Cracking down on cartels
Monday, 1 October 2018
This article is the first in a five-part series from the Commerce Commission addressing anticompetitive conduct.
Next month we will outline how businesses can break Commerce Act laws by bid-rigging, and describe the red flags that suggest this conduct is occurring.
With cartels continuing to be an issue in New Zealand, the Commerce Commission is on a mission to boost business awareness of how to avoid and how to spot anti-competitive conduct.
Put simply, a cartel is where two or more businesses agree not to compete with each other in order to increase profits. This conduct can take many forms, including price fixing, dividing up markets, rigging bids and restricting the output of goods and services.
The end result is that consumers are deprived of a fair deal, and that can flow through to higher prices and a reduction of choice and quality.
In the past six years, the Commerce Commission has prosecuted 11 cartel cases in markets ranging from livestock, cardboard packaging and waste oil to real estate, air freight and timber.
In many instances cartels have been formed as a result of businesses being ignorant of the law, says Commerce Commission Head of Competition Katie Rusbatch. “It doesn’t matter whether businesses set out to break the law – even attempting to strike an agreement not to compete with each other, whether it’s acted on or not, is illegal under the Commerce Act 1986.
It also doesn’t matter if the agreement is formalised in writing or is just an understanding.
“One of the common denominators we have seen in cases is that discussions between competitors can often be triggered when they meet at industry association events. It’s important that businesses understand the risk of engaging with competitors on matters relating to their respective commercial positions or plans. Veterinarians should be mindful of the red flags that could suggest that their businesses are at risk of, or involved in, cartel conduct.”
The following red flags could suggest businesses are at risk of, or involved in, cartel conduct:
- Sharing pricing information with competitors.
- Allocating customers or contract types with competitors.
- Sharing commercially sensitive information with competitors.
- Having secret or fictitious payments to or from competitors.
- Agreeing retail prices with a wholesale customer when both businesses also sell at the retail level.
- Communicating with competitors about a main contract during tenders.
- Joint bidding with competitors to reduce the amount of bidders in a tender.
- Not bidding in a tender as a result of communications with a competitor.
- Restricting the production of a product or service in conjunction with competitors.
- Cooperating with competitors to exclude others from markets.
Businesses can be at risk of being involved in cartel behaviour for a number of reasons, ranging from a lack of knowledge of the law and reckless behaviour all the way through to rogue employees or officers reaching deals in secret. Businesses may also be victims, and could be getting ripped off if there are cartels operating among their suppliers.
Under the Commerce Act, businesses and individuals can face large financial penalties if they have been part of a cartel. Individuals can also be banned from running a company, and legislation is now before Parliament that would criminalise hardcore cartel conduct.
Specific forms of cartel behaviour prohibited under the Commerce Act are:
price fixing (including bid-rigging)
allocating customers, territories or other areas of a market (also known as ‘market sharing’).
Not all agreements between competitors are harmful, and some may fall under several exceptions that clearance can be obtained for. Exceptions to prohibited cartel behaviour are:
All businesses should follow careful processes when interacting with competitors; if businesses are uncertain, legal advice is strongly recommended.
If any business or individual thinks they may have breached the Commerce Act by being involved in anti-competitive cartel behaviour, they can apply for immunity or cooperation under the Commerce Commission’s Leniency Policy. To discuss and apply for leniency, telephone 04 924 3720.
If you have information relating to anti-competitive cartel behaviour, you can give it to the Commerce Commission through its anonymous whistleblowing tool. This is a secure online tool that allows people to communicate with Commission staff anonymously. To access this tool, please visit the Commission’s website at comcom.govt.nz.
Anyone who is unsure or concerned about possible anti-competitive cartel behaviour should seek advice from a lawyer experienced in competition law.
This article does not constitute legal advice and should not be relied upon as such.
For more information on competition law and how to comply, visit https://comcom.govt.nz/business/avoiding-anti-competitivebehaviour/what-is-a-cartel to view factsheets, guidelines and a series of informative animations.
For more information on the Commerce Act for veterinarians visit the NZVA website at www.nzva.org.nz/commerceact