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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.
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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 NA 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 non-referral 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 Source: Commission Finance Department
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 poachdistributors
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
The milk cartel(1) • Clover, ParmalatLadismith 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 co-ordinating 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 KabiSA, 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
Future issues • Strengthening the competition authorities • Corporate governance and corporate accountability • Appropriate disincentives • Compensating the losers