The Commerce Commission is seeking feedback from interested parties on its draft revised leniency policy on cartels.
Sections 27 and 30 of the Commerce Act 1986 prohibit agreements between competitors that substantially lessen competition in a market. Cartels involve agreements by competitors or potential competitors not to compete with each other. Cartels can involve agreements to fix prices; sharing of sales, customers or territories; establishing output restrictions or quotas and bid rigging, a practice that involves suppliers submitting bids or tenders for contracts to fix the tender process leading to artificially high prices.
International and New Zealand experience demonstrates that an effective leniency programme is the single most effective tool available to detect cartels. A crucial element of an effective enforcement programme is automatic conditional immunity from prosecution for the first cartel member to approach the enforcement agency and disclose the existence of the cartel.
"The existing leniency policy has been very successful with 13 leniency applicants to date. The revised policy takes into account the Commission's own experience and introduces innovations that have been successful overseas," said Dr Mark Berry, Chair of the Commission.
"The draft revised leniency policy introduces two new features: markers and Amnesty Plus. A marker system identifies the order in which applicants have sought conditional immunity for their participation in a cartel and provides a place-holder to the first applicant while the applicant compiles evidence," said Dr Berry.
Amnesty Plus allows an applicant, who is otherwise not eligible for immunity for a particular cartel, to reduce the penalty for involvement in that cartel by informing the Commission of another separate cartel. This system is already used in the US, Canada, Australia and the UK.
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 response from the Commission. This can lead, for example, to the Commission agreeing to jointly recommend to the Court a lower range of available penalty that otherwise would be appropriate.
Cartels are groups of businesses or executives who, instead of competing against each other to offer the best deal, agree (often in secret) to work together to not compete and keep prices artificially high. Cartels harm competitors by sharing customers with other cartel members, rigging bids or tenders, agreeing to charge higher prices than they would otherwise be able to charge in the market, restricting production volumes and by forcing non-cartel members out of the market. Cartels harm the New Zealand economy by making consumers and other businesses pay inflated prices for goods. This also results in exports being more expensive and thus less competitive in overseas markets. Cartels directly block the process of rivalry that drives better economic performance and productivity.
Sections 27 and 30 of the Commerce Act prohibits contracts, arrangements or understandings between competitors which have the effect of substantially lessening competition and in particular understandings between competitors which have the effect of fixing, maintaining or controlling prices.
Update 18 September 2009: The Commission has extended the timeframe for public submissions. Submissions are now due by 5pm on 30 October 2009.
