United Kingdom: Britain’s Competition Commission has called for an inquiry into beer prices after blocking a deal by two brewers to buy a rival's pub equipment supply arm. The watchdog said the move was "good news" for pub companies and customers, BBC commented on March 11.

A firm set up by Scottish Courage and Carlsberg was prevented from taking over a unit run by Coors. The Office of Fair Trading (OFT) has been asked to consider the brewers' practice of including the cost of dispensing equipment in their prices. Serviced Dispense Equipment (SDE), set up by Scottish Courage - Scottish & Newcastle's brewing business - and Carlsberg, handles the supply and maintenance of refrigeration, beer taps and pipes from cellars.

The commission said approval for the merger would have given SDE a 55-60% share of the UK market, which is worth about £350m ($671m) a year. "By blocking this merger, it is more likely that a fully functioning market for technical services equipment and related servicing will develop," said commission chairman Paul Geroski. "This will be good news for both pub companies and their customers."

The commission said independent suppliers of dispensing services were "slowly" starting to emerge. But it added: "Competition is currently limited, in particular, by the brewers' strategy of bundling the provision of the equipment and services in with the price of beer, and their ownership and control of this equipment."

A government decision in the 1980s limited the number of pubs owned by the big breweries, with the aim of making the market more competitive and diverse. But the commission found the brewers have generally continued to own and service the equipment. It estimates that about 5% of the cost of a barrel of beer relates to dispensing costs.

British Beer and Pub Association figures for 2004 show retailing costs make up just over half of the price of a barrel of beer. About a third goes on tax, while brewers costs make up 18%. The rest can be attributed to distribution and dispensing costs.

Under the proposed deal, SDE would have provided maintenance in the UK for Coors, the US firm behind Carling and Grolsch. Coors said it would be reviewing a number of future options for its Brewers Technical Services unit. "A package of remedies had been proposed by the parties which we believe would have dealt comprehensively with the concerns," it added. Carlsberg and Scottish Courage said the proposed cost savings and efficiencies from the deal would have benefited its customers. "It is the company's belief that existing customers are content with their current arrangements, and the company has been flexible when asked to take an 'unbundled' approach to pricing," Carlsberg said in a statement.

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