A years-long battle over allegations of a price-fixing cartel in the galvanised wire and wire products industry continued this week as the Competition Tribunal sat down to hear arguments from wire and wire products manufacturers Allens Meshco and Cape Gate, along with ten others.
The companies, which included Wireforce, Hendok, Independent Galvanising and Associated Wire Industries, trading as Meshrite, stood accused of allegedly fixing the prices – directly or indirectly – of light galvanised wire, as well as alleged market allocation and collusive tendering from 2001 to 2008.
The Competition Commission recommended the tribunal impose an administrative penalty of 10% on each of the respondents’ yearly turnover, referring to the contravention of Section 4(1)(b)(i) of the Competition Act.
In 2008, respondent Consolidated Wire Industries (CWI), applying for leniency, admitted participation in price-fixing-related meetings with its competitors, agreeing on a national price list for wire and wire products, on adjustments to the national price list and collusive tendering of cable armouring wire.
However, Cape Gate, arguing for a more lenient penalty, reasoned that its cartel behaviour, initiated by an alleged unfair advantage obtained in the industry by its competitors, was a two-part participation, split by a price war after a breakdown in cooperation between the respondents.
The group, which said it had cut all ties from any agreements with its competitors in 2008, stated that a period of intense competition for all intents and purposes left the cartel ineffective, with limited impact to consumers.
From mid-2005 to late 2006, an apparent breakdown in cooperation between the respondents seemingly triggered a prolonged price war to maintain market share and retain customers – a period the commission had argued was a short-term pain strategy to ensure parties venturing from the cartel agreements were brought back in line.
Following a price drop by CWI in 2006, Cape Gate allegedly provided a blanket order to distributors to undercut pricing to what was needed to retain customers and maintain market share.
According to Cape Gate COO Barend Coetzee’s witness statement, Cape Gate had transformed its pricing strategy and sought to provide guaranteed margins to its distributors to ensure sales volumes from June 2005 and withdrawn exactly one year later.
Over this period, Cape Gate assured, there was “very limited” contact with its competitors, there was no cooperation as to pricing and the company did not circulate its national price list to its competitors.
However, amid extensive, unsustainable losses, engagement between Cape Gate and its competitors reignited from late 2006 to July 2008 to return to a situation of cooperation before communication ceased altogether in 2008.
While an economist for the commission last week asserted that the price war of 2005/6 was a “cheating and punishment” activity pursuant to a “longer collusive equilibrium”, an economist, on behalf of Cape Gate, argued that the firms believed they were embarking on aggressive competition and applied different approaches to survive.
Price wars were deemed to represent either a reversion to competition or a punishment to toe-the-line in a cartel.
The economist pointed out that, during a punishment phase, a price war was generally less severe, while reversion to competition generally lowered profits in industry as a whole.
However, the commission maintained that Cape Gate had, during the price wars and alleged break in cooperation early in 2006, participated in collusive tendering, while Cape Gate argued that this did not prove continuous, or ongoing, coordinated cartel conduct.
The hearings would continue on Thursday.