Let's dismantle tender cartels before they destroy economy

Currently, Kenya is faced with sugar shortage. This is despite the fact that our own sugar factories are closed due to underproduction.

The shortage is an official one created by cartels in order to increase prices and bring to the market their own contraband.

The key is that competitors agree among themselves how the market will operate, rather than allowing competitive market forces to work.

This may be in the form of agreed selling or buying; agreed minimum prices; agreed formula for pricing or discounting goods and services; agreed rebates, and allowances or credit terms.

In Government tendering, you find one contractor getting all the bids to quote or two or more companies agree they will not compete genuinely with each other for particular tenders, allowing one of the participants in the agreement to win the tender.

Collusive tendering is a dangerous form of anti-competitive behavior, as competing businesses choose a winner while the others deliberately bid over an agreed amount, which ensures the selected bidder has the lowest tender and also helps to establish the illusion that the lowest bid is indeed competitive.

Competitors agree to take turns at winning business while monitoring their market shares to ensure they all have a predetermined slice of the pie.

In competitive markets, producers compete by driving down prices, but competition may also compel them to innovate, leading to increased productivity and economic growth.

In contrast, a monopoly producer may have incentive to neither decrease price nor innovate.

Output controls, decided on between companies, can occur in the form of production or sales quota arrangements that involve an agreement between competitors to limit the volume of particular goods or services available on the market; they have the effect of inflating prices in the market.

Output restrictions occur when the participants in an industry agree to prevent, restrict or limit supply. The purpose is to create scarcity in order to increase prices (or counter falling prices) while also protecting inefficient suppliers.

Community, consumers, businesses and even governments can be forced to pay higher prices for goods and services. Cartels also distort economic markets, and serve to slow innovation; after all, companies charging abnormal prices have little incentive to spend money on research and development.

The "fighting of cartels" is given a high priority in Kenya. Cartels that damage the interests of consumers commit a very serious form of economic crime.

However, identifying, detecting and fighting cartels are a difficult task that requires a combination of legal and economic competencies.

Market economy and free trade promote growth and prosperity in structured market. There is need to co-operate over the frontiers in order to achieve more effective functioning of markets.

There are, however, different views on how cartels could be defined and detected and on what instruments competition authorities should use to fight cartels that are detrimental to consumers.

Serious anti-competitive practices are, almost by definition, kept behind locked doors. Competition Authority of Kenya has different ways and means to collect the necessary evidence that could bring these harmful practices to an end.

Thus, an integrated cartel impact assessment can help to more proactively combat cartel agreements on the market and improve the economic welfare of the country.