The past week sparked a debate about economic ideology and the role of the Competition Commission in fostering a growing, deconcentrated and inclusive economy.
These discussions are vital in a democracy and enable greater understanding of economic principles and the impact of anti-competitive conduct on markets and consumers alike.
I am not going to wade into the debate about a free versus regulated market. I will also highlight what collusive behaviour between firms is and the negative impact this has not only on other market participants but also on consumers.
I, however, wish to rely on the famous quote by Adam Smith, who was the world’s renowned economist, author and a towering figure in economic thought that: “People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.”
Surely, an economic conspiracy designed to deepen the social ills for vulnerable South African consumers who are seized by the rapidly rising cost of living has no room in our young democracy.
In the most basic definition, collusion is an agreement between competitors to work together, effectively leading to market disruption while they gain mutual advantage.
Collusion can come in different forms and range from price-fixing to collusive tendering.
When firms collude to fix prices, it may lead to injustices for the average South African consumer.
South Africans would vividly recall that back in the early 2000s, four firms agreed to adjust the prices of their bread in coordination with one another.
This led to high bread prices for consumers in the country.
Without the commission’s investigation and intervention, this conduct might have continued, leaving many families unable to afford a basic grocery item.
Collusive tendering, commonly called bid rigging, is an agreement among competitors not to compete on the bids they submit after being invited to tender.
For this purpose, firms will be regarded as competitors if they are in the same line of business.
Collusive tendering, just like price fixing, causes great harm. In the past, the commission has referred several companies for prosecution after our investigations revealed that they had, for example, agreed among themselves who would win tenders or agreed upon the prices they would list in their bids.
A prime example of collusive tendering was identified in the construction of stadiums ahead of the Fifa soccer World Cup in 2010.
Collusive tendering often prohibits the growth of small firms or firms owned by historically disadvantaged persons in a particular sector.
In the private sector, collusive tendering could lead to inflated prices for goods or services.
As consumers of goods or services, you are entitled to competitive prices and product choices.
Collusion undermines this. Why? As the examples above illustrate, collusion often leads to increased prices, reduced quality, stifles development and innovation, and ultimately harms consumer welfare, exacerbating the difficult economic conditions most families in SA face.
Without an active and responsive competition regulator, collusion can become a stranglehold on the economy.
I understand that economic ideologies differ, but the stance on collusive conduct cannot.
We need to prioritise the country’s future economic growth while balancing consumer and business welfare.
- Makunga is spokesperson for the Competition Commission of SA
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