Cartels /3 CompetENS, A Comprehensive Overview - Cartels 1 / 3 Two pharmaceutical companies are about to tender for the supply of saline drip bags to provincial hospitals throughout South Africa. In all areas other than the Western Cape and Gauteng they tender independently of one-another. In the Western Cape and Gauteng, however, they co-ordinate bids because the volume to be supplied is potentially too large for either one of them to supply independently. Accordingly, they agree that A shall price 10% higher than B in Gauteng, and in the Western Cape B shall price 10% higher than A in order that B is awarded the tender in Gauteng and A the tender in the Western Cape. Thereafter, the parties agree to assist one another to supply saline bags in each other’s region to the extent that the other of them experiences a shortfall in availability. Because the co-operation arises in the context of a logistical impediment to bidding independently, the arrangements between the parties are efficient, effective and, lawful. Because the parties tender independently of one another in all jurisdictions other than Gauteng and the Western Cape, the co-ordination is insufficient to materially impact upon competition and, because there will be no substantial effect, there is no contravention of the Competition Act. The conduct of the two companies in providing “cover prices” for the tenders of one another amounts to unlawful bid-rigging. 2 / 3 For many years in the fishing industry, there has been a general understanding between competitors that their prices shall be determined on the basis of a formula in terms of which each of their individual costs are marked-up by 15%. As they each have entirely different costs structures, their ultimate selling prices are completely different. Not all of the competitors abide by the understanding. There is no formal agreement between them to calculate pricing in terms of the formula nor are there any repercussions should any one or more of them fail to do so. The above behaviour: Amounts to unlawful price fixing because the understanding that they will apply a cost plus formula results in an alignment of prices, even though ultimate selling prices are different; Is unproblematic and permissible because there is no agreement between them to charge on any particular basis (merely an understanding) nor any punishment for failing to do so. Is unproblematic and permissible because they all charge different prices ultimately; 3 / 3 Company A sells a business to company B. The sold business is a going concern which manufactures nail guns. Company B, before the acquisition of the nail gun manufacturing business from company A, was already engaged in the importation and distribution of nails used with the nail guns to be manufactured by it after the acquisition. In terms of the Sale of Business Agreement, company A undertakes not to manufacture nail guns within the Republic of South Africa for a period of two years after the sale. In return, company B undertakes not to manufacture nails in the Republic of South Africa for the same period. The undertaking given by Company B to Company A not to produce nails is permissible because, after the disposal of the nail gun manufacturing business, all that remains for Company A is the production of nails. The undertaking given by Company A to Company B not to manufacture nail guns for two years is permissible because it is given in the context of a sale of business, but the reciprocal undertaking by Company B to Company A not to produce nails is impermissible because it amounts to a division of markets by product. The arrangement constitutes an impermissible division of markets by product, in that it ensures that company A will produce only nails and company B only nail guns, and that the two will not compete with one another. Your score is 0%
