Cartels deprive consumers and other businesses of a fair deal. A cartel is where two or more businesses agree not to compete with each other in order to make greater profits. This conduct can take many forms, including price fixing, dividing up markets, rigging bids or restricting output of goods and services.
Cartel conduct can result in higher prices and a reduction of choice and quality. Under the Commerce Act, businesses and individuals can face large financial penalties if they have been part of a cartel and individuals can be banned from running a company.
Types of cartel conduct
Price fixing is where two or more businesses agree on what prices they will charge to avoid having to compete which each other. Price fixing is not limited to agreements between competitors setting a specific price for goods or services – it also includes competitors agreeing to fix any part of a price, or to set price according to an agreed formula.
Bid rigging or collusive tendering occurs when there is an agreement among some or all of the bidders about who should win a bid between them. This may involve some potential bidders not bidding for a tender to support the designated winner and they might also agree the prices that the each party will bid for a tender. Such an agreement prevents open and effective competition and means procurers are unlikely to achieve best value for money for their business, customers, and in some cases, taxpayers.
Market sharing occurs when businesses collude to carve up markets and not compete for the same customers. This could be in relation to the sale of a specific product, a geographic area or a particular type of customer.
Restricting output is when two or more competing buyers or sellers agree to prevent, restrict, or limit the goods or services they are buying or selling or the goods or services that would likely be bought and sold.
Practical tips for businesses when engaging with competitors
Make sure that you and your staff are familiar with the requirements of the Commerce Act. Keep records of who has attended training.
Think carefully about who you are, or may be, in competition with, especially if sub-contracting is involved.
Do not agree prices, discounts or any matters relating to price with your competitors (unless it is a specific sub-contract you are discussing).
Do not agree to restrict output in any way, or to allocate customers or geographic markets between competitors.
Do not exchange pricing, how much you plan to produce in the future, customer information or which markets you sell into with your competitors.
If you are approached by another business to discuss pricing, allocating customers, bids for contracts or restricting outputs you should raise an objection straight away. Leave the discussion immediately.
Review internal documents, policies and procedures for compliance with the Commerce Act and seek independent legal advice.
If you become aware of anti-competitive conduct, contact the Commerce Commission straight away.
Taking action against cartels
The Commission prioritises enforcement cases involving cartel conduct because of the significant harm it can cause consumers, other businesses and in some cases taxpayers. See our most recent media releases on cartel conduct.
Members of trade or industry associations are often competitors. This means that care must be taken to ensure that associations and individual members do not engage in anti-competitive behaviour that may breach the Commerce Act.