The South African Cement Cartel: A Critique of Fourie and Smith

Leach, Daniel F

doi:10.1111/j.1813-6982.1994.tb01229.x

Cited by 16 publications

(6 citation statements)

References 24 publications

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“…For example, during the 1930s, U.S. breweries cooperated to raise prices, probably increasing prices to levels that were actually higher than the joint-profit-maximizing 22 Of course, there are also studies that deny that what they are studying is a cartel. Firms may get together and fix prices, but, it is argued, the economic result is not to restrict output and raise prices relative to what would occur in the absence of such cooperation (Leach 1994;Pirrong 1992;Sjostrom 1989). (Why rational, profit-maximizing firms who cooperate in setting prices would refrain from trying to increase profits is a bit of a mystery, but one that is beyond the scope of this paper.)…”

Section: Cartel Profitabilitymentioning

confidence: 99%

What Determines Cartel Success?

Levenstein

Suslow

2006

Journal of Economic Literature

524

209

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Following George Stigler (1964), many economists assume that incentive problems undermine attempts b firms to collude to raise prices and restrict output. But the potential profits from collusion can create a powerful incentive as well. Theory cannot tell us, a priori, which effect will dominate: whether or when cartels succeed is thus an empirical question. We examine a wide variety of empirical studies of cartels to answer the following questions: (1) Can cartels succeed? (2) If so, for how long? (3) What impact do cartels have? (4) What causes cartels to break up? We conclude that many cartels do survive, and that the distribution of duration is bimodal. While the average duration of cartels across a range of studies is about five years, many cartels break up very quickly (i.e., in less than a year). But there are many others that last between five and ten years, and some that last decades. Limited evidence suggests that cartels are able to increase prices and profits, to varying degrees. Cartels can also affect other non-price variables, including advertising, innovation, investment, barriers to entry, and concentration. Cartels break up occasionally because of cheating or lack of effective monitoring, but the biggest challenges cartels face are entry and adjustment of the collusive agreement in response to changing economic conditions. Cartels that develop organizational structures that allow them the flexibility to respond to these changing conditions are more likely to survive. Price wars that erupt are often the result of bargaining issues that arise in such circumstances. Sophisticated cartel organizations are also able to develop multipronged strategies to monitor one another to deter cheating and a variety of interventions to increase barriers to entry.

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Section: Cartel Profitabilitymentioning

confidence: 99%

What Determines Cartel Success?

Levenstein

Suslow

2006

Journal of Economic Literature

524

209

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“…Table 8). The South African cement cartel maintained prices 10% above the word price (Leach 1994); diamond prices increased almost 50% after the initial formation (Spar 1994); the potash cartel increased prices 100% above average costs in the year after initial formation (Levenstein 2000, Schroter 1993; German steel prices were 33% higher than world prices (Baker 1989, Barbezat 1989; and tea prices rose 80% in 1933 when the cartel was re-established (Gupta 1997(Gupta , 2001). The mean price increase of the five cartels is 55% and the median is 50%.…”

Section: Globalmentioning

confidence: 99%

Private International Cartels: Effectiveness, Welfare, and Anticartel Enforcement

Connor¹

2003

SSRN Journal

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This paper presents and analyses economic data on 167 international cartels that were discovered by antitrust authorities after January 1990. The median cartel had five corporate members and generated $1.2 billion in sales during the collusive period. Nearly 40% of affected sales occurred in the organic chemicals industries, half of which were sold to food, feed, and agricultural firms. On average, the cartels lasted nearly six years, but average durability declined by more than 60% from the early 1990s to the early 2000s. In the early 2000s more than 20 international cartels were discovered each year, a rate six times faster than the early 1990s. The large size and longevity of these cartels, when combined with average monopoly overcharges of 28%, cause a great deal of monetary harm to buyers. Discovered cartels have met with increasingly harsh sanctions since 1990. Government authorities have imposed a total of $7.1 billion in fines on 870 companies and 62 executives, of which the United States (27%) and European Union (51%) are the major governments responsible. Private antitrust suits resulted in settlements totaling at least $3.4 billion. Some 32 executives have been imprisoned. Statutory penalties, if imposed at maximum levels, would extract about 12 times cartel overcharges, a level sufficient to deter most firms from forming or joining a cartel. However, applying optimal deterrence concepts to the characteristics of modern international cartels allows one to deduce that current antitrust enforcement is inadequate to deter cartel formation. This conclusion follows from low probabilities of detection, overly generous leniency policies in finesetting, the absence of private suits outside North America, the inability of most indirect purchasers to recover damages, and generally weak anti-cartel enforcement in Asia and Latin America.

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“…Some writers (e.g. Leach, 1994) have argued that the decision was inappropriate given both the guidelines of the Act and the theory of cartels. Conversely.…”

Section: Introductionmentioning

confidence: 99%

A view on the treatment of collusive and restrictive practices in competition policy

Reekie

1998

SAJEMS

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South African competition policy is in a state of flux. While professing to serve so-called national interest, legislation has tended to overlook the principles of economic efficiency and consumer welfare. The South African National Drug policy is a case in point. The best defence against collusion and restrictive practices in business is competition, but the Department of Health favours blanket rules like uniform pricing and a fixed fee-for-service. Thus supermarkets may not employ dispensing pharmacists, and uniform price legislation would make it illegal to negotiate discounts on prescription medicines with retailers. As a rule consumers are the losers. Many fallacies are contained in the debate on the "right" competition policy for South Africa. For example, a firm may appear big simply because the domestic market is small.

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The South African Cement Cartel: A Critique of Fourie and Smith

Cited by 16 publications

References 24 publications

What Determines Cartel Success?

What Determines Cartel Success?

Private International Cartels: Effectiveness, Welfare, and Anticartel Enforcement

A view on the treatment of collusive and restrictive practices in competition policy

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