IMPACT OF PRICE FIXING ONCOMMUNITIES NANDI MOKOENA: COMPETITION COMMISSION, SOUTH AFRICA.
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Transcript of IMPACT OF PRICE FIXING ONCOMMUNITIES NANDI MOKOENA: COMPETITION COMMISSION, SOUTH AFRICA.
IMPACT OF IMPACT OF PRICE FIXING PRICE FIXING
ON ON COMMUNITIESCOMMUNITIES
NANDI MOKOENA: COMPETITION COMMISSION, SOUTH AFRICA
OUTLINEOUTLINE
WHAT IS PRICE FIXING?
THE COMMISSION’S MANDATE
MAJOR CARTELS UNCOVERED BY
THE COMMISSION
IMPACT OF COMMISSION’S
INVESTIGATIONS
WHAT IS PRICE FIXING?WHAT IS PRICE FIXING?
“…on both a moral and practical
level, there is not a great deal of
difference between price fixing
and theft…”
(Whish, 2001)
WHAT IS PRICE FIXING?WHAT IS PRICE FIXING?
An agreement not to compete on price
Effect is to increase price and/or reduce
output
Purpose is to maximise profits
International studies find a median price
mark-up from cartels of +/- 15%
Variations include market allocation and
collusive tendering
PRICE FIXING PRICE FIXING
An agreement amongst ‘competitors’ to raise,
fix or otherwise maintain the price at which
goods or services are sold
Can occur directly or indirectly
Prohibition applies to both purchase and
selling prices
Frequently includes a policing mechanism
DIVIDING MARKETS DIVIDING MARKETS
An agreement between ‘competitors’ to divide
markets amongst themselves
In such schemes, competitors:
allocate specific customers or suppliers;
allocate territories; and/or
allocate goods or services
Frequently supports price fixing
agreement
COLLUSIVE TENDERINGCOLLUSIVE TENDERING
Firms agree, in advance, who will submit the
winning bid on tender
Forms include bid suppression, complementary
bidding and bid rotation
Often accompanied by sub-contracting
Often found in engineering, construction and State
tenders where firms compete for very large
contracts
THE COMMISSION’S MANDATE THE COMMISSION’S MANDATE
“Combating cartels should be
among the top priorities of
any competition law
enforcement agency”
(International Competition Network, 2005)
THE COMMISSION’S MANDATE THE COMMISSION’S MANDATE
Purpose:
…Provide consumers with competitive
prices and product choices…
Section 4(1)(b) prohibits:
Price fixing - 4(1)(b)(i)
Market allocation – 4(1)(b)(ii)
Collusive tendering – 4(1)(b)(iii)
THE COMMISSION’S MANDATETHE COMMISSION’S MANDATE
Implemented Corporate Leniency Policy (CLP),
2004
Revised in 2008
Pro-active tool, integral to detect and eradicate
cartels
Indemnity to firms providing information of
a cartel
THE COMMISSION’S MANDATETHE COMMISSION’S MANDATE
“First through the door”
Cooperate fully with and assist Commission
Conditional immunity followed by full
immunity
Applications received in the Commission’s
major cartel investigations
Proven successful tool
MAJOR CARTELS UNCOVEREDMAJOR CARTELS UNCOVERED
“The poor and the sick have been hit hardest by the bread,
milk and drug price fixing scandals exposed by the
Competition Commission”
(COSATU, 2008)
MAJOR CARTELS: BREAD
MAJOR CARTELS: BREADMAJOR CARTELS: BREAD
Commission initiated complaint (WC)
Found that Premier (Blue Ribbon) Tiger Brands
(Albany) and Pioneer (Sasko) had agreed:
to increase price of bread to customers;
to fix their to distributors; and
not to poach each others independent
distributors
MAJOR CARTELS: BREADMAJOR CARTELS: BREAD
Effect:
Prices of basic bread increased by +/- 30c
Distributors discounts slashed from 90c to
75c
Distributors were refused alternatives
One week before Christmas (2006)
Ongoing investigation in milling
industry
MAJOR CARTELS: BREADMAJOR CARTELS: BREAD
[The bread case] is a living example of how an unjust economy
can further impoverish poor consumers, and destroy opportunities for small
businesses (especially those that serve the poor) to help citizens to regain full and
free participation in the economy.
(National Consumer Forum, 2007)
MAJOR CARTELS: PHARMACEUTICAL
MAJOR CARTELS: PHARMACEUTICALMAJOR CARTELS: PHARMACEUTICAL
Initiated by Commission
Adcock Ingram, Fresenius Kabi, Dismed
and Thusanong had agreed to:
tender collusively for Contract RT299 –
state tender for intravenous solutions;
divide the private hospital market
amongst each other
MAJOR CARTELS: PHARMACEUTICALMAJOR CARTELS: PHARMACEUTICAL
Effect:
State paid 10% - 15% more for IV fluids
Estimates range from R20 million p.a to
R60 million p.a
Private hospitals paid up to 33% more for
IV fluids
Barriers to entry were increased
MAJOR CARTELS: PHARMACEUTICALMAJOR CARTELS: PHARMACEUTICAL
The total expenditure on pharmaceuticals
in the public sector is about R 5 billion
and even a 5% unnecessary increase
impedes us from delivering more
services.
(Dept. of Health, 2008)
MAJOR CARTELS: MILK
MAJOR CARTELS: MILKMAJOR CARTELS: MILK
Initiated by the Commission
Respondents: Clover, Parmalat, Ladismith
Cheese, WoodlandsDairy, Lancewood,
Nestle and Milkwood
Clover received leniency in part
Hearings set for September 2008
MAJOR CARTELS: MILKMAJOR CARTELS: MILK
The Commission found:
Clover, Woodlands and Parmalat fixed prices
indirectly by co-ordinating the removal of
surplus milk from the market;
Woodlands and Milkwood fixed the price of
UHT milk and allocated geographic areas in
which they would not compete in selling UHT
milk
MAJOR CARTELS: MILK MAJOR CARTELS: MILK
The Commission found:
Clover, Parmalat, Ladismith, Woodlands
Lancewood and Nestle exchanged sensitive
information on procurement prices of raw milk
in various ways;
CSA and Woodlands reached an agreement
regarding the selling price of UHT “long life”
milk
MAJOR CARTELS: MILK MAJOR CARTELS: MILK
"The main victims are always the most
vulnerable in society. With bread and
milk price-fixing it is the poor, who
spend a much higher proportion of
their income on such basic foods.”
(COSATU, 2008)
IMPACT OF INVESTIGATIONS IMPACT OF INVESTIGATIONS
PUBLIC AWARENESS:
consumer complaints
CORPORATE GOVERNANCE:
meaningful responsibility of directors
RESPONSIBILITY OF CIVIL SOCIETY:
shareholders, consumers demand accountability
AMENDMENTS TO THE COMPETITION ACT:
strengthen powers of the Commission