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Regulator limits monopoly prices to 20% over cost
By NIV ELIS
10/04/2014
The policy will be limited to companies that control over half the market-share for a given product.
 
In a move that may bring down the high cost of living, the Israel Antitrust Authority announced on Thursday that it will begin fining monopolies for overcharging consumers.

In a new policy statement, the authority set hard definitions for monopolistic price gouging.

Companies that control over half the market share for a given product and charge consumers over 20 percent of the production cost would be subject to fines and class action lawsuits, though not criminal sanctions.

Because Israel has a relatively small and geographically isolated economy, several important industries are dominated by a handful of companies. Without major competition, those big players are able to jack up prices.

The cement market, for example, is dominated by Nesher, while Tnuva controls over 70% of the dairy market. High cottage cheese prices helped fuel the cost of living protests in the summer of 2011.

“Charging an excessive price sharply fuels the cost of living problem and creates direct and immediate harm to the consuming public,” explained Antitrust Commissioner David Gilo.

“As a result of the fact that consumers pay a higher price than the competitive price, there is a wealth transfer from the hands of the consuming public to the monopoly owner,” he added.

The policy, he said, aims to limit that damage by ensuring “fair” pricing.

In order to assess whether a company is charging unfair prices, the authority will test in three ways. The first is checking the difference in the cost of producing the product and its market price.

The second is a profitability test, which assesses the company’s profitability against a range of factors such as the risk in the particular industry, the capital it requires and its debt.

The final test is a comparative one, examining how much the company charges for the same product in foreign markets, the prices of similar products and the price of the product over time.

The policy also seeks to act against monopolies setting unprofitably low prices in hopes of keeping competitors out of the market.

In a November speech to the Eli Hurvitz Conference on Economy and Society, Prime Minister Binyamin Netanyahu said that economic concentration and monopolistic behavior were the “primary factor” in preventing competition in Israel’s markets.

Though Economy Minister Naftali Bennett and Finance Minister Yair Lapid have been pushing a series of market reforms to help introduce competition and bring down prices, both refused to comment on the initiative.

The Manufacturers Association said it was studying the document.
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