Illegal Cartel Overcharges in Markets with a Legal Cartel History: The South African Bitumen Market

Abstract

A number of South African price-fixing cases have been brought in markets previously characterized by legal cartels or monopolies. Furthermore, many South African markets have been liberalized since 1994, reflected in structural change in many market relationships and rendering many of the markets subject to international price developments. These features create special difficulties for the calculation of overcharges. Conventional approaches often rely on a temporal approach, where prices during the cartel period are compared to prices in another – supposedly competitive – period. In the presence of legal cartels, such a historic period is not available, which limits the temporal approach. A spatial approach, where South African prices are compared to those in other countries, offers a better alternative. We apply these methods to estimate overcharge by the bitumen price fixing cartel in South Africa. We find that while South African bitumen prices may have similar responses to demand and supply shocks, a spatial approach unmasks the persistent effect of high price levels. This sheds further light on the transition of legal to illegal collusion, a topic of both local and international interest.