Trade and Industry

Thursday, 15 June 2000

Competition and Market Structure in the Plastics Sector: A Preliminary Analysis

  • Year: 2000
  • Organisation: WITS
  • Author(s): Chris Malikane; Simon Roberts
  • Countries and Regions: South Africa

The South African Competition Act of 1998, implemented on 1 September 1999, establishes a range of criteria for evaluating mergers and company practices that are deemed to harm economic efficiency, among other objectives. In particular, the Act prohibits a range of practices if the firm is ‘dominant’, including charging an ‘excessive price’, engaging in an ‘exclusionary act’, or price discrimination (Sections 8 and 9). ‘Dominance’ is defined as having at least a 45 percent market share, or less than 45 percent if the firm has market power (Section 7). A range of horizontal and vertical restrictive practices are also prohibited (Sections 4 and 5). For the implementation of the Act the links between structure and behaviour are therefore extremely important. This paper seeks to explore these relationships in a particular industrial sector, that of plastics, and in so doing to highlight issues in the implementation of competition policy.

Plastics manufacture covers a supply chain or filière which runs from polymers to finished plastic products.2 Plastic products themselves also provide inputs to a range of industries such as motor vehicles, packaging, textiles and clothing,
construction and furniture. This implies that plastic products are more important in the development of manufacturing than their share of manufacturing production of 2.8 percent would suggest.

The levels in the supply chain differ greatly in their production characteristics. Polymer manufacture is relatively capital intensive and is broadly characterised by economies of scale, significant transport costs and a corresponding concentration of production. Downstream plastics manufacture, by contrast, is characterised by low or negligible scale economies. While many firms in some of the industries use plastic products, there is a very small number of plastics firms. An overview of the sector is necessary to understand the linkages between different levels, and the study then analyses polymer production in more detail. Assessment of corporate structure and performance, market structure, vertical relationships and barriers to entry provide the foundation for an analysis of market power and some tentative conclusions for the implementation of the new competition legislation.