A note on cartel pricing in the South African cement industry: New evidence

De Wet H.F. (2003)


In 1994 FOURIE AND SMITH ANALYSED the cement market in South Africa on a structural, conduct and performance basis and came to the conclusion, inter alia, that cement price trends and cement price levels were unacceptably high. They accused cement manufacturers of abusing their market power by setting prices above marginal cost, with the resultant misallocation of resources. They acknowledged that due to a lack of in-depth information regarding industry, firms and plant data, "it is not possible to determine to what extent these higher price increases were the result of the cartel members abusing their market power and/or various cost factors peculiar to the cement industry" (1994:134). They therefore foresaw the possibility of costs peculiar to the cement industry that could have had a contributing effect on unacceptable cement price trends and the unacceptably high price levels of cement. Research by De Wet in 1987 regarding the cement market under price control was made available in 2001 after a 15-year embargo by the Cement Manufacturers' Association. In his research some cost factors peculiar to the cement industry during the late 1970s and early 1980s were identified. These costs include depreciation as a fixed cost and railage as a variable cost. The purpose of this paper is to analyse in more detail the depreciation and railage costs identified by De Wet as peculiar to the cement industry. The impact of depreciation as a fixed cost and railage as a variable cost on the cement price trends and on cement price levels will therefore be the focal point of this research.

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