In 2011, cement production in the UK fell to 9 million tonnes, representing a 30% decline from its peak in 2007 before the economic crisis which hit investment and construction projects. Unfortunately, foreign exports were also hit. Until the early 1980’s Britain exported over I million tonnes of cement on a yearly basis. Manufacturers in cheaper countries have taken that business, as costs have increased significantly within the UK. Approximately 40% of the industry’s costs are on energy, and much of this energy comes from coal which has become very costly in recent years. Extra costs have been imposed by increasing European emissions regulations on an industry that generates huge amounts of carbon dioxide. 

The UK market is dominated by five large foreign firms which account for 90% of the trade: France’s Lafarge; Tarmac, owned by Anglo American; Mexico’s Cemex; Hanson, part of Germany’s Heidelberg Cement; and Holcim, a Swiss company. The industry has consolidated with numerous takeovers and mergers. However, regulators are increasingly worried that high barriers to entry (new cement plant might cost US$ 315), vertical integration of aggregates and cement, and the dominant position of the big five firms are damaging competition. The Office of Fair Trading asked the Competition Commission to scrutinize the entire industry. Source: Source: Gillespie, A 2013, Business Economics, second edn, Oxford University Press, United Kingdom. 

(a) Based on the case, what market structure does the cement industry fall in? Justify your answer.

(b) What might be consequences of the changes in the construction industry?

(c) How should government react to such changes?