Illegal Cartel Overcharges in Markets with a Legal Cartel History: Bitumen Prices in South Africa

Abstract

In recent years, South African competition authorities have initiated a number of price-fixing cases in markets where cooperation among competitors was legal and often encouraged. These markets present economists with special difficulties when estimating cartel overcharges. Conventional approaches often rely on temporal approaches, where pricing during the cartel period is compared with prices in a competitive period. In markets with a legal cartel history, a competitive price cannot be identified in the period preceding illegal collusion. Structural change also reduces data, and hence the robustness of temporal models. Spatial approaches, where prices are compared with those in other countries, offer a better alternative. The paper studies the performance of temporal and spatial approaches in estimating overcharge in the context of a bitumen price-fixing case. The results suggest that, while the bitumen cartel may have responded to cost and demand shocks in a similar way to how players in more competitive markets respond, it was still cushioned by a large monopoly premium: the long-run level of South African bitumen prices are higher than in comparable competitive markets. The findings have implications for the study of transition dynamics from legal to illegal cartel regimes and for the detection of cartels. JEL Classification: L4, L40, K2, K21, L42

Cartel overcharges

“…4 Candidates are cartels that operated in all geographic locations of the world and in all historical eras. The estimates are assembled from serious published social science studies by disinterested authors and from the decisions of competent judicial bodies (see Appendix).…”

“…This approach, he notes, unlike all other white-collar federal crimes, means that the actual degree of direct harm caused does not have to be proven by prosecutors. 28 Denger blames this state of affairs on a gap in the economic-legal literature: "… we have little information on what level of criminal or civil exposure is needed to deter most cartels" (p. 4).…”

“…In his comment on Crandall and Winston, Kwoka (2003) faults them for their "startlingly selective" body of evidence. He suggests that they should have included "… studies from any source with appropriate evaluation of their credibility" (p. 4).…”

Competition Law and Economic Regulation

“…These legal cartels were outlawed in the 1990s, but long-standing market relationships appear to have prolonged coordinated conduct in many of these markets ). An example given by Boshoff (2015) is the bitumen cartel. This market is one originally characterised by a legal cartel exempted from competition policy until 2000.…”

South African competition policy on excessive pricing and its relation to price gouging during the COVID‐19 disaster period

“…(2019), for South African applications see Govinda et al . (2016), Mncube (2014) and Boshoff (2015)).…”