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 3332E-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 AuthoritiesThe competition authorities

E XTERNAL

PARTIES

Competition Commission

Competition Tribunal

Competition Appeal Court

Appeal of Tribunal decisions

Referral of complaints & large mergers

Exemption applications, complaints and merger notifications

Appeal of Tribunal decisions

Appeal of exemptions, intermediate mergers or non-referral decisions, defence of referral decisions

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

• Step up enforcement activities

• Prioritise cases

• Re-organise structures and resource allocation for effectiveness

Strategic planning: Enforcement

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

…on both a moral and practical level,

there is not a great deal of difference

between price fixing and theft…

(Whish, 2001)

Cartels(1)

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 (2)

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

Cartels (3)

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(1)

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(2)

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

The bread cartel(3)

Consumer price of bread, flour, Consumer price of bread, flour, and wheat price (trade) per and wheat price (trade) per

700g loaf700g loaf

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(1)

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 milk cartel(2)

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

The pharmaceutical cartel

Collusion in construction(1)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)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