HARM AND OVERCHARGE IN THE SOUTH AFRICAN PRECAST CONCRETE PRODUCTS CARTEL

Abstract

The harmful effects of cartels depend on a number of features, including the size of the overcharge and the durability of the cartel. This article 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 and of how cartelists adapted to entrants, the implications of vertical integration, and the effect of information exchange on firms apparently not part of the explicit cartel. These considerations also affect the transition after the end of the explicit cartel arrangements and the extent to which coordinated outcomes may persist. There are further insights from the analysis for the determination of penalties by competition authorities.