Let the Bastards Pay

Not that it made headlines, but last week the Antitrust Authority won a small victory in a Jerusalem court.

Judge Moshe Ravid convicted Motti Cohen and Ehud Pozis, managers and shareholders of Pharma Green, of anticompetitive behavior in colluding to raise the price of Energy snack bars.

Their conviction was sealed by tapes of phone calls in which they tried to put in the fix, as it were. Their lawyers tried to claim that the rival company that taped the calls was acting as a stooge of the Antitrust Authority, but the judge rejected their position.

Here are some extracts from Cohen's chat with his rival, in which he tried to explain how rival should introduce the new "health" bars to the market: "?You're positioning yourself low and it's a shame that this category should be low priced. It should be in the range of NIS 12.90 to NIS 14.90. You can be a shekel under if you want to be cheaper than me, or you could be the same price and eat the sweet fruit to the end. But don't let the bastards get the benefit."

Or: "We're building the market now. We're teaching consumers to take the product from the shelf, getting him used to buying it for NIS 14.90. Why go down? Why? Help me educate in this category."

And later: "I say come on, if you're in this with me, let's set a pricing level. Let's not screw this category? Consumers are being taught why they should move to this product. I won't lower the price, I'm teaching the people, try to catch up with me."

We don't often read transcripts as bald as that but anybody in the business sector knows that conversations of the sort aren't rare.

Most businesspeople are rather more cautious in their words: they are better at getting their message across to the competition, loud and clear, without explicitly touting anything illegal. But price fixing is a routine thing in the business world.

Raising prices in tandem is the easiest way for manufacturers and retailers to improve profit. But raising the price is a recipe for depressing sales.

The Antitrust Authority won the health-bars case, but hasn't achieved much in the really important markets.

I mean the markets where competition is a weak, whimpering thing, where demand is rigid and where there are few alternative products, where price hikes move straight and in full into the profit & loss statement, because revenues increase without costs increasing too.

Calling the competition

Last week Cellcom floated on Wall Street. On the eve of its successful public offering, the mobile operator presented strong results: operating profit in 2006 soared 38% year over year to a billion shekels.

Plenty has been written about Cellcom's successful New York initial public offering, but one thing has been neglected. In the last year, all Israel's mobile communications providers lifted their prices, and by a lot.

How much? We can't say, because the cellular carriers' pricing mechanism are deliberately as complicated as possible.

Competition in Israel's cellular sphere ended years ago, when the market split between the three companies. Now they can raise prices knowing for a fact that the rivals will do the same. Demand for cellular service is practically rigid, and again, any price hike goes straight to profit, and the bastards, namely you and I, pay, as Motti Cohen said.

The absence of competition in cellular screams from every direction: all the companies raising prices, cutting advertising budgets, and comments made by executives after they move on.

Partner Communications' (LSE, TASE, Nasdaq: PTNR)  former marketing veep, Yakov Kedmi, told MarkerWeek last week, straight as it comes: "There's no real competition in cellular."

The new Supervisor of Banks, Rony Hizkiyahu, said much the same thing a month ago, three months after leaving Israel Discount Bank's (TASE: DSCT)  management echelon for the Bank of Israel: there's no competition between the banks over the retail market.

Retail? Yup, it's us bastards again, the little people that the big monopolies, the oligopolies, and the cartels merrily squeeze without interference.

A month ago, the research company Zenith Optimedia published a market analysis on Israel's advertising sector. What people care about in its report is how the market is divided between television, Internet, the press, billboards, and radio.

But more interesting is spending on advertising per capita. It appears that Israel breaks the records: spending on advertising per capita is $115, compared with $256 per person in western Europe, $589 in Norway and $557 in the U.S.

Why don't Israeli companies have to advertise? Naturally, when they can close price hikes over a chummy coffee, when they can "teach" the people to pay sky-high prices for services, who needs to waste money on ads?