On 21 May 2013 the Competition Commission ('CC') published its provisional findings in the market investigation into the supply of aggregates cement and ready mix concrete. The provisional conclusion of the CC is that coordination between the three major cement producers (Lafarge Tarmac, Cemex and Hanson) is likely to be resulting in higher prices for all cement users. The CC has previously considered the issue of coordinated effects in market investigations, but although it concluded that the market conditions conducive to tacit coordination were satisfied, in those cases it did not find any further evidence which would clearly have established the existence of tacit coordination. The CC is now looking at a wide range of possible remedies to increase competition in the cement market.

The CC did not identify any problems with the competitive conditions in operation in relation to aggregates and ready mix concrete due to wider competitive constraints and a lack of coordination in these markets.

Coordinated conduct and market investigations

One of the theories of harm that the CC considers when carrying out a market investigation and considering the application of the adverse effect on competition (AEC) test is that of coordinated conduct by companies. Coordination can take different forms, ranging from agreements between competitors to fix their prices, share markets or allocate customers, which would be investigated under Article 101 TFEU/Chapter I prohibition UK Competition Act, to a tacit coordination of conduct without communication between the different market players.

In market investigations the approach to investigating coordinated conduct is similar to that in merger analysis, which looks at unilateral but also at coordinated effects of a transaction. The CC's analysis of coordinated conduct therefore involves an analysis of the structural characteristics of the market as well as evidence of the behaviour of companies in that market.

Coordination in the cement market

In respect of the cement market, the CC found that the market is highly concentrated with a significant degree of transparency, frequent interaction between the producers and a lack of complexity in the competitive environment and the products.

Whilst there has been no specific finding of collusion between the main parties (which would in any case need to be addressed under Article 101 TFEU/Chapter I prohibition UK Competition Act), the CC noted that there were a number of factors which indicated there was 'strategic interdependence' between the main parties that resulted in the market failing to function as it should. There was a strategic focus on maintaining existing relative shares of sales, industry practice of sending generalised price announcement letters to customers, "tit-for-tat" behaviour used to balance shares and for retaliation and there were also internal documents providing direct evidence of coordination.

Remedies

The CC is now looking at a wide range of possible remedies to increase competition in the cement market. These include:

  • divestiture of cement production capacity by one or more of the three major cement producers;
  • divestiture of ready mix concrete plants by one or more of the three major cement producers in order to reduce vertical integration;
  • the creation of a cement buying group or groups to increase countervailing buyer power;
  • prohibition on generalised cement price announcement letters being sent to customers;
  • restrictions on the disclosure of cement market data by the UK Government and by British cement producers to private sector organisations; and
  • recommendations to the UK Government/European Commission on the publication of British cement producers’ verified emissions data under the EU Emissions Trading Scheme.

The only previous market investigation which has resulted in structural divestments was the CC's investigation into BAA. However, the CC has made it clear that 'hard-hitting measures' may be necessary which could well result in structural remedies in this case.

Conclusion

It will be interesting to see whether the CC's final report in respect of the aggregates market supports these provisional findings and also whether or not the OFT decides to pursue any actions under Article 101 TFEU or the Chapter I prohibition of the Competition Act 1998. The findings are a clear warning to all businesses which operate in concentrated markets that they should continue to compete against each other and take all commercial decisions independently from each other.