Prosecuting
cartels
in terms of the Competition Act (1998)
Presentation to the
Parliamentary Portfolio Committee on
Trade and Industry
29 February 2008
Shan Ramburuth: Competition Commissioner
Tel: 012 394 3332
E-mail: ShanR@compcom.co.za
Format of presentation
• Introduction and background
• Strategic planning
• Prioritisation
• Cartel cases
• Infrastructure project
• Going Forward
• Q & A’s
The
Competition
Authorities
The competition authorities
E
X
T
E
R
N
A
L
P
A
R
T
I
E
S
Competition Appeal Court
Appeal of Tribunal decisions
Appeal of Tribunal decisions
Competition Tribunal
Appeal of exemptions,
intermediate mergers or nonreferral decisions, defence of
referral decisions
Referral of complaints &
large mergers
Competition Commission
Exemption applications, complaints and
merger notifications
Commission’s mandate
• Prosecuting anti-competitive business
practices
• Merger control – approving large and
intermediate mergers
• Advocating pro-competitive practices
and policies
Anti-competitive practices
Horizontal restrictive practices
 Price fixing
 Division of markets
 Collusive tendering
Vertical restrictive practices
 Exclusive agreements, resale price
maintenance
Abuse of dominance
 Excessive pricing, exclusionary acts and
price discrimination
Priorities: 2000 to 2005
• Setting up the institution
• Developing expertise
• Clarifying the law
• Focus on merger control
Demand for change
• Demonstrable impact: “concentration
persists”
• Access to the economy: “barriers to entry”
• Benefits to consumers: “prices must fall”
• Prioritising for effectiveness under
resource constraints
External environment
• OECD Peer Review - 2002
• Presidency 10 year review - 2004
• AsgiSA - 2006
• National Industrial Policy Framework 2007
• State of the Nation speeches 2006/2007
• Recognition of the role of competition
policy in regulation
Internal environment
• Consolidating experience
• Retain staff and skills
• Knowledge management
• Focusing on the important issues
• Creating organisational efficiencies
Strategic planning: Enforcement
• Step up enforcement activities
• Prioritise cases
• Re-organise structures and resource
allocation for effectiveness
Basis for prioritisation
• Commission’s experience
• Government policy
• Review of other jurisdictions
• Setting criteria for selection
Criteria
• Impact on poor consumers
• Costs of intermediate goods into
labour absorbing manufacturing
• Impact of cost of doing business
Priority sectors: 2007 to 2010
• Agro-processing, specifically food
processing and forestry
• Intermediate industrial products:
chemicals, steel
• Infrastructure and construction,
including bid-rigging
• Financial sector, specifically banking
Enforcement powers
• Investigate and prosecute
• Summons, search and seizure
• Consent orders
• Recommend fines, behavioural and
structural remedies
• Corporate leniency policy
Penalties received
180,000,000
160,000,000
140,000,000
120,000,000
100,000,000
80,000,000
60,000,000
40,000,000
20,000,000
0
2002
2003
2004
2005
Source: Commission Finance Department
2006
2007
Corporate leniency policy
• Indemnity from prosecution for
providing information of a cartel
• “First through the door”
• Cooperate fully with and assist
Commission
• CLP has played a key role in
detecting major cartels currently
being prosecuted
• Currently being reviewed
Cartels(1)
…on both a moral and practical level,
there is not a great deal of difference
between price fixing and theft…
(Whish, 2001)
Cartels (2)
 Operates in secret
 An agreement not to compete
 Effect is to increase price and/or
reduce output.

International studies find a median price
mark-up from cartels of
+/- 15%
Cartels (3)
 Purpose is to maximise profits
 Occurs through price fixing,
market allocation and collusive
tendering
 Busting cartels means prices to
consumers will be lower, over time,
than under collusion
The bread cartel(1)
 Premier Foods (Blue Ribbon),
Tiger Brands (Albany) and Pioneer
Foods (Sasko) agreed, in the
Western Cape:
 to uniformly increase price of
bread to customers;
 to fix their discounts to
distributors;
 not to poach distributors
The bread cartel(2)
 Premier confessed and was granted
indemnity
 Premier
gave
information
of
agreements
 in the WC
 outside the WC
 In the national milling industry
 Commission completed and referred
its WC investigation on 14 February
2007
The bread cartel(3)
 Tiger settled on baking and milling
and paid a penalty of 5.7% of
national bread turnover – R98 million
 Western Cape bread cartel against
Pioneer referred, trial date to be set
 National bread cartel against Pioneer
and Foodcorp to be referred shortly
 National milling cartel against 11
respondents currently being
investigated
Consumer price of bread, flour, and
wheat price (trade) per 700g loaf
6
Wheat SAFEX (556g)
5
Bread CPI (700g brown loaf)
Rand per 700g loaf
Bread flour CPI (500g)
4
3
2
1
0
Jan
00
Jan
01
Jan
02
Jan
03
Jan
04
Jan
05
Jan
06
Jan
07
The milk cartel(1)
 Clover, Parmalat Ladismith
Cheese, Woodlands Dairy,
Lancewood, Nestle and
Milkwood Dairy
 Referred to Tribunal on 7
December 2006, hearing set for
September 2008
The milk cartel(2)
 Investigation found that firms:
 fixed prices indirectly by coordinating the removal of surplus
milk from the market
 allocated geographic areas in
which they would not compete
 exchanged sensitive information
on procurement prices of raw milk
The pharmaceutical cartel
 Adcock Ingram Critical Care,
Fresenius Kabi SA, Dismed and
Thusanong agreed to:
 tender collusively for
Contract RT299 – state tender
for intravenous solutions; and
 divide the private hospital
market amongst each other
The pharmaceutical cartel
 Fresenius confessed, provided
information and was granted
indemnity
 Commission completed and
referred its investigation on 11
February 2008
Collusion in construction(1)
 SA committed to major
infrastructure investment
 Wide concern about high prices
in building materials – cement,
bricks, aggregates, steel
Collusion in construction(2)
 International experience of bid
rigging in construction
 Commission scoped area’s of
concern
 Initiate investigations where
competition concerns occur
 Leniency applications received
Price trends in construction are
substantially above inflation
200
All commodities (PPI)
Materials used in building & construction
180
Agriculture: Food
Manufacturing
Index, 2000=100
160
140
120
100
80
2000
2001
2002
2003
2004
Start of Year
2005
2006
2007
Future issues
 Strengthening the competition
authorities
 Corporate governance and
corporate accountability
 Appropriate disincentives
 Compensating the losers