Independent schools: exchange of information on future fees
Office of Fair Trading (OFT) closed Competition Act 1998 case.
Case reference: CA98/05/2006
Summary of work
The Office of Fair Trading has found that, during the period from 1 March 2001 to June 2003, 50 fee-paying independent schools (each a Participant school, together the Participant schools) infringed the prohibition (the Chapter I prohibition) imposed by section 2(1) of the Competition Act 1998 (the Act) by participating in an agreement and/or concerted practice having as its object the prevention, restriction or distortion of competition in the relevant markets for the provision of educational services. The OFT makes no finding as to the effect of the infringement.
The Participant schools engaged in the exchange of specific information regarding future pricing intentions on a regular and systematic basis. The information exchanged concerned the Participant schools' intended fees and fee increases for both boarding and day pupils, which were set annually with effect from the beginning of each academic year, that is, from September.
The information exchange was organised by the bursar of Sevenoaks School, to whom the Participant schools submitted details of their current fee levels, proposed fee increases (expressed as a percentage) and the resulting intended fee levels. The Sevenoaks bursar subsequently circulated this information amongst the Participant schools in tabular form. This process of information exchange and the resulting tables of information are referred to as the Sevenoaks Survey or Survey.
The preparation and circulation of the Survey took place between January and June each year and was timed to provide Participant schools with information on competitor fee increases early in their budgetary cycles. Participant schools decided their fee increases for September in May or June of the same calendar year. The budgetary process would start during the Spring term, which ran from January to March, and the earliest date by which any of the Participant schools decided their fees for September was March of the same calendar year. As a result, each of the Participant schools received at least one version of the Sevenoaks Survey before it finalised its own fee increase(s) for the new academic year starting in September. Equally, each Participant school submitted information regarding its own intended fee increase(s) for inclusion in the Survey before the other Participant schools had finalised their fee increase(s) for the new academic year.
Through their participation in the Sevenoaks Survey, the Participant schools exchanged on a regular and systematic basis highly confidential information regarding each other's pricing intentions for the coming academic year that was not made available to parents of pupils at Participant schools or published more generally. This arrangement constitutes an obvious restriction of competition whereby the Participant schools knowingly substituted practical co–operation for the risks of competition amounting to an agreement and/or concerted practice having as its object the prevention, restriction or distortion of competition. Further, it was implicit in the way that the Sevenoaks Survey operated, and the fact that it was intended that the information exchanged should be reasonably reliable, that there was at least a 'gentleman's agreement' amongst the Participant schools that the fee increase figures submitted to the Survey would accurately reflect actual future fee levels.
The OFT therefore finds that the Participant schools were party to an agreement and/or concerted practice having as its object the prevention, restriction or distortion of competition in breach of the Chapter I prohibition. The Participant schools have each admitted that they participated in the exchange of information through the Sevenoaks Survey, that as a matter of law this had as its object the distortion of competition in the United Kingdom and that they thereby committed an infringement of the Chapter I prohibition. With the exception of two of the Participant schools, the academic years in respect of which the Participant schools have admitted exchanging information through the Survey are 2001/2002 to 2003/2004. Sedbergh School has admitted that it participated in the Survey in respect of the academic years 2002/2003 and 2003/2004 and Truro School has admitted participation in respect of the academic years 2001/2002 and 2003/2004. No admission has been made by any of the Participant schools as to whether the infringement had any effect on fee levels and, since the OFT is not required to show any such effect to establish an infringement of the Act, the OFT makes no finding as to whether there was an effect on the fee levels of the Participant schools.
The OFT regards the regular and systematic exchange amongst competitors of confidential information regarding each other's pricing intentions as a serious infringement of the Act warranting the imposition of financial penalties. In view of a number of exceptional features of this case, however, the OFT has decided to limit the penalties imposed in respect of each Participant school to a fixed amount of £10,000, subject to the application of the OFT's policy to grant immunity from penalties or a reduction in penalty to undertakings that have participated in certain types of infringement of the Act and which cooperate with the OFT's investigation[3]. No penalty has been imposed in respect of the Royal Hospital School, which is part of a trust whose sole trustee is the Secretary of State for Defence and which, as a result of Crown immunity, the OFT cannot require to pay a penalty under the Act.
In arriving at its decision to limit the penalties imposed in this case to £10,000, reduced for leniency, the OFT has had regard to the following exceptional features of the case:
- firstly, the voluntary admission on behalf of the Participant schools in the terms summarised above
- secondly, and unusually, the Participant schools agreed to make an ex gratia payment to fund a £3 million educational trust fund for the benefit of pupils who attended the Participant schools during the academic years in respect of which fee information was exchanged, thus indirectly benefiting those whose interests the Act is designed to protect
- thirdly, the Participant schools are all non-profit making charitable bodies.
The OFT also notes that the Participant schools ceased the infringement immediately on becoming aware that participation in the Sevenoaks Survey was unlawful and, together with the Independent Schools Council, have subsequently taken steps to ensure compliance with the Act.
Notes
- The Participant schools are: Ampleforth College, Bedford School, Benenden School, Bradfield College, Bromsgrove School, Bryanston School, Canford School, Charterhouse School, Cheltenham College, Cheltenham Ladies College, Clifton College, Cranleigh School, Dauntsey's School, Downe House School, Eastbourne College, Epsom College, Eton College, Gresham's School, Haileybury, Harrow School, King's School Canterbury, Lancing College, Malvern College, Marlborough College, Millfield School, Mill Hill School, Oakham School, Oundle School, Radley College, Repton School, Royal Hospital School, Rugby School, St Edward's School, Oxford, St Leonards-Mayfield School, Sedbergh School, Sevenoaks School, Sherborne School, Shrewsbury School, Stowe School, Strathallan School, Tonbridge School, Truro School, Uppingham School, Wellington College, Wells Cathedral School, Westminster School, Winchester College, Woldingham School, Worth School and Wycombe Abbey.
- The first questionnaire was circulated to the Participant schools in late January or early February, the first version of the Survey, incorporating the information submitted by the Participant schools, being circulated in February. This was followed by the preparation and circulation of a further version of the Survey in May, and in one year, June, with a number of updates in between.
- In this case, the OFT has reduced the penalty imposed in respect of the following Participant schools: Eton College (50 per cent), Winchester College (50 per cent), Sevenoaks School (45 per cent), Benenden School (30 per cent), Cheltenham Ladies' College (30 per cent) and Malvern College (20 per cent).