HARM AND OVERCHARGE IN THE SOUTH AFRICAN PRECAST CONCRETE.pdfVIP

CCE Working Paper 6/2012 Centre for Competition Economics University of Johannesburg www.uj.ac.za/cce HARM AND OVERCHARGE IN THE SOUTH AFRICAN PRECAST CONCRETE PRODUCTS CARTEL Junior Khumalo, Jeffrey Mashiane, Simon Roberts1 juniork@compcom.co.za , jeffreym@compcom.co.za , simonr@compcom.co.za 8 May 2012 Abstract The harmful effects of cartels depend on a number of features including the size of the over-charge and the durability of the cartel. This paper examines the effect of a very long- running cartel in a market with low barriers to entry and unstable demand, the South African precast concrete products cartel. We describe how the cartel’s arrangements overcame these dual challenges and examine mark-ups against alternative measures of the competitive counterfactual. This includes a discussion of the use of punishment mechanisms, the implications of vertical integration, how the cartelists adapted to entrants, and the effect of information exchange on firms apparently not part of the explicit cartel. These considerations also have implications for the transition after the end of the explicit cartel arrangements and the extent to which coordinated outcomes may persist. There are particular implications in South Africa where the Competition Appeal Court has held that the penalty calculation should take account of the cartel mark-up. JEL classification: L40, L41 1 Economists at the Competition Commission South Africa and associates of the UJ Centre for Competition Economics. This paper is written in the authors’ personal capacity and does not neces