The UK cement market has too few players in manufacturing, the Competition Commission has decided.
The Commission says it has provisionally found that coordination between the three major producers – Lafarge Tarmac, Cemex and Hanson – in the cement market is likely to be resulting in higher prices for all cement users.
A fourth manufacturer, Hope Construction Materials, is a new entrant, and was set up as a result of the merger of the Lafarge and Tarmac businesses.
The finding do not mean that there has been explicit collusion on prices, rather that, with only four manufacturers the conditions have been created which allow three of them to coordinate their behaviour, thereby softening competition and resulting in higher prices for consumers.
The Commission is now looking at a wide range of possible remedies to increase competition, including requiring the major producers to divest cement plants; the creation of a cement buying group; prohibiting generalized price announcement letters to customers; and restrictions on making available other information which can aid coordination.
The key features of the market that give rise to concerns are:
· The high market concentration;
· transparency of sales and production shares,
· homogeneity of product;
· customer characteristics and behaviour (in particular, regularity of purchases, purchases at fixed locations, concentration of customer base and single sourcing for a particular job site);
· vertical integration from cement into downstream operations.
· a strategic focus on maintaining market stability between the members of the coordinating group, frequently manifested in a focus on maintaining existing (or returning to pre-existing) relative shares of sales;
· price announcement behaviour (which facilitates price leadership and price following, and softens customer resistance to price increases);
· tit-for-tat behaviour used to balance shares and for retaliation;
· use of cross-sales as a mechanism for transparency, signalling and, on occasion, share balancing and retaliation;
Professor Martin Cave, Commission Deputy Chairman and Chairman of the Inquiry Group, said: “We have provisionally found some serious problems with the way the cement market operates in Great Britain. 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 these producers have still increased.
“There are only four cement producers in the UK and one of those is a new entrant to the market. This concentration–and the close links between the producers at many levels–along with industry practice, has for a long time given British producers detailed awareness of how their counterparts are performing, as well as of their future pricing strategy.
“Given the extent of the problems we have found, we feel that hard-hitting measures may be necessary to open up the cement market to greater competition by transforming existing structures and behaviour. The fundamental importance of this product to construction and building and the amount of such work that is funded by the public purse only underlines the need for these actions. Our initial assessment is that these problems could have cost GB consumers around £180 million over the period 2007 to 2011, and we also believe this could be an underestimate.”
The CC is required to publish its final report by 17 January 2014 and is now inviting responses. Any interested party is invited to respond to the provisional findings and notice of possible remedies by 12 June 2013.
To submit evidence, please email email@example.com