How can I stop local soap suppliers from price fixing?
This is a question that I've been asked in the field so I wanted to share it with everyone on KnowledgePoint
I suspect the only three local soap makers are in a cartel to fix prices and my agency is being overcharged. How can I find out and then stop it? I don't want to have the expense, delay and hassle of importing soap and do want to encourage local industry.
Firstly, put together a table of the prices you have been offered for all the procurement for which you have records and which supplier won the bid each time.
Does the winning offer rotate between the different soap makers, despite offering similar prices to each other every time?
Has the price risen steadily over time?
If there is cartel in operation, you would expect the answer to both questions to be ‘yes’ (but it is not definitive proof).
Step Two: Go to the market and/or local shops with a colleague as a witness (ideally one of you international staff and one of your national staff). See if you can find some soap of the same quality and size as you normally order. Buy a few samples, noting the prices or getting receipts if you can. If a cartel is in operation, it is likely that prices from the local stores are cheaper than what you pay from your three normal soap makers.
Normally, you would expect to pay significantly less for bulk purchase directly from the manufacturers.
Step Three: Call the three suppliers to a meeting all together "to discuss soap procurement" and, again, have a witness from your agency present. Tell them openly of your concerns that you are paying too much for soap and share your findings from your trip to the market/shops. The aim is to let them know that you are well informed and aware. You can let them know that you have been analysing past bids (have the table on your desk) but do NOT show them the details of individual offers, i.e. each other's offers (even though they may already know them if they really are price fixing). You can tell them that you are happy that purchases have been made from all three suppliers (if they have been) but are disturbed that the prices are rising steadily (if they have been). You can say that you can now source soap more cheaply from outside the country and your "senior management" (keep this vague, locally or abroad) are worried about costs (this must be true!) and will be looking closely at the next round of bids/offers for local procurement; much as you would like to continue supporting local industry, your agency does have a responsibility to give good value to its donors.
-> Maintain good personal relations - do NOT accuse them outright of illegal or dishonest practices. To this end (and for your own security, if this is an issue) you are also shifting some of the responsibility for what you are saying to other "more senior" people.
They may come up with excuses/reasons for their prices being high, you should listen politely (and note them down) but without comment. Keep this part of the meeting as short as possible and then thank them for coming.
* This is an actual case from operations in The Great Lakes Region of Africa. We did the research and had the ... (more)
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