Original Research

The assessment of joint purchasing: Can too much ‘buying power’ ever be a problem

Paul Anderson, Fatima Fiandeiro, Keshav Choudhary
Journal of Economic and Financial Sciences | Vol 4, No 3 | a369 | DOI: https://doi.org/10.4102/jef.v4i2.369 | © 2018 Paul Anderson, Fatima Fiandeiro, Keshav Choudhary | This work is licensed under CC Attribution 4.0
Submitted: 01 July 2018 | Published: 31 August 2011

About the author(s)

Paul Anderson, Genesis Analytics (Pty) Ltd, Hyde Park, Johannesburg, South Africa
Fatima Fiandeiro, Genesis Analytics (Pty) Ltd, Hyde Park, Johannesburg, South Africa
Keshav Choudhary, Genesis Analytics (Pty) Ltd, Hyde Park, Johannesburg, South Africa

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Abstract

The creation of ‘buying power’ through joint purchasing agreements is often seen as positive, with direct benefits for consumers in the form of lower prices. Even where joint purchasing agreements lead to the creation of a monopsonist, economic theory suggests that the welfare effects of monopsony power depend greatly on the market context, with some economists proposing that the probability of harm in cases involving monopsony power is considerably lower than in cases of a monopoly. 
Despite this view, section 4(1)(b) of the South African Competition Act classifies the ‘fixing of a purchase or selling price or any other trading condition’ by competitors as a per se prohibition. This implies that from a legal perspective purchasing agreements may be afforded the same draconian treatment as selling cartels. This paper considers whether this potentially punitive treatment of joint buying arrangements under section 4(1)(b) is warranted and indeed whether the equivalent treatment of joint buying and selling agreements under this section of the Act is appropriate.

Keywords

joint purchasing; monopsony; buying power; buyer cartel; Section 4(1)(b); South African Competition Act

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