IMPACT OF
PRICE FIXING
ON
COMMUNITIES
NANDI MOKOENA:
COMPETITION COMMISSION, SOUTH AFRICA
OUTLINE
 WHAT IS PRICE FIXING?
 THE COMMISSION’S MANDATE
 MAJOR CARTELS UNCOVERED BY THE
COMMISSION
 IMPACT OF COMMISSION’S
INVESTIGATIONS
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?

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

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

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 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
“Combating cartels should be
among the top priorities of
any competition law
enforcement agency”
(International Competition Network, 2005)
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 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 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 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: 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: 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: 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: 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
amongst each other
hospital
market
MAJOR 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: 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: 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: 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
The Commission found:

Clover, Parmalat, Ladismith, Woodlands
Lancewood
sensitive
and
Nestle
information
on
exchanged
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
"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
 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