barriers to entry competition

After the cartel, relief for consumers and entrepreneurs

A recent study by two competition economists, Junior Khumalo and Jeffrey Mashiane, illustrates the devastating impact that collusive behaviour has on the economy.  A concrete products cartel, which ran from the early 1970s and was uncovered by the Competition Commission in 2007, is the focus of the study. Firms in this cartel had engaged in market allocation, price fixing and collusive tendering – all mechanisms designed to eliminate competition between firms through explicit and implicit arrangements.

As Khumalo and Mashiane explain, the emergence of competition in a once cartelised market takes some time, but the benefits of competition are significant. After the competition authorities’ interventions, the erstwhile cartelists began to compete more vigorously with one another. Five new companies entered the implicated markets. Prices, which had been kept artificially high by the cartel, fell by 37 percent in Durban and 27 percent in Johannesburg.This can only bode well for employment and dynamism in the economy.

For the full story, please see a Business Report article published by the authors on 06 June and the paper as published by the University of Johannesburg’s Centre for Competition Economics. This makes for very sober reading, and also points to the fact that the fines that are imposed by the competition authorites are rather conservative in the face of the harm caused by anti-competitive behaviour.

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