Picture: ISTOCK
Picture: ISTOCK

CARTELS may punish offending members for breaking the rules of co-operation‚ but this is unlikely if all the members know what the others are charging.

This according to economist Richard Murgatroyd‚ who continued testifying on Thursday in Pretoria before the Competition Tribunal in the hearing into the wire manufacturing cartel.

Mr Murgatroyd was called to the witness stand by wire manufacturer Cape Gate‚ which is accused alongside the Allens Meshco Group (AMG) and Consolidated Wire Industries (CWI) of engaging in collusive tendering and price-fixing between 2001 and 2008.

CWI received conditional leniency for co-operating with the investigation and blowing the whistle on its alleged colluders‚ but Cape Gate and the AMG were referred to the tribunal for prosecution in 2009.

While Cape Gate has owned up to its collusive conduct‚ it is still in dispute with the Competition Commission over the duration of the cartel.

It claims that the period of collusion was broken up by a year-long price war in 2005 and 2006 during which it competed aggressively, and that this effectively created two separate cartels.

If the tribunal agrees‚ Cape Gate will be fined only for this "second" period of collusion as too much time would have lapsed to penalise it for its conduct before 2005.

The Competition Commission‚ however‚ argues that the price war was punishment meted out against a cartel member for poor co-operation and did not end the cartel. It said there was one continuous cartel and Cape Gate should pay penalties accordingly.

Mr Murgatroyd backed the company when he said he believed Cape Gate and the other companies were truly engaged in competitive practice over the price war period.

Citing several pieces of research‚ Mr Murgatroyd said the reduced profit margins the companies earned during the price war compared with the preceding period of collusion‚ showed the price war was genuinely competitive.

He said cartel members were able to monitor each other’s prices and this meant they were less likely to "cheat" with cheaper prices while colluding, and punishment would not be necessary.

Mr Murgatroyd said a punishment phase in a cartel is usually less severe‚ while the industry as a whole is affected when former colluders revert to competing.

The market-wide effects of the 2005-06 price war were therefore not consistent with a punishment phase‚ he said.

The hearing will continue in April.

TMG Digital