OFT Proposes Competition Commission Investigation Of Aggregates, Cement And Ready-mix Concrete Markets
The OFT has today published its market study into aggregates, cement and ready-mix concrete. It proposes to refer the sectors to the Competition Commission for more detailed investigation.
These sectors had a combined turnover in 2009 of up to £3.4bn and are vital inputs in the construction sector, which represents seven per cent of UK GDP. Some 40 per cent of construction expenditure is in the public sector, for schools, hospitals, roads and other physical and social infrastructure, with central Government being the biggest customer.
In its study the OFT identified a number of features of the sectors which could prevent, restrict or distort competition. These relate both to structural features that may dampen competition, and to the conduct of major firms towards smaller operators.
Issues include:
· High barriers to entry in aggregates and cement due to the difficulty of obtaining planning permission and the level of investment required
· High and increasing concentration: five major players account for over 90 per cent of the cement market, 75 per cent of aggregates sales and 68 per cent of ready-mix production
· The effects of vertical integration: the major firms are integrated across aggregates, ready-mix concrete and cement. We have received complaints about vertically integrated firms refusing to supply or discriminating against non-integrated competitors through their pricing
· Multiple contacts and information exchanges across the markets, with major firms supplying each other with both aggregates and cement, and engaging in joint-ventures and asset swaps
· An apparent squeeze between rising cement prices and stable or falling ready-mix concrete prices, affecting independents which both buy cement from vertically-integrated majors and compete against them in the ready-mix concrete market.
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‘More than ever, well-functioning markets are crucial to economic growth. Aggregates, ready-mix concrete and cement, important in their own right, are also fundamental to the wider construction industry.
‘We are concerned that competition is not working well in these sectors, with underlying features of the market giving rise to persistent concerns. Lack of effective competition not only affects the public sector and business customers but ultimately leads to higher prices for consumers too.
‘As a result we are proposing to refer these sectors to the Competition Commission for further investigation.’
The OFT will now consult until 30 September 2011 on its proposal to refer the market to the Competition Commission. It will be speaking with key parties directly. Others who wish to make a submission should send their written views to: aggregates@oft.gsi.gov.uk or by post to:
Aggregates Market Study,
Office of Fair Trading,
Level 4,
Fleetbank House, 2-6 Salisbury Square,
London EC4Y 8JX.
The OFT’s market study can be found at http://oft.gov.uk/OFTwork/markets-work/current/aggregates/
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