Essays on collusion in South Africa's grain industry : remedies, overcharges and cartel stability.

Abstract

The rule against collusion is the least controversial prohibition in competition law and is regarded with approval even by those generally sceptical of government interventions in markets. Nonetheless, some significant and challenging questions remain unanswered. For example, there is far less consensus than is apparent on the empirical evidence concerning (1) a cartel’s actual effects; (2) the detection of cartels; and (3) the effect of cartel remedies. This least controversial area of competition policy may very well be one for which there is in fact limited consensus. This dissertation explores these issues in the context of the South African grain industry. It is a collection of related essays on collusion following various competition policy interventions in the recent past. Essay one analyses the South African flour cartel, active from 1999 to 2007 and provides an overcharge estimation by applying comparator based methods. In Essay two, I examine the extent of market power in the flour industry. I ask whether observed prices and quantities in the flour industry reflect switching from collusive to non-collusive behaviour and test for this empirically. Essay three explores the strategic behaviour adopted by the cartel and in particular attempts by Pioneer Foods to create artificial barriers to entry. This essay focuses on the following questions. How did Pioneer Foods and the bread cartel respond to entry? How effective was Pioneer Foods’ conduct in maintaining collusion under the threat of entry? Essay four critically discusses the use of remedies in pursuing distributive justice through the restoration of competition, through deterrence, and through disgorgement of profits. More specifically, the design and objectives of the Pioneer Foods settlement agreement are examined. For some, the competition law remedies and in particular the discount remedy that was adopted, following confirmation by the Competition Tribunal, constitute a key measure of ‘success’ for the case. Essay five evaluates this claim by examining the design and effectiveness of the discount remedy from a comparative perspective. In each essay (albeit to varying degrees), the study will evaluate both the theoretical and empirical issues involved. To improve our understanding of competition policy and its administration, economic understanding will be joined with appreciation for case specific issues and the South African legal framework.