OFT Refers Aggregates, Cement and Ready-mix Concrete Markets to Competition Commission

Jack Humphrey, Regulatory journalist
January 20, 2012 /

The OFT has referred the aggregates, cement and ready-mix concrete markets in Great Britain to the Competition Commission.

The decision to make a market investigation reference follows the publication of the OFT’s market study and its announcement of a provisional decision to refer these markets in the UK in August 2011.

The supply of aggregates, cement and ready-mix concrete in the United Kingdom has turnovers of about £1.4bn, £0.9bn and £1.0bn respectively. These products are vital inputs to the construction sector, which represents some seven per cent of GDP or £110bn a year of expenditure.

The public sector accounts for around 40 per cent of construction expenditure – for schools, hospitals, roads and other physical and social infrastructure. The construction industry is therefore highly significant for the country’s economic and social development.

Having carried out a public consultation on its provisional decision and considered all the responses received, the OFT continues to be of the view that competition may not be working well in Great Britain, but has decided not to refer these markets in Northern Ireland because the features identified are not present to the same degree.

In particular, the OFT has concerns regarding structural features of these markets and reasonable grounds for suspecting that these are preventing, restricting or distorting competition.

John Fingleton, OFT Chief Executive, said: “Competitive, well-functioning markets are important to drive economic growth and keep costs low. The aggregates, cement and ready-mix concrete markets are part of the larger construction industry which provides vital inputs across the British economy.

“Following public consultation, we continue to have concerns that these markets are not working well. As a result we are referring them to the Competition Commission for further investigation.”

Features the OFT identified in its market study include high barriers to entry in aggregates and cement; high concentration (five major players account for upwards of 90 per cent of the cement market, 75 per cent of aggregates sales and around 70 per cent of ready-mix production); the effects of vertical integration: the major firms are integrated across aggregates, ready-mix concrete and cement; 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.

These features, in combination, may have the potential to reduce competition in settings with high levels of concentration, particularly given the largely homogenous nature of the products, and may lead to the erosion of independent competition in the medium to long-term.

The effect in the long-term could be a further weakening of competition between the firms, resulting in higher prices for aggregates, cement and ready-mix concrete.

 

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