water tank case study Flashcards
who were the Four main suppliers of a particular type of water tank:
- CST Industries (UK) Ltd
- Franklin Hodge Industries Ltd
- Galglass Ltd
- Kondea Water Supplies Lt
why does the market seem to be a good candidate for collusion
- Very specific product so people are likely to know each other
- Not an industry the general public will care about
- Enough firms so that competition would significantly lower prices
- Sufficiently few firms so that coordinating on prices is manageable
how did it start (before issue)
The firms were meeting regularly
- Nothing illegal there: competitors often coordinate on matters relevant to the industry, such as regulation, lobbying, industrial relations
- In this case, they had a working group to discuss European sprinkling system standards
when did the issue start / what was the problem
The issue occurred when they started discussing prices
“From 2005 to 2012, they also held secret meetings where they agreed to fix prices of tanks, divide up customers and rig bids for contracts. They intended to avoid having customers negotiate cheaper prices through ‘playing’ the suppliers off against each other.”
In short, they agreed to fix prices
- And they were not exactly subtle about it…
how did they fix the price
They divided up the customers among themselves
- Again, small industry, they know who the customers are
They agreed on minimum prices for each customer - The agreed prices ensured that the company who was allocated that customer would have the best offer
how did customers not realise
Designed to give customers the illusion of competition
- They could still obtain a quote from each company
- They could even negotiate discounts
- But even with discounts, the final prices would still ensure that the pre-determined company would win
“However, any of the others who were asked to submit a bid for the same job would only provide the price as dictated by the guide, less a smaller percentage, giving the impression of competition. The smaller percentage was never enough to win the work.”
what were they fined
A settlement was reached in December 2016 with the following fines:
- CST Industries (UK) Ltd: £0
- Franklin Hodge Industries Ltd: £2,015,135
- Galglass Ltd: £587,926
- Kondea Water Supplies Ltd: £22,248
what did all firms do during the fine prosess
All four firms admitted to price fixing and accepted the fines
- This allowed settling rather than going to court
- They all received a discount for this
CST Industries (UK) Ltd got entirely off the hook
“CST Industries (UK) Ltd […] have been granted immunity from fines under the CMA’s leniency policy, having brought the arrangements to the authorities’ attention and co-operated with the investigation.”
Why Franklin Hodge Industries Ltd was fined so much more is unclear
- Larger role? Bigger company? Less collaboration with authorities?
who was Balmoral Tanks Ltd and what was there involvment
Balmoral Tanks Ltd entered the market in 2012 - They were quickly invited to a meeting…
- The meeting was secretly recorded by the CMA
what happened to Balmoral Tanks Ltd
Balmoral Tanks Ltd was invited to join the cartel
- They refused but shared sensitive information about their pricing
- They were fined £130,000 for this
“Although the representative from Balmoral refused to join the cartel, he stayed at the meeting and joined in a discussion about his company’s general approach to pricing and what they would quote for certain tanks.”
what were the three lessons (CMA)
- Agreeing with your competitors that you won’t undercut each other on price or compete for your customers is illegal, and there can be serious consequences for the businesses involved
- Sharing information with competitors, even at a single meeting, can also be illegal
- If you are approached to join a cartel or to get involved in anti-competitive arrangements you should:
- Immediately reject the approach, clearly and unequivocally
- Leave the meeting and make clear you refuse to take part in anything illegal
why may it be hard to detect collusion in reality
But the reality is often more nuanced
The line between legitimate and illegal meetings can be blurry
- There are many things you are allowed to discuss with your competitors - Pricing is not one of them, but there is always a grey area
Proving collusion and issuing fines is hard - The water tank companies were not exactly subtle…
- Yet, it took the CMA years of investigation and procedures as well as being tipped by one of the firms to get there
- In practice, many companies get away with some form of collusion
why should collusion be taken seriously
The CMA has teeth
- It has resources to investigate
- It is even able to secretly record meetings
- The fines can be heavy
Criminal investigations against individuals can take place in parallel
- Managers who fix prices can go to jail
- In this case, criminal charges were laid against three people
- One person pleaded guilty and the other two were acquitted
