Bottomley explains in his witness statement that Jacqui Wray of Argos:
' rang Hasbro on a number of occasions complaining about retail prices. She would want to know why other retailers were pricing differently from Argos. The reason she would contact Hasbro about it was because she would expect us to do something about it, i.e. persuade those other retailers to price at Hasbro's RRP.'103
Witness statement of Neil Wilson, paragraphs 32 and 25. Witness statement of David Bottomley, paragraph 46. Office of Fair Trading 43
Argos and Littlewoods would also often inform Hasbro if they intended to reduce the price of a Hasbro product during a catalogue season.104 As indicated above, if Hasbro became aware of possible undercutting, Hasbro's Account Managers would speak to their respective contacts in the different retailers. Neil Wilson describes the process:
' once I had spoken to Argos, I contacted the account manager in Hasbro who dealt with the retailer in question. He or she in turn called the buyer of the retailer who had the lower price. The account manager sought to find out why the price was lower and to persuade the retailer to go back to the RRP. Often the lower price turned out to be a temporary promotion, for instance to clear out stock, or a simple mistake, as most retailers were eager to charge RRPs. I then informed Argos whether we were able to do anything and either provided the reassurance they sought or said that we could do nothing. Argos knew that this was the process that was going on.'105
Witness statement of Neil Wilson, paragraph 28. This is supported by Ian Thomson's witness statement at paragraph 91.
Witness statement of David Bottomley, paragraph 18. Witness statement of David Bottomley, paragraph 19. Witness statement of David Bottomley, paragraphs 28 and 33. Office of Fair Trading 47
RRP, Argos would also remain at the RRP. If not, Argos would have to make a decision about how it would price the product usually by matching the competitor's price. I cannot recall being specific about Index in my conversations with Andrew Needham [Argos's buyer of boys' toys]. I would not be specific to Argos about any retailer or any retailer's price. Similarly, Andrew Needham would not specifically ask about Index. However, we would talk about the future anticipated market price and we were both aware that the Index price would be crucial to the outcome of the market price of any particular product. Andrew Needham was certainly aware that Hasbro was communicating with retailers with a view to increasing margins by moving towards RRPs. I know this from conversations I had with him, including when he would pick up the telephone, say that he had seen an Action Man product for, say, 2 less than the RRP, and could Hasbro do anything about it. His purpose in calling me was that he wanted Hasbro to persuade the retailer to go back to RRP or, if we could not do that, to tell him so he could take account of that in his pricing. It was clear from this that he knew that Hasbro was persuading accounts to go to RRP.'120
Ian Thomson states:
' There was no doubt that Alan Burgess [Littlewoods's buyer of boys' toys] knew that I was passing on to the Argos account handler (Neil Wilson) the contents of our discussion and that I would confirm the Argos intentions back to him after Neil had concluded his discussions with Argos.'121
Evidence is also provided by Ian Thomson's e-mail to Littlewoods of 18 May 2000 (see paragraph 69 above) where he lists products and prices that 'Argos have committed to.' 98 The agreements also had the same clear objective of fixing the prices of Hasbro's toys and games and were entered into by Hasbro, Argos and Littlewoods as a joint operation. This is clear from the evidence as a whole, as set out above, and David Bottomley's witness statement:
' The listing and pricing initiatives came about as a result of low margins that were a concern across the entire industry and shared by Argos and Littlewoods. Argos was sympathetic to both initiatives and was actively involved in
Witness statement of Ian Thomson, paragraph 117. Office of Fair Trading 55
Agreement and/or concerted practice between Hasbro and Littlewoods 115 As with the agreement between Hasbro and Argos, there is clear evidence that Hasbro and Littlewoods agreed to fix prices. See for example paragraphs 62 and 63 (quoted at paragraph 49 above) of the witness statement of Ian Thomson, Hasbro's Business Account Manager for Littlewoods, as well as the following sections of his witness statement:
'My understanding was that the agreement to stick to the Core Brand [i.e., Hasbro's core games and Action Man range] pricing was still being monitored internally in Index by their senior management whom I took to be Lesley Paisley and John McMahon. Even though I was given the understanding from Alan Burgess that he intended to go with the Retails I could not be sure this happened until the catalogue was published. There was no doubt that Alan Burgess knew that I was passing on to the Argos account handler (Neil Wilson) the contents of our discussion and that I would confirm the Argos intentions back to him after Neil had concluded his discussions with Argos. In my dealings with the Buyers, except for Alan Cowley, I always got the impression that they were fully aware of the initiatives regarding Core Games and Action Man and while willing to go along with my new proposals were nervous of what would happen if they were left exposed.'133
Thomson's witness statement is supported by the wording of his internal e-mail of 18 May 2000 (see paragraph 67 above):
Littlewoods did, as predicted by Thomson, 'play ball', in the prices for the relevant products in its Autumn/Winter 2000 catalogue, to which this e-mail relates (see paragraph 77 above), as well as in the prices for the relevant
Witness statement of Ian Thomson, paragraphs 88, 96, 108 and 115 (see further at paragraphs 65, 67, 69 and 98 of his witness statement). This is supported by the witness statements of David Bottomley (at paragraphs 18, 25, 28, 29, 33 and 48) and Neil Wilson (at paragraphs 29 and 51). Office of Fair Trading 56
products in its other catalogues from the Autumn/Winter 1999 catalogue onwards (see paragraphs 58, 61, 76 and 79 above). 117 The existence of the agreement between Hasbro and Littlewoods to fix prices is also evident from the e-mail sent by Ian Thomson on 18 May 2000 to his contacts at Littlewoods setting out prices that Argos had committed to (see paragraph 69 above). It is hard to see why such an e-mail would possibly have been sent in the absence of an agreement that Littlewoods had made with Hasbro that it would adhere to the same prices as Argos. Ian Thomson says that '[t]he contents of my E-Mail should not have come as any surprise [to Littlewoods] because as I have explained we had previously discussed the initiatives involved.'134 Further evidence of an agreement can be found in the email from Alan Cowley of Littlewoods sent to Ian Thomson on 28 December 2000 where he states 'I will not elaborate on the consequences if we had been unable to do so, resulting in our being undercut by Argos and other High St outlets, especially when you had earlier been so insistent that we all went out at the same price!' (see paragraphs 84 and 107 above). A number of the e-mails referred to evidencing price-fixing were found at the premises of Littlewoods during the on-site visit. Littlewoods subsequently asked OFT officials to speak to its employees about the allegations of price-fixing and in particular about the e-mails of 18 May 2000 and 28 December 2000. On 16 October 2001, OFT officials interviewed Lesley Paisley, Index Buying Manager, and Alan Cowley and Alan Burgess, both buyers of toys at Littlewoods. They all denied that there was a price-fixing agreement between Hasbro and Littlewoods. In relation to the e-mail of 18 May 2000 containing a list of price points, Alan Cowley stated that he did not remember receiving it but he did confirm that his products went out at the prices;135 Alan Burgess could not remember it;136 and Lesley Paisley did remember receiving it but indicated that she did not see it as improper but rather as a list of retail prices that Hasbro was recommending to Littlewoods; she did not remember if Ian Thomson asked her to delete it. Ian Thomson does remember asking Lesley Paisley to delete the e-mail and describes her reaction in his witness statement:
Witness statement of David Bottomley, paragraph 47. Witness statement of Neil Wilson, paragraphs 71 and 72. Office of Fair Trading 64
The witness statements of Ian Thomson, Neil Wilson and David Bottomley are supported by several e-mails which were written at the time of the agreement. The e-mail sent by Neil Wilson and Ian Thomson on 18 May 2000 specifically mentions 'a price agreement' and that 'prices will be maintained as per earlier agreements' concerning Argos and Littlewoods. Although this e-mail was also sent to Mike McCulloch, the OFT has no evidence to indicate that he objected to the wording of this e-mail at the time. On the same day, Ian Thomson sent an email to Littlewoods listing prices 'that Argos have committed to'. Although this e-mail was copied to Mike McCulloch as well, a reply was sent only by Mike Brighty, a Hasbro Sales Director who also received a copy. His reply shows that Hasbro was fully aware of the 'highly illegal' nature of the agreement. Another example is the e-mail of Alan Cowley of Littlewoods of 28 December 2000, who reminds Ian Thomson that Ian Thomson 'had earlier been so insistent that we all went out at the same price'. In addition, several further e-mails show how Hasbro acted as middleman between Argos and Littlewoods. Similarly, Hasbro's uncertainty about the prices that Argos and Littlewoods would actually use does not contradict the existence of agreements. In fact, the comments about uncertainty were mostly made by employees who admitted that the agreements existed. David Bottomley, Neil Wilson and Ian Thomson all state that Argos and Littlewoods did not guarantee that the prices that they would actually charge would always correspond with the prices they had indicated to Hasbro (see paragraph 101 above). In that sense they are consistent with the statements of McCulloch and other Hasbro employees to OFT officials when these employees say that Hasbro could not guarantee the prices of Argos or Littlewoods in advance. The uncertainty about the actual prices can be explained by the nature of price-fixing agreements, where inherently the parties can never be certain that the other parties will fully implement the agreements. They can only expect rather than rely absolutely on implementation, as shown by David Bottomley's witness statement that Ian Thomson would have had 'a clear expectation that Argos would adhere' to the prices communicated by Hasbro.146
Response to the representations made by Littlewoods on the original rule 14 Notice
Office of Fair Trading 84
Galore, which Thomson's e-mail had indicated would not be listed by Argos and which Littlewoods priced at 24.99 instead of 19.99. 221 Furthermore, the OFT is not required to demonstrate that both parties complied with the agreements in all its aspects throughout their duration to demonstrate that any such agreements exist, as the agreements had the restriction of competition as their object (see at paragraph 128 above). This is clear in the European jurisprudence, for example in a recent judgment of the European Court of First Instance where it stated that 'it is clear from case-law that, for the purposes of applying Article (1) of the Treaty, there is no need to take account of the concrete effects of an agreement when it is apparent that it has as its object the prevention, restriction or distortion of competition .' (see also at paragraph 256 below).167 INTERPRETATION OF THE E-MAIL OF 28 DECEMBER Representations: Littlewoods says, based on Alan Cowley's witness statement and that of Lesley Paisley, that the e-mail of 28 December (see paragraph 84 above) was a one-off that does not provide evidence of an agreement. Alan Cowley describes the circumstances surrounding the exchange, which appears to relate to a last minute reduction in the wholesale price and hence the RRP of the product. Alan Cowley was concerned that he would not be able to reduce the price in his catalogue and refers to the dire consequences of being undercut by Argos. OFT's response: The OFT accepts that none of the first part of the e-mail is particularly contentious. However, it is the last statement in this e-mail that the OFT is relying upon as part of its evidence of the existence of an agreement. The OFT finds it difficult to see what alternative meaning can be given to this final statement 'I will not elaborate on the consequences if we had been unable to do so, resulting in our being undercut by Argos and other High Street outlets, especially when you had earlier been so insistent that we all went out at the same price!' (emphasis added). Alan Cowley's witness statement does not seem to provide an alternative explanation for the statement; all it endeavours to do is to play it down and explain it away by saying that he used the term 'insistent' to exaggerate the situation. Lesley Paisley attempts to further downplay Cowley's words by saying that [*]. It should be noted that her comments on this issue
Cases T-202/98, T-204/98 and T-207/98 Tate & Lyle etc v Commission  ECR II02035, paragraphs 72-73. See also European Court of Justice, Case C-277/87 Sandoz Prodottie Farmaceutici v Commission  ECR I-45, paragraph 15. Compare the Belgian Roofing Felt Cartel case, where the European Court of Justice held that a pricing cartel existed despite the fact that the prices fixed for new products were not observed in practice (Case C-246/86 BELASCO v Commission  ECR 2117, paragraph 15). Office of Fair Trading 85
come with a caveat, that her comments on the exchange are based on the explanation of them given by Cowley in his statement. It is clear from her statement that she had sight of Cowley's statement prior to the preparation of her own. INTERPRETATION OF THE ORAL STATEMENTS 224 Representations: The OFT has not considered in the original rule 14 Notice the statements given by Littlewoods employees on 16 October 2001 and submitted to OFT following the Littlewoods internal investigation. These deny the existence of any agreement. OFT's response: The OFT has fully considered the oral evidence taken from the Littlewoods employees and submitted with the written representations. This evidence is discussed in detail at various points in this Decision. It is worth stating again that where the oral evidence in this case is clearly contradictory, the OFT has chosen to place more weight on the evidence that is supported by contemporaneous written documents. Representations: The OFT's procedures for conducting and recording the oral interviews with employees of Hasbro were unsatisfactory and as such these statements are inadmissible and should not be relied upon. A complete and exact signed record of the evidence should have been taken and made available to Littlewoods. Hasbro's employees may have said things favourable to Littlewoods's case that have not been recorded. Where oral evidence is taken and is to be relied on, then the procedures of the Police and Criminal Evidence Act 1984 ('PACE') should be complied with. Section 67(9) of PACE requires that the PACE Codes of Practice, which are to be used for the investigation of criminal offences by persons other than police officers, should have been followed since infringements of the Chapter I prohibition are to be treated as criminal offences for the purposes of Article 6 of the European Convention on Human Rights ('ECHR'). The times the interviews are recorded as lasting do not tally with the length of the note recording what was said. One would expect much longer statements. It would appear that these statements are 'partial'. Redacting sections of these statements is unacceptable. Statements given to the OFT by Littlewoods employees do not record what was said about, for example, market conditions and this material was not referred to in the original rule 14 Notice. OFT's response: The OFT does not accept these representations. In effect, a complete and exact signed record was taken. Interviews were held and a contemporaneous note was made of the main points of evidence. This note was then given to the interviewee to read, correct and/or add to and sign as a true
Office of Fair Trading 86
and fair record of the evidence that had been given. A lawyer from Denton Wilde Sapte representing Hasbro and a legal counsel from Littlewoods was present at each interview with Hasbro employees and Littlewoods employees respectively. To adopt procedures where all interviews carried out during an investigation were recorded and a transcript then made would hamper the investigation unduly and unnecessarily, particularly since the interviewee is given a chance to correct and add to the record. Subject to a duty to act fairly, the OFT needs to adopt rules which do not unduly hamper, lengthen or frustrate the activities of those engaged in investigating.The representation that OFT should have followed PACE procedures and Codes of Practice when holding these interviews cannot be accepted. The reference to 'offences' in PACE is clearly a reference to offences classified as criminal for the purposes of domestic law. There is no obligation upon member states to the ECHR to treat also as a criminal charge for domestic purposes all matters that fall to be classified as criminal for the purposes of the ECHR. The Court of Appeal has held that:
'It by no means follows from a conclusion that Article 6 applies that civil penalty proceedings are, for other domestic purposes, to be regarded as criminal and, therefore, subject to those provision of PACE and/or the Codes produced thereunder, which relate to the investigation of crime and the conduct of criminal proceedings as defined by English law.'169 (emphasis in original)
The Competition Commission Appeal Tribunal has held:
'As the Court of Appeal held in Han the fact that Article 6 applies does not of itself lead to the conclusion that these proceedings must be subject to the procedures that apply to the investigation and trial of offences classified as criminal offence for the purposes of domestic law . Infringements of the Chapter I and Chapter II prohibitions. are not classified as criminal offences in domestic law .'170
It follows that the infringement that was under investigation in this case was not an 'offence' for the purposes of section 67(9) of PACE and therefore there was no duty for OFT to observe the provisions of PACE when conducting the investigation. 229 The supposed discrepancy between the time the interviews were noted as lasting and the length of the written record of the interview does not mean that the record is incomplete or 'partial'. The duration of each interview began from
R v MMC ex parte Elders  1 All ER 451. Han v Commissioners of Customs and Excise  4 All ER 687, paragraph 84.
Case No 1001/1/1/01 Napp Pharmaceutical Holdings Limited and Subsidiaries v The Director General of Fair Trading, 15 January 2002,  CAT 1 at  and ,  CompAR 1. Office of Fair Trading 87
'in the context of establishing the existence of a single and continuous agreement contrary to Article (1) E.C., the fact that the objectives of certain
Competition Commission Appeal Tribunal, Case No 1001/1/1/01 Napp Pharmaceutical Holdings Limited and Subsidiaries v The Director General of Fair Trading, 15 January 2002,  CAT 1,  CompAR 1.
European Court of First Instance, Case T-41-96 Bayer v Commission  ECR II-3383. Office of Fair Trading 102
bilateral or multilateral arrangements engaged in by the undertaking concerned coincide with those of the agreement in question is not sufficient to establish the applicant's participation in the latter. Such types of conduct can only be regarded as constituent elements of the single agreement if it is established that they formed part of an overall plan pursuing a common objective, and that the undertaking was sufficiently aware of this'.183
Even if the existence of an agreement between Hasbro and Argos is demonstrated, the OFT has not proved that this was part of an overall plan with Littlewoods of which Argos was aware. There is no evidence to demonstrate when and with whom such an agreement was made. 293 As his statement makes clear, nothing was agreed between Mike McCulloch and Maria Thompson and Sue Porritt at Argos. Various other of the statements by Hasbro employees to OFT officials provide no concrete examples or contradict the proposition that such agreement existed. No corroborative evidence from Argos and little from Littlewoods has been produced to support this allegation. The statements made by Hasbro personnel to OFT officials were made following an application for leniency by Hasbro. Certain of them (specifically Ian Thomson and David Bottomley) may have believed that Hasbro was a party to some form of price-fixing arrangement with Argos and Littlewoods and thus made statements to that effect as part of Hasbro's duty to co-operate with the OFT investigation. They were mistaken in so far as their evidence was that the Argos and Index catalogue prices were at RRPs (which was not in fact the case for all the products in question). There is no evidence that Argos and Littlewoods knowingly exchanged information through Hasbro. The series of e-mails sent around 18 May 2000 do not show direct and close involvement between Hasbro, Argos and Littlewoods. According to Andrew Needham, Ian Thomson's e-mail of 18 May 2000 (see paragraph 69 above) is based on false assumptions; he did not tell Thomson Argos's prices but Thomson may have assumed that Argos would go out at RRPs given its policy of moving towards RRPs. Vanessa Clarkson believed that Thomson was telling Littlewoods what price to go out at rather than listing Argos's pricing. There is conflict between the evidence of various Hasbro employees (in particular Ian Thomson and David Bottomley on the one hand and Mike McCulloch and Charles Cooper on the other hand). Argos had no knowledge that its prices were being shared with other account managers in Hasbro or were being passed to Littlewoods. Evidence by Sharon Clark of GUS that she will tell Hasbro her retail prices is not evidence of an
Paragraph 2.4 of OFT 423. Paragraph 2.5 of OFT 423.
Paragraph 2.6 of OFT 423. The OFT accepts the written representations of Argos on this point, stating that the OFT should take the anti-competitive effects of the agreements into consideration in determining the penalty. Paragraph 2.4 of OFT 423. Office of Fair Trading 123
games, in reality the promotion and advertising costs associated with making a large scale entry with a product that could compete with brands such as Action Man or Monopoly are likely to make it much more difficult. 381 In its written representations on the original rule 14 Notice, Littlewoods claims that there is no evidence of any material impact upon prices of Hasbro toys, as the market was such that retailers would in any event adhere to RRPs, and that the effect of the agreements was negligible. Also, Littlewoods claims that the alleged agreements only applied to a limited range of Hasbro products and that the agreements only concerned Index and not Littlewoods's mail order business. However, as indicated in paragraph 173 above, the OFT does not accept that retailers would have adhered to RRPs in any event. Further, the OFT has never alleged that the agreements covered Littlewoods's mail order business (nor for that matter the mail order business of GUS, Argos's parent) and the turnover of these businesses have not been taken into account in calculating the penalties. The OFT has responded below to the other representations of Littlewoods referred to in this paragraph, together with the representations of Hasbro on these issues. Hasbro has submitted a report by RBB Economics ('RBB') with its written representations to the original rule 14 Notice, that claims that prices were unaffected by the 'arrangements' and actually fell, and that there was no effect on toys and games outside those directly covered by the 'arrangements'. Furthermore, it claims that there was no gain to Hasbro from the 'arrangements' as list prices (i.e. wholesale prices) also fell over the period that the 'arrangements' were in place. The OFT considers that whilst RBB has demonstrated that the average retail price for many of the products targeted in the agreements actually fell over the period, it has failed to take account of what would have happened to these prices in the absence of any agreement. RBB has shown that Hasbro list prices on core games fell by an average of [*] per cent and [*] per cent to Argos and Littlewoods respectively over the period of the infringement. Hasbro's aim at the time was to increase retailer margins (see paragraph 43 above). This was an industry that had been fiercely competitive with retailers eager not to be beaten on price, particularly on key lines, such as these. There was clearly a risk for Hasbro that any attempts to increase retailer margins by reducing list prices would simply result in all the benefit being passed on to the consumer with no change in the overall margins for retailers. But the 'arrangements' were deliberately designed to have the effect that retailers did not need to discount and knew this (see paragraphs 43 to 48 above). The RBB report shows that average retail prices of core games fell by [*] and [*] per cent for Argos and Littlewoods respectively over the period. The fall in retail prices is much smaller
Paragraph 2.8 of OFT 423. Paragraph 2.10 of OFT 423. Office of Fair Trading 127
Competition Act 1998 (Determination of Turnover for Penalties) Order 2000.200 The section 36(8) turnover of an undertaking is not restricted to the turnover in the relevant product market and relevant geographic market.201 The OFT has considered below whether any penalty would exceed 10 per cent of the section 36(8) turnover. PENALTY FOR HASBRO Step 1 starting point 394 Hasbro's turnover in the relevant product and geographic markets (i.e. UK markets for infant and pre-school, boys' toys, girls' toys, games and puzzles, creative, plush and hand-held electronic) in the financial year preceding the termination of the agreements (1 January 2000 to 31 December 2000) was [*].202 The OFT has made an analysis of its findings regarding the seriousness of this infringement at paragraphs 367 to 387. With specific regard to Hasbro and its role in these infringements,the OFT considers that, taking into account the very serious nature of the infringement (price-fixing) and his comments in those paragraphs regarding the nature of the products, entry conditions, damage to consumers, the effects on competitors and Hasbro's position in the supply of toys and games in the UK, a starting point of [between 8 and 10, inclusive] per cent of the relevant turnover is clearly appropriate. The starting point for Hasbro is therefore [*]. Step 2 adjustment for duration 396 As indicated above (paragraph 388), the duration of the infringements relating to Action Man and core games exceeded one year and the penalty has been calculated in step 1 on the basis that Hasbro's turnover in the categories boys' toys and games and puzzles should be multiplied by one point two. As it is not clear that the infringement relating to the other toys and games categories , for the purposes of the calculation of penalties, lasted for more than one year, the penalty based on the turnover in these categories remains unchanged. This results in a total penalty at this step of [*].
PENALTY FOR LITTLEWOODS Step 1 starting point 423 Littlewoods's turnover208 in the relevant product and geographic markets (i.e. UK markets for boys' toys, games and puzzles, girls' toys, infant and pre-school, plush, creative and hand-held electronic) in the financial year preceding the termination of the agreements (the financial year ended 30 April 2001) was [*].209 The OFT has set out its views generally about the seriousness of this infringement at paragraphs 376 to 387. With specific regard to Littlewoods, the OFT takes into account the very serious nature of the infringement (price-fixing) and its comments in those paragraphs regarding the nature of the products, entry conditions, damage to consumers and the effects on competitors. Although the position of Littlewoods in the retail toy sector is less important than the position of Argos, Littlewoods's share of the retail supply of traditional toys and games is significant. Littlewoods is a substantial and well known retailer in its own right. Despite Littlewoods's lower market share in the retail toy sector compared with Argos, Littlewoods is seen as Argos's main competitor in the high street catalogue sector. This is caused by the similarity of their outlet channel, the ease with which consumers can compare their prices because these are included in their catalogues, and their price-match guarantees. This means that Argos would not have taken part in the infringing agreements without the participation of Littlewoods. In the OFT's view Littlewoods would have been well aware that its participation in the infringing agreements was essential in order to bring Argos and its much larger market share within the scope of the infringement. It would also have known that other retailers would have been likely to follow Argos's prices since Argos is the acknowledged price leader in the market. Littlewoods's lower market share is not, therefore, a factor that should lead the OFT to find that its participation in the agreements should be viewed less seriously than that of Argos. Market share in any event is only one of the factors taken into account in assessing the seriousness of an infringement at step 1 and the OFT is in no
Were you aware, when you had the
Hasbro/Index meeting in 1998, that Argos had already decided to price at 99 pence price points? A. Q. No, not at all. Were you aware of this fact when you swore this statement? A. Q. No, I am not aware of that. If we can have a look at the prices, starting with core games. Tab 1 is dealing with core games. We see on the
left-hand side Battleships, well that is not listed, the Trivial Pursuit is priced by Argos at 39.99, and we have an RRP, which is the RRP sent to the OFT in 2003, that is consistent with the RRP, correct? A. Q. Yes. If these figures are correct, I mean. Jenga, 9.99, 9.99? A. Q. A. Q. A. Q. Yes. Pictionary, 29.99, 29.99. Yes. Mousetrap, 16.99, 16.99. Yes. If you go towards the bottom, to Monopoly, 14.99, 14.99. A. Q. Yes. In all those cases, Littlewoods are cheaper than Argos, The next one,
25 Q. A. A. Q. A. Q. A. Q. A. Q.
or have not listed the product. Right. Do you see there that for other products, Argos have priced at above the RRP, so for example, Guess Who, 13.99, 14.99; that is the Guess Who. Twister, 12.49, 12.95. Yes. Kerplunk, 12.49, 12.95. Yes. Frustration, 8.49, and so it goes on. Yes. Are you able to comment on the RRPs where Argos has priced above the RRPs? No, I am not. As I explained yesterday, there were some
cases where some products were printed above RRPs, and that was a decision made by any particular account that we dealt with, that was their choice. Can we go to the next tab? This is Action Man. So this
is B2, I think it is just tab 2 for you. THE CHAIRMAN: MR BREALEY: Tab 2?
Tab 2. The Action Man range. Yes?
Again, just to identify the document, what we
have done -- the first page is spring/summer 1998 on the left-hand side; on the right-hand side, we have
25 A. Q. A. Q. A. Q. Q. A. Q. A.
autumn/winter 1998, and in our pricing analysis, we have set out what are the common products, which ones are cheaper, whether Littlewoods are cheaper, whether Argos is cheaper. But if we can go four pages in -THE CHAIRMAN: MR BREALEY: 1999? Again, I remind you of the
evidence that you are saying that it is critical to go out at the 99 pence price point, in order to stop undercutting. Sorry, the fourth page in I have is spring/summer 1998. Then can you go on? Is this the one that says, "RRP sent by Hasbro to OFT in 2003"? It is, Mr Thomson. Then you will see spring/summer
about this not being his statement or something. just sort this out?
Sorry, I am looking at Andrew Needham's statement here. Yes, I am sorry, you are quite right, Could you just go to paragraph 16 of your
THE CHAIRMAN: Mr Wilson.
own statement? MR BREALEY: I will be going to paragraph 16 of -We already have gone to paragraph 16.
Paragraph 16 of your own statement:
"When I was given the products selected for the catalogue, I established which were the common products carried by the majority of retailers (not specifically Index) and asked Argos what its price intentions were in relation to each of these products. I did not do this
for products that were not common.
I informed Argos
what the Hasbro RRPs for the common products were and asked them whether any of our RRPs were a problem for them to match. Argos let me know whether they
considered that a particular RRP was inappropriate. This was nearly always because Argos had spotted a different retailer charging a lower price, but it could also be because Argos felt the market would not stand the RRP and wanted to reduce the price to drive sales. By and large, when I presented Argos with
Hasbro's proposed RRPs." This is relating to core games and Action Man: ". they said they were happy to follow them, although they did not give any guarantees and were subject to change. Occasionally, their price would
differ from the indication they had previously given." Now that is your evidence. Could I ask you to go to
paragraph 16 of Mr Needham's second statement, so that is at tab 35, page 281 of that bundle: "If Neil Wilson did ask me whether I was happy or comfortable with an RRP, I may have said yes. But we
did not have a discussion about whether Argos would be pricing at the RRP for each of the core games and Action Man products that were being listed. He did not
go through each product line by line and ask me whether
I was happy with each RRP.
Neil Wilson sometimes asked
me whether Hasbro RRPs were set at the correct level. Hasbro, as did other toy manufacturers, sought our view on certain RRPs at the toy previews and toy fairs that I mentioned above. We also sometimes had general
discussions about where we both thought the market price for a Hasbro product was likely to settle (ie what the future anticipated price for the product was likely to be during the life of the Argos catalogue). This
I think that is part of the roll-out where previously, in 1999, it was Action Man and games, and the growth driver is a new sector which was created which contained some of Hasbro's other key brands. And this is a kind of -- as you say, it is a roll-out for quite a few of the retailers. We can see this at
page 71, I would imagine, where we have a plan to commit several million, and there is a focus on priority customers.
That is actually not particularly relevant, that is -the JMA budget is the amount of money which would be spent on advertising and promotion.
If we go back to 69, that margin enhancement, is
that all part of this overall roll-out to all the retailers? A. I think that was something in addition to the core strategy. Q. And when was this new segmentation created, can you remember? A. It would have been in preparation for 2000 trading terms and negotiations, so beginning of 2000. THE CHAIRMAN: Sorry, Mr Wilson, I have not quite
gathered -- if we go back to page 60, when you say in number 1: "Segment the terms versus defined category requirements in line with retail buying structures, eg boys' toys, games", et cetera, what exactly do you mean by "segment the terms"? A. Okay, if you go to 63? I am actually on 63.
THE CHAIRMAN: A.
That was the way that the brands were segmented, in terms of umbrella categorisations of core boys, games and creative and growth drivers.
Within that are other brands which are under those particular headings.
And the idea -- please correct me if
I have it wrong -- was that the core rebate approach would be extended across to the growth drivers from Action Man and games. A. Yes, in 1999, the rebates applied to just one boys' toy, which was Action Man. The following year, it was
extended to Star Wars, Transformers, Micro Machines and Batman. The games rebate was extended to creative play,
and the growth drivers were new for 2000, they were not in existence in 1999. THE CHAIRMAN: MR BREALEY: Yes, thank you.
Sir, I do not know -- I am going on, but what We have had a short
time you want to have your break. break already -THE CHAIRMAN:
Well, we have had a short break already.
have some time to go presumably? MR BREALEY: Yes, I have another 45 minutes, or something I am in your hands. I just notice it is
like that. 11.30. THE CHAIRMAN:
25 A. A. Q.
have the spring/summer 2000, and then we have, on the right-hand side, the autumn/winter 2000, and again, the products and the prices. So far as the Battle Figures product is concerned, that is at 4.99 by Argos, that is the RRP, as far as we can work out; yes? Yes. But you will note also that Argos in the spring/summer 2000 sold it at 4.99, so they priced the same. And
Littlewoods, which were at 4.75, went up to 4.99, which was the RRP; correct? Yes. They went up to 4.99 in autumn/winter 2000,
THE CHAIRMAN: you mean? MR BREALEY:
The next, the Pokeball Blaster, on the
e-mail, it says 6.99, whereas in actual fact, Argos went out at 6.95. it is incorrect. THE CHAIRMAN: Sorry, are we talking about spring/summer So that figure is, I think you know,
2000 or autumn/winter 2000? MR BREALEY: 2000. THE CHAIRMAN: MR BREALEY: Yes. The figure on the e-mail concerns autumn/winter
That says that Hasbro believe that the Pokeball In actual fact,
Blaster is going to be priced at 6.99.
25 A. A. Q. A. Q.
in autumn/winter 2000, Argos price it at 6.95. THE CHAIRMAN: MR BREALEY: Yes.
Do you see, Mr Wilson, any pattern between the
Battle Figures and the Blaster? MR DOCTOR: I am not sure -- is the question related to
a pattern as between the spring/summer and autumn/winter, or within autumn/winter between the two companies? THE CHAIRMAN: What does it relate to? I mean, are these facts in issue, Mr Brealey?
What is it you are trying to get at? MR BREALEY: All right, I will put it to the witness, rather For the Battle Figures,
than him trying to work it out.
we go spring/summer 2000, 4.99, Littlewoods are 4.75. The RRP is 4.99, we are 4.99, and they match our spring/summer price, correct? Yes. The Blaster, in spring/summer 2000, we are 6.99 and Littlewoods are 6.95; correct? Yes. We go at the lower Littlewoods figure in spring/summer 2000, 6.95, but Littlewoods go at 6.99. In other
words, the pattern is that both Argos and Littlewoods are reacting to the previous prices in spring/summer 2000. Yes. That is a fair assumption, correct?
Mr Brealey, sorry to interrupt you, could
I just ask you, what is the column, "Annex A to Argos' written representations", which seems to have some different prices yet again? MR BREALEY: On the RRPs? Well, for example --
"Annex A to Argos' written representations" is It is one
some figures that we have that were the RRP.
of the astonishing things in this case, that we have to come up with what the RRP were; we are accused of price fixing at RRP. Nowhere in the decision is there an RRP
figure, nowhere in the supporting documents -- whereas we have tried to put various sources to the tribunal, as one can see. One of the sources is "Annex A to Argos'
written representations", and that is at file 4/6164. THE CHAIRMAN: MR BREALEY: Right.
If we go on, the Interactive Pikachu in the
e-mail of 18th May, Ian Thomson is confident that Argos will price at 23.99, correct? A. Q. Yes. But in actual fact, we go out -- or Argos goes out at 23.75. So again the e-mail, the price on the e-mail is I know there is a subsequent
correspondence on the Pikachu, but as far as the price on the e-mail, the confidence is misplaced.
At the time that the e-mail was written, Argos had given me an indication that they would be the RRP on that product, and the RRP is 23.99.
So that is the categories -- the other boys' toys that Mr Needham is responsible for. We then go to Micro
Machines, and again, if we look at the e-mail, Micro Machines, Transforming Team Truck, 29.99; so Ian Thomson is confident that Argos is going to price that truck at 29.99. In actual fact, in the catalogue, it prices it at 28.99, a pound lower; is that correct? A. Q. Yes. And we see that Littlewoods is a pound higher, at 29.99. The other product in Micro Machines,
Ian Thomson is confident that the track is going to be priced by Argos at 19.99, this is in the e-mail, whereas in actual fact, Argos price it at 18.99; correct? A. Q. Yes. Littlewoods go out at a pound higher. So just pausing
25 A. Q. A.
a conversation with Neil Wilson about the suitability of the RRP. In relation to Tweenies, I recall expressing
concern to Neil Wilson that the RRP seemed high when compared with other plush toys, such as Bob the Builder. I believe Neil Wilson told me that Tweenies were a hot property and other retailers were happy with the RRP." Can you remember a conversation with Vanessa Clarkson to the effect that going out at the RRP was a good price, it was a hot property? I cannot remember a specific conversation I had with her, but that is not inconsistent with what I might have said. Just to put the time on that, in her statement, she says she listed the Tweenies first for the Christmas flyer in 1999, is that correct? Possibly, yes. Well, she says she decided to list it in the
Argos Christmas 1999 catalogue. MR BREALEY: Yes. That is not the flyer, is it?
It is, yes. I see, it is a separate thing that goes out
before Christmas? MR BREALEY: Just before Christmas. Okay, fine.
So it was not in the autumn/winter 1999, but
just before Christmas. THE CHAIRMAN: MR BREALEY: I see, yes.
Then going back to the e-mail, but do not put
Vanessa Clarkson away just at the moment -THE CHAIRMAN: We have quite a lot of files open, Can you simplify it a little?
Mr Brealey. MR BREALEY:
Go back to the e-mail, that leaves us with essentially the creative toys: there is the Chocolate Factory, Egyptian Mystery, Mastering Mosaics, Gardens Galore not listed, Spirograph and Super Sticker Factory. In terms of importance -- so if you take the list in the e-mail: Pokemon, Micro Machines, Hand Held, Girls, Get Set, Design and Draw, Tweenies. Where do Get Set
and Design and Draw come in in the order of importance? MR DOCTOR: MR BREALEY: Importance in volume, value? To children?
If Mr Doctor would stop interrupting the
cross-examination -THE CHAIRMAN: Well, I think it is a reasonable request for In whose
a bit more clarity in the question, probably. mind?
In Hasbro's mind, in terms of total turnover, in
terms of importance as -MR BREALEY: In terms of importance, in Hasbro's mind, in
terms of value to Hasbro.
All the lines set out there are deemed key -- were deemed key lines to Hasbro. I would not say that
creative was any less important than any of the other products towards the top of the e-mail. Q. If you go over the page, this is the spreadsheet, to spring/summer 2001 -THE CHAIRMAN: MR BREALEY: to. THE CHAIRMAN: MR BREALEY: Yes? We are back to the spreadsheet volume now?
that be convenient, if we rise now and resume at 1.30? Is that acceptable? MR GREEN: It is certainly fine by us, we have no problems Our people are here. Very well. Thank you, Mr Doctor. We will
with that. THE CHAIRMAN:
start at 1.30. (12.17 pm) (The short adjournment)
(1.35 pm) MR DOCTOR: I have been told, sir, that I have been I am under
forgetting to switch on my microphone. strict instructions to do that.
We call our next witness, Mr Bottomley. MR DAVID BOTTOMLEY (sworn) Examination-in-chief by MR DOCTOR THE CHAIRMAN: Thank you, Mr Bottomley. Do sit down. Try
and direct your answers towards us in a general way, although the questions will come from over there. you very much. MR DOCTOR: Mr Bottomley, the bundle in front of you over Thank
there, is that labelled volume 1? A. Q. It is, yes. Right. Would you open that to tab 3? Do you find there
a document beginning, "Witness statement of David Bottomley"? A. Q. A. Q. A. Q. A. Q. I do, yes. Does that go up to page 18 at the bottom, paragraph 49? Yes, it does. Is that your signature on that page? It is indeed, yes. And is that your statement? It is, yes. Do you confirm the truth of the contents of that
statement? I do, yes. There will be some questions for you. Cross-examination by MR GREEN MR GREEN: Good afternoon, Mr Bottomley. I am counsel for
Index and Littlewoods, so I will be asking you about Index and Littlewoods, not Argos. Right. If there are any questions concerning Argos, then Mr Brealey will put them to you. Okay. You are fortunate in that questions about general issues have been put to the previous two witnesses, and I am not going to go over ground with you that I have been over with them, but I have a number of questions I want to ask you about your statement. Can I start, please, with paragraph 2 of your statement? You state here that from September 1998, you
were the sales director for the FOB, free on board division of Hasbro: ". and in December of that year, until I left Hasbro, I worked as a sales director with a responsibility for a variety of sectors, which during 2000 and 2001 included Littlewoods, Toys R Us, WH Smith and the independent trade."
25 Q. A. A. Q. A. Q. A. is?
Could you explain to the tribunal what FOB product
FOB product is used by -- or was used at that time by major manufacturers. It is where many retailers in the
toy industry, like Argos, Index, Woolworths, Toys R Us would buy product from you directly from the Far East, and all the freight costs et cetera would be borne by the retailer. retail trade. THE CHAIRMAN: MR GREEN: Yes. It was a way of injecting margin into the
page 7, going back to pre-policy change, spring/summer 1998, in paragraph 31 there are 18 common products, one is at the same price, Argos is cheaper on 11 and Littlewoods is cheaper on six. wins the battle, correct? So again, Argos usually
According to those figures, yes. Autumn/winter 1998, prior to the policy kicking in, there are 17 common products; three at the same price, Argos is cheaper on ten and Littlewoods is cheaper on four. Again, Argos wins.
Correct. Right. Come to spring/summer 1999, this is now when the
policy, we are told, has begun to influence pricing. There are 12 common products, none are at the same price: Argos are cheaper on three, but Littlewoods are cheaper on nine. So it looks as if Littlewoods again
has begun to get the edge, in terms of lowness of prices. A. Q. According to that, yes. If you go to page 13, this is a rather artificial category, but nevertheless, just for what it is -- this is a selection of other toys which subsequently were featured in an e-mail, but even on these, well, for spring/summer 1998 there was only one common product and Argos was cheaper; autumn/winter 1998, there were six common products, Argos is cheaper on four, Littlewoods on two; and spring/summer 1999, there are only two common products, Littlewoods is cheaper on both. again, we see that pattern. Previously, Argos had been cheaper; a policy change, So
about which you have read, takes place in Argos, and Littlewoods either begins to equal or indeed, in the majority of cases, is cheaper than Argos, right? According to those figures, yes. We are told that when you get the catalogue each year, this would be in January 1999, you draw up something called a win/lose analysis. That is correct. And you have now discovered, it must have been certainly in the field of toys, to your surprise, that whereas consistently Argos had always been cheapest, Littlewoods was now apparently beating Argos in the majority of cases. On those products illustrated, yes. And these, let us not forget, are the high-profile products. Would you mind if I make a point there? Just let me finish the question, and then you can make as many points as you like. These are the high-profile
products, I am talking about core games and Action Man, which we have heard described as the must-have goods, the ones that just have to be carried by the retailers. These are the ones in which Littlewoods is now beginning to make a considerable impact, in terms of winning the battle on prices.
What was the point you wanted to make?
The point I was going to make is really the illustration here is for the spring/summer season, which is the substantially smaller season, in terms of toys, than any other season. Really in the toy industry it is all We do quite
been one of one or two different things that they did. THE CHAIRMAN: MR DOCTOR: Thank you.
Are you saying that the possibility that Argos
25 Q. A. Q. A. Q. A. A. Q.
might increase their prices did not occur to you at all at that time? No, I am not saying that. Are you saying that the possibility that Argos would increase their prices was a factor in your thinking? What I am saying is Argos -- one of the things Argos could have done to increase their margin is put selling prices up, which I have done on numerous occasions. Well, theoretically, they could certainly have, but I am trying to establish whether it was part of your thinking at the time that the policy change you had heard about emanating from Argos led you to believe that Argos were going to put up their prices. I was of the opinion that it was a possibility that might happen, but that was not my only thought. I thought there were other opportunities where they could get extra margin. And when you saw the spring/summer 1999 catalogue, and you realised that on these key items they appear to have put their prices up, surely you concluded that that is what they were doing. Yes, I concluded that they are obviously going for some extra margin. Well, going for extra margin in the form of putting up their prices.
No, I just confirmed that we did not lose as many products as we have done previously, therefore Argos were not as aggressive on pricing.
So when we read in some of the other statements that at the end of 1998/beginning of 1999, Littlewoods had concluded that Argos was inevitably moving towards RRPs, as far as you were concerned, that was not Littlewoods' thinking.
No, it was part of Littlewoods' thinking, but we cannot be complacent, and we did not know what GUS were going to do. If we had all of a sudden thought that Argos
were going to put massive price increases in and we had as well, and they had not materialised, we would have been seriously disadvantaged. THE CHAIRMAN: MR DOCTOR: Yes.
So you are saying that you had no particular
reason to believe that Argos would put their prices up. They might try and cut their margins in some other way. A. It was generally thought, and the feedback from other industries within the retail trade was that Argos would be looking to improve the margin, and one of the ways they could improve the margin was by putting prices up. Q. On the other hand, they might have used one of the many other ways that you have suggested. A. Correct.
It is correct, is it not, that in catalogue retailing, price is everything? such. There is no customer loyalty as
25 pence can have a dramatic impact on volumes.
one of the reasons why as soon as the Index and Argos catalogues are published we produce a win/lose/draw analysis on prices; this enables us to take a view as to the volumes that we should order. Moreover, where we
are out on price, we will do what we can to remedy the situation by producing brochures or leaflets with revised lower prices [I think those are what I called the flyers]. However, the brochures and leaflets are
not very effective in capturing the sales that are lost by being undercut in the main catalogue since this will be the main point of reference for most consumers." Yes, in my statement, what I am referring to there is the fact that because we print 7 million catalogues, but
then typically when we print a flyer, it is probably -well, certainly under a million print run, so the relative volumes of the print runs will have an impact, and that is why they are not able to recover the sales. And if the customer has looked at home at both catalogues and seen that Argos is cheaper or Littlewoods is cheaper on a particular item, it is only by the time he gets to the store that he will be able to see your flyer, which shows that actually it has been changed around, and Argos or Littlewoods has brought their price down, if there has been any change. Yes, to some extent, that is true, but we also would distribute flyers maybe in different ways at times. yes, in the main, that is possible. So there would be very great advantages for a catalogue retailer if he comes out at the lowest price in the catalogue; correct? It is fair to say that we would look to have our main catalogue as competitively priced, yes. THE CHAIRMAN: Just remind me, Mrs Paisley, how you Is there a mailing list But
distribute your catalogues.
that you send them out on, or do people go into the store and pick up a catalogue? What happens?
People go into the store and pick them up. The difficulty, of course, is to achieve the
desired status of being lowest in the catalogue, is it not? We aim to make our catalogue as competitive, yes, and that is not an easy situation. we do. Now prior to the GUS takeover of Argos in about April 1998, Argos had been the most aggressive price cutter and the winner of most of these price comparisons, including in the case of these high-profile toys? As a generality, that is true, yes. For me to comment But it is something that
Yes, I am aware of that.
No, I -Have you looked at it before -- have you ever seen this document before? I have never seen the document prepared by the Argos side. You were sitting in court when you heard this discussed in my opening speech, were you not? Yes, and I think you referred to the summary in your opening speech. At that point, was that discussed between you and other members of the Littlewoods team? I do not recall it being discussed, no. So this is the first time you have looked at these documents? Well, I do not know until I actually see it. I am
pretty sure I have not, but it is difficult to say until I see it.
What do you want to look at? The schedule that gives the summary that you refer to. Well, let us look at the first one. Spring/summer
1998 -- well, I want to talk about spring/summer 1999, that is the one I have asked you about, that is the only one I have mentioned so far. A. Q. Yes. So let us look at that. That is page? I just go by the summary. Nine common products --
Well, I am not sure.
I assume Mr Brealey got it right. MR GREEN: B1, second page, I think. That is for core
games, and then B2 for Action Man. A. Thank you. That is the core games. Five are at the same
prices, and Littlewoods are cheaper on four. A. Sorry, we are looking at spring/summer 1999 here, are we not? Q. A. Q. A. Yes. So the cheaper you refer to is 4 pence. Well, cheaper, yes. It is just that certainly in our win/lose/draw analysis, we would class 95 and 99 as the same. Q. This document is prepared on Argos' behalf, and it is described as cheaper; you are now saying that that is
25 A. Q. A. Q. A. A. A.
not cheaper, it is the same? Certainly in the eyes of the analysis that Littlewoods would conduct, yes. THE CHAIRMAN: Sorry, just to interrupt you, Mr Doctor, just
for my benefit, when a customer sees one price of 14.99 and another price of 14.95, what sort of difference do you think that makes from the customer's point of view? We do not believe that that makes any difference at all, 4p. MR DOCTOR: So you do not believe it makes any difference,
but Argos consider it to be cheaper. I do not think I -- I cannot comment for Argos, obviously. THE CHAIRMAN: A. But you would see it as --
We see it as the same, yes. What you see, however, is that Argos has priced
at RRP in respect of all these items -- well, not all of them, yes, all of them, or maybe eleven out of twelve -or above RRP. Yes, and over. You are either the same in your terms, or in Argos' terms cheaper, on four of them. Yes, in our eyes we were the same. Okay. In respect of Action Man for spring/summer
25 A. A. Q. Q. A. Q.
only reiterate again, we made our mind up on our own prices. You had agreed, that is Littlewoods, that they would go out at these recommended retail prices, suggested by Hasbro, provided that Hasbro would work to ensure that Argos went out at the same prices. I am not aware of any such arrangement. of any such arrangement? Well, because that is what happened, and the fact that there was no response to this e-mail on the part of Index -- not one of these five people picked up the telephone, spoke to each other, asked what on earth was going on, queried it, did anything about it -- suggests that each one of them received this document and did not regard it as something which they were not expecting; rather, it was in line with the information they expected to receive. I totally disagree with that statement. When Thomson phoned you a few days later and asked you to delete it, you said to him that you found it surprising that he had sent it, by which you meant that he had put it in writing. No, I did not mean that, but I think if we think back to Mr Thomson's evidence yesterday, he was not actually clear that he did ask me that, and if I refer to his How was I aware
statement, he uses the word "destroy", not "delete", and I know for a fact if Ian Thomson had rung me up and said, "Destroy an e-mail", I would have reacted to it. THE CHAIRMAN: A. Did he ring you up?
I do not recall the telephone call. We also know that your colleague, Mr Burgess,
had a copy of this e-mail, no other copy was produced from within Littlewoods, and Mr Burgess had worked off this e-mail; that is the next page, 92. do not know about that. I think you would need to talk to Alan Burgess about that. Yes. Let us just look at the prices on this e-mail. Presumably, you
The point has been made on Littlewoods' behalf over and over again that some of the prices Argos did not in fact price at when the catalogue eventually came out. Yes, I have heard that in the evidence. One of them, we have been told, is Interactive Pikachu, which was at 23.99; do you see that? So on 18th May
you are being told that Interactive Pikachu, Argos has agreed it to go out at 23.99. A week later, on 25th May, there is, we have seen, an e-mail from Mr Wilson to Ian Thomson and Mike Brighty in which Mr Wilson tells them that Argos have confirmed that Interactive Pikachu will be at 23.75, not 23.99,
25 Q. Q. A. Q. A. A.
for autumn/winter, and they asked him to advise Index accordingly. Mr Thomson has said that he did that, and we find that in the catalogues, both parties have that price, at 23.75. Does that not suggest that somebody at
three of the items which you say are not RRP, never mind whether Argos stuck to the agreement, you say there are three that are not RRP. One of them is Gardens Galore,
which you deal with, which is 24.99, and you went out at 24.99, not 19.99. I beg your pardon, 19.99 is the
price in the e-mail, and it tells you that it is not listed in Argos; do you see that? Yes. If you go back to page -Can I just respond on that one, please? My buyer made
a genuine mistake there, and she had not picked up the change in the RRP and the change in the relevant list price of that product.
Yes, well, if you look back to 4th May, there is an e-mail at page 89. Here is Mr Thomson with an e-mail
to your colleague Karen Sobers, copied to Katharine Runciman: "Karen, I would like to confirm that Gardens Galore has been reduced in price to 13.67 and will retail at 19.99. The product has not been selected by your major
opposition, so it will be an excellent margin opportunity." Do you see that? A. Q. Yes. The product was reduced to 19.99, and I understand it went out in your catalogue at 24.99. A. That is correct. The cost price had been reduced as
confirmed there, but Katharine, the buyer, had failed to pick that up and made an error. Q. Benefiting from this extremely interesting information that it was not going to be carried by Argos or major opposition, you priced it not at 19.99 but at 24.99. A. No, that is not correct. Katharine failed to pick up
the reduced cost price of 13.67. Q. But you are saying you did price it at 24.99, that was just a mistake. A. She failed to pick up the reduced cost price, so she was working on a higher cost price, so was obviously looking
to retail at a higher price, hence 24.99. Interactive Pikachu, we have dealt with that, that was also not charged at RRP, but there was an exchange of information about that. There is one more, but perhaps we can deal with that tomorrow. THE CHAIRMAN: We are at a good point anyway. We will bring proceedings to an end there,
Mrs Paisley, but I have to ask you, please, now, while you are still giving your evidence, do not talk about your evidence or about the case -No, I understand. -- to anybody else overnight.
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