The Commerce Commission has issued formal warnings to Schindler Lifts New Zealand Limited (Schindler) and one current and one former employee for participating in a longstanding cartel arrangement which shared elevator installation contracts in the South Island. The Commission alleges the cartel operated from the early 1980s until late 1995. The warning was issued following an admission from the Schindler manager concerned.

Under the arrangement, the cartel participants would determine which firm would win upcoming elevator installation contracts. The losing bidder submitted a high 'cover' bid that did not succeed and was not expected to succeed, in order to give the impression of genuine competition.

The primary objective of the cartel was to secure the lucrative ongoing maintenance contracts for the elevators. The prevailing market conditions at the time of the cartel ensured that the company which installed the elevator was invariably awarded the contract for its ongoing maintenance. The Commission considers that the collusion over the installation contracts also had the purpose and effect of controlling or maintaining the prices of the maintenance contracts.

Commerce Commission Director of Competition Deborah Battell said, "Of particular concern to the Commission is the fact that maintenance agreements are still in force today which may be tainted as a result of this alleged cartel. Some of these contracts have not been subject to competition and building owners are potentially suffering higher prices as a result."

The limitation provisions of the Commerce Act prevent the institution of proceedings in relation to conduct more than ten years old, otherwise the Commission considers it would have been appropriate to issue proceedings against Schindler and one of the individuals in this case.

The Commission's investigation was opened following an application under the Commission's leniency policy. During the investigation the Commission obtained admissions from the key cartel participants and also uncovered evidence that senior executives within the cartel companies were aware of the behaviour and did little or nothing to stop it.

"It is important that companies take seriously any allegations made by staff about collusion with competitors and investigate such matters appropriately" said Ms Battell.

Background

Cartels are groups of businesses or executives that, instead of competing against each other to offer the best deal, secretly agree to work together to keep prices high. Cartels harm competitors by rigging bids, agreeing to charge higher prices than they would be able to charge in a competitive market, restricting volumes and by squeezing non-cartel members out of the market. Cartels harm the New Zealand economy by making consumers and other businesses pay inflated prices for goods.

Cartel conduct is a breach of section 30 of the Commerce Act which prohibits competitors from entering into arrangements which have the purpose or effect of fixing, maintaining or controlling prices. Price fixing is deemed to substantially lessen competition under section 27 of the Commerce Act.

If the Court finds that the Commerce Act has been breached, it may:

  • impose pecuniary penalties on businesses that must not exceed the greater of:

    - $10 million;

    or either:

  • three times the value of any commercial gain or expected commercial gain resulting from the breach; or
  • if commercial gain is not known, 10 per cent of the turnover of the business and all of its interconnected businesses (if any) from trading operations in New Zealand.

Anyone can take private court action under the Commerce Act in relation to restrictive trade practices. The option of private action is available even when the Commission has resolved the investigation in another way or did not investigate the matter. Only the Commission, however, can seek a pecuniary penalty for a breach of the Commerce Act. Only the Courts can decide if the Commerce Act has been breached and set appropriate penalties.

European Commission elevator cartel investigation

In February 2007 the European Commission announced that it had imposed fines of over €990 million on the Otis, KONE, Schindler and ThyssenKrupp groups for operating cartels for the installation and maintenance of lifts and escalators in Belgium, Germany, Luxembourg and the Netherlands. The European Commission stated: "Between at least 1995 and 2004, these companies rigged bids for procurement contracts, fixed prices and allocated projects to each other, shared markets and exchanged commercially important and confidential information. The effects of this cartel may continue for twenty to fifty years as maintenance is often done by the companies that installed the equipment in the first place; by cartelising the installation, the companies distorted the markets for years to come."

Leniency and Cooperation. The Commission encourages participants in cartels to approach the Commission as soon as possible to admit liability. The first company or individual who brings a cartel to the Commission's attention and fully cooperates automatically gains immunity from Commission prosecution through the Commission's Leniency programme. Companies or individuals who wish to admit liability once the Commission has started to investigate a cartel can cooperate with and assist the investigation in return for a lower level of enforcement in the form of discounts on penalties, subject to the endorsement of the High Court.

The Commission's leniency and cooperation policies are published on the Commission's website www.comcom.govt.nz under Commission Policies/Leniency Policy.