Price fixing by South African Cycling Industry

The Competition Tribunal has fined two bicycle dealers who denied being part of a cartel, but those who admitted guilt have got off scot-free. 17 companies that settled early with the commission were not fined for contravening the Competition Act and the case against Fritz Pienaar Cycles was because the business was liquidated. Omnico and Coolheat elected to oppose the charges against them. Their cases were heard last year by the tribunal, which at end of May released its order and reasons for its decisions.

Omnico was fined R4 627 412 and Coolheat Cycles R4 250 612 by the Competition Tribunal for price-fixing. The tribunal previously confirmed consent orders between the Competition Commission and six wholesalers and 11 retailers in the bicycle sector who were implicated in a price-fixing in an investigation by the commission.

The decision to take their chances at the tribunal proved costly, as the others who had admitted their guilt were let off without a fine. They are: Melody Street 18, Hotspot Cycles, Maverick Cycles, Saloojee’s Cycles, West Rand Cycles, Bowman Cycles, Albatros Fishing & Cycling, Citek Cycle Distributors, Maillot Jaune Trading, Bicicletta, Le Peloton, Thule Car Rack Systems, Dunkeld Cycles, Summit Cycles, Bester Cycles, Johnson Cycle Works and New Just Fun Group.

Coolheat Cycle Agencies’ managing director, Stephen Meltzer, who has been part of the cycling industry since 1979, when he started Coolheat came in for heavy criticism from the Competition Tribunal last week when it threw the book at two cycling wholesalers, handing down judgment in the long-running bicycle cartel case. Omnico was given a 50% discount on its fine because it had only implemented the collusive agreement in a limited way, but the tribunal fined Coolheat the full possible amount because of Meltzer’s behaviour.

Meltzer came under fire on the public cycling forum TheHubsa, when minutes of the meeting where published, Meltzer wrote that “the minutes on TheHubSA are not entirely the same as what was actually mentioned in this meeting. There are a lot of issues, which have been relayed, which have been incorrectly minuted. Do yourselves a favour, get on your bike and go enjoy yourselves”

A fellow colluder, Fritz Pienaar of Fritz Pienaar Cycles, said he was “disappointed” that some industry players who had supported the proposal to increase margins distanced themselves from the decision when they saw how angry consumers were on TheHubSA.

The brazenness with which the cycling industry organised itself into a cartel is startling. he agenda for a meeting held on September 10 2008 at the Midrand Conference Centre, which more than 200 people from the industry attended, states explicitly that the subject is “margins in the bicycle retail industry”.

The agenda also refers to “proposed new mark-ups of 50% on bicycles and 75% on bike accessories”, and a proposed date, October 1 2008, on which to implement the increases. The mark-up at the time was 30% to 35% on bicycles and 50% on bicycle accessories.

Pienaar confirmed at the tribunal that, as minuted, he said at the meeting: “Many of you are concerned that this may be some form of price-fixing; it isn’t and this is not illegal.”

Ngoako Moropene, legal counsel at the commission hat in settling these cases without the payment of an administrative penalty, the commission took into account that it had already settled cases with other firms without imposing a fine.

“Mr Pienaar made it clear in my boardroom that retailers who attend the meeting would be encouraged to cancel their accounts with Probike if it did not support the initiative to raise the mark-ups,” Els told the tribunal. “I felt that he was threatening Probike to ensure we attended the meeting.”

The commission also took into account the views of the tribunal in a meeting prior to the commencement of a hearing into an exception application by some of the implicated firms, including that the continued prosecution of 20 firms was a waste of public funds given that they were all small businesses. Really a waste of money?

An administrative penalty could drive firms out of business or to downsize, resulting in a loss of employment.—Probe-reveals-why-bike-prices-shot-up