Tough measures loom on price cartels
- 20 February, 2010 22:00
Never talk to your competitors about price, ever. End of story. It is just not worth it. Any agreement between competitors to fix prices, or to rig tenders, or to split up markets is price fixing and is an illegal cartel. Price fixing causes significant harm because customers have to pay more to cover the artificially increased prices.
The Commerce Commission goes to great lengths to investigate price fixing and cartels, and to take court action against cartel participants.
Price fixing can happen in any business, from the largest corporation to a one-person business. Recently the Commerce Commission issued a formal warning letter to a seller on Trade Me. The Commission said it had investigated allegations that the trader had sent emails to competitors, asking them not to discount their products, and instead to use consistent pricing. One email said “Hey, how about instead of continually discounting these lights we agree to one price. $189 and stick to it.” and “I am sure we will both get a share of the market if we are both consistent on the price.” The Commission warned the trader that this was an illegal attempt to fix prices.
Currently, New Zealand doesn’t send people to prison for participating in cartels. However, that is likely to change in the near future. The Ministry of Economic Development has already proposed that serious cartels be criminalised and this is likely to become law within the next couple of years. Many other countries including the US and Australia imprison people for serious cartel behaviour, including price fixing.
Uncle Sam is particularly tough on cartels. In America, jail terms of up to two years have been imposed on executives involved in price fixing. What’s more, the US Department of Justice has extradited foreign nationals for cartel behaviour that affected American markets and then obtained convictions in American courts. Those foreign executives have done time in American prisons.
The Commerce Commission and its equivalents in many other countries now have another powerful tool to fight cartels. In New Zealand it is called ‘leniency’. The first participant who blows the whistle on the cartel and cooperates completely with the Commerce Commission is given leniency and does not get taken to Court by the Commission (although private individuals and companies can still sue cartel members). The whistle blower could get off scot-free while other cartel participants (which is to say that firm’s competitors) are investigated and prosecuted by the Commerce Commission.
Cartels don’t just happen in smoke-filled boardrooms. A cartel arrangement can be formed by nothing more than a handshake and a wink at a trade show, or a school PTA meeting, during a discussion over a beer, or through a couple of short messages on TradeMe.
Many cartels are formed between corporate middle management. Senior managers often don’t find out what is going on until it is too late. Senior managers need to be on the watch for cartels all the time. If a margin looks too good to be true, check it out: it probably is.
All businesses and individuals need to be super vigilant in ensuring that they do not get involved in cartel behaviour. Cartels are expensive for people who get caught. New Zealand Courts have imposed fines of more than $1 million ($7.5 million is the current local record for total fines for several firms and individuals in a cartel in the wood preservative industry).
In America and other large jurisdictions, fines of several hundred million dollars are regularly handed out. That doesn’t include legal costs. Finally, if you get involved in a price fixing cartel, before too long you will run the risk of going to jail.
Richard Anstice is a staff solicitor in Rae Nield’s office. This article is intended for general information, and should not be relied on as specific legal advice. You should consult a lawyer for advice relating to your own specific legal problems. Rae and Richard can be contacted at email@example.com.