Action before reference
The OFT conducted a preliminary review of the market and found that
there are features of the sector which appear to prevent, restrict or
distort competition and which may lead to customers paying higher prices
for their household liquefied petroleum gas (LPG) supply.
The OFT suspects, in the light of a preliminary inquiry, that:
- the provision of domestic bulk LPG has several features which may
impede customers switching between companies, principally the charges
to the customer for removal of the current supplier's tank and for
installation of the new supplier's tank
- it is also a mature market where many customers are already contracted
to companies, so that any entrant must win customers to a large extent
from existing suppliers
- as a result, the high switching costs may form a barrier to entry, so
that competition is restricted and many consumers face higher prices
overall than they would in a similar market without switching costs.
Reason for reference
Date of reference: 5 July 2004
The OFT has referred the LPG market to the Competition Commission (CC)
for investigation. Customers wishing to change supplier typically face
sizeable switching costs with the current and new suppliers often
charging for the removal and installation of their respective tanks.
Other obstacles to customers switching supplier identified by the OFT
- lengthy contracts, with customers often incurring charges for early
- long notice periods for contract termination and the possibility of a
break in supply as a new supplier's tank is brought into use
- consumers may have difficulty in finding out all the information about
possible deals with alternative suppliers.
Rates of switching by customers between suppliers are low. Many
customers are signed up to companies and the obstacles to switching make
it difficult for any new entrant to the market to win customers from
existing suppliers. The OFT believes that the obstacles to switching
restrict competition by making it difficult for new suppliers to enter
Information on the Competition Commission’s domestic bulk LPG market investigation is on GOV.UK.