Overcharge Estimates in the South African Reinforcing Bar Cartel

Abstract

The South African competition authorities have successfully prosecuted a number of cartels in various markets since their inception, particularly since the introduction of the Competition Commission’s Corporate Leniency Policy in 2004. There is growing pressure on competition and regulatory bodies to undertake impact assessments of their interventions in markets, and authorities around the world are increasingly attempting to quantify the benefits of interventions for consumers, or conversely, the harm caused by anticompetitive conduct. However, estimates of cartel overcharges have only recently been calculated by the South African authorities and only in a small number of cases. This may explain the low levels of damages claims even though the Competition Act makes provision for such, limiting the strong potential deterrence effect damages claims could have. In this paper, we measure the cartel overcharge in percentage terms and the consequent damages in rand terms in the reinforcing steel bar (rebar) market, a market in which a cartel operated between 1999 and 2008. We do this by applying the ‘difference-in-difference’ methodology, with our primary comparison being the cartelised rebar domestic price over the export rebar price. The results are presented for two counterfactual scenarios based on Bertrand competition and a leader-follower model of competition. We debate the pass-through effect and its impact on the calculated damages. Finally, we highlight the inherent difficulties in interpreting results of such analyses, particularly in industries where there are cartels in multiple levels of the value chain, where there is considerable ‘noise’ given external shocks, and where cartel behaviour is so entrenched that conduct may persist well after the ‘formal’ cartel ends.