On 21 May 2013, the UK’s Competition Commission (CC) published its provisional findings report concerning its market investigation into the supply of aggregates, cement and ready mix concrete (RMX) in Great Britain (GB).
While the CC has not identified any significant competition concerns in respect of the supply of aggregates and RMX in GB, it has concluded, provisionally, that coordination between the three major cement producers (Lafarge Tarmac, Hanson and Cemex) is likely to be resulting in higher prices for cement users. The CC has also raised concerns in respect of certain long-term exclusivity arrangements for the production of ground granulated blast furnace slag/GGBS (and its primary input, granulated blast furnace slag/GBS), a partial substitute for cement.
It is important to stress that the CC found no evidence of explicit collusion or cartel behaviour in the supply of cement; however, the CC considers that certain market features – covering both the structural characteristics of the market as well as certain behaviours of companies in it - allow the three major producers to coordinate their behaviour.
Professor Martin Cave, Chairman of the relevant CC Inquiry Group, said:
"We have provisionally found some serious problems with the way the cement market operates in GB. In a highly concentrated market where the product doesn’t vary, the established producers know too much about each other’s businesses and have concentrated on retaining their respective market shares rather than competing to the full. Strikingly, despite low demand for cement over recent years, prices and profitability for the GB producers have still increased.
There are only four cement producers in the UK and one of those is a new entrant to the market [Hope Construction Materials]. This concentration - and the close links between the producers at many levels - along with industry practice, has for a long time given GB producers detailed awareness of how their counterparts are performing, as well as of their future pricing strategy.
Established information channels such as price announcement letters can signal their plans, and tit-for-tat behaviour and cross-sales can be used to prevent or retaliate against any moves to disturb the overall balance between the different players in this market. They have also been in a position to increase the already significant barriers that exist for new entrants."
The CC is contemplating various remedies to increase competition in the cement market. These options range from divestiture, for example, requiring one or more of the three major producers to divest cement and/or RMX plants, to measures designed to enhance countervailing buyer power, by means of the creation of a cement buying group.
The CC is also concerned as to how the availability and currency of market data may be contributing to coordination in GB cement markets by facilitating price leadership and price following, and softening customer resistance to price increases.
In this regard, the CC is considering prohibiting GB cement producers from sending generalised price announcement letters to customers, and placing restrictions on the availability of market information that could aid coordination.
This latter option may extend to restrictions on the submission or sale of cement sales and production volume data by GB cement producers to trade bodies or other private sector organisations, or changes to the subsequent publication of this material.
The CC is also recommending changes to the way the UK/European Commission publish GB cement producers’ emissions data under the Emissions Trading Scheme. The rationale here is to reduce the ability of the three major producers to use annual verified carbon emissions data to infer each cement plant’s individual production and market shares.
Finally, the CC is also looking at possible structural remedies to address its concerns in relation to GGBS/GBS production in GB.
The CC has made it clear that 'hard-hitting measures' may be necessary. The CC’s stance on market data suggests that in highly concentrated markets and those characterised by cross-sales among rival suppliers, even relatively orthodox information gathering, aggregation and dissemination – as conducted by third party organisations - will be subject to an unusually high standard of scrutiny. A natural concern is whether the CC’s remedies will, in this respect, go too far and, in attempting to implement measures to limit the risk of coordination, reduce efficiencies commonly associated with a balanced degree of reporting and market transparency.
This publication is intended for general guidance and represents our understanding of the relevant law and practice as at June 2013. Specific advice should be sought for specific cases; we cannot be held responsible for any action (or decision not to take action) made in reliance upon the content of this publication.
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