Cartel activity is illegal

The cartel prohibition does not apply to a cartel provision that constitutes a restraint of trade if: 134.1 the parties were involved in a collaborative activity that has ended;Cartel activity is illegal 134.2 the cartel provision constitutes a restraint of trade and was reasonably necessary to achieve the aims of the collaborative activity; and THE CONSEQUENCES of a conversation over coffee or a beer can be serious if you’re 134.3 the agreement did not end because the lessening of competition between two or more parties meeting with a competitor to discuss prices, became its dominant purpose. tenders, markets, or services. This could be cartel activity and individuals who take part can face jail time.

This provision is potentially relevant when a franchisor that is involved in a collaborative activity is seeking What is cartel activity? to enforce a restraint of trade clause in a franchise agreement that comes to an end. You may have heard the term cartel before, but perhaps not in this context. A cartel is where two or more businesses agree not to compete with each other. It can take many

Exampleforms, including price fixing, rigging bids, sharing markets, or restricting services. Cartel activity can take place in any business setting – including in the transport and logistics sector. Rata Cleaning Services operates a nationwide domestic cleaning franchise. Its standard franchise Price fixing is when businesses agree on what agreement includes a clause restricting the franchisee from owning or operating a competing business prices they will charge to avoid having to compete which each other. It includes within five kilometres for a period of 3 months after the franchise agreement comes to an end. competitors agreeing to fix any part of a price, or to set prices according to an The collaborative activity exception will apply after the franchise agreement comes to an end if the agreed formula. It’s important to maintain independent pricing decisions. Agreeing with restraint of trade was reasonably necessary for the purposes of establishing the franchise. To test competitors to pass on additional fees or surcharges, for example fuel surcharges, are this, we would, for example, ask Rata Cleaning Services to explain why the restraint of trade is more examples of price fixing. In 2021, the High Court imposed penalties on Specialised than simply desirable, easier or preferable. We would also need to consider whether the restraint is Container Services and its director for attempted price fixing of vehicle booking reasonable at common law. fees charged to transport operators. Bid rigging happens when there is an agreement between bidders about who should win a tender. This may involve potential bidders not bidding for a tender to support the proposed winner, or bidders agreeing cover pricing – an illegal practice where bidders agree the price each party will bid. In 2019, Ronovation Limited, a property investment membership business, was fined $400,000 after admitting to price fixing in Auckland’s residential real estate market by developing a set of rules to ensure members were not competing against each other for investment properties. Market sharing is when businesses agree 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. For example, if two competing transport businesses agree to divide an area so each only accepts business in an agreed region, that could be market sharing. Similarly, market sharing agreements can be customer specific. Restricting services happen when competitors agree to prevent, restrict, or limit the services they are selling. In the transport and logistics sector, restricting services could include agreeing with competing freight services to limit the number of weekly services to an area. The Commerce Commission is reminding directors, business owners, managers and employees in the transport and logistics sector of what constitutes cartel conduct and the potential consequences of taking part.

Why is cartel activity illegal?

Cartel activity can harm consumers and businesses. It prevents open and effective competition and can damage the welfare of New Zealanders generally by raising prices, and also by negatively affecting other factors such as choice, innovation, quality and investment. Cartel conduct harms consumers through higher prices or reduced quality, and it harms other businesses that are trying to compete fairly.

What are the penalties?

The penalties for taking part in cartel activity are significant – individuals can be fined up to $500,000 and companies can be fined up to $10 million, three times the commercial gain, or ten percent of turnover per year per breach. Since April 2021, businesses and individuals can also be liable for criminal conviction and individuals convicted of engaging in cartel conduct could face imprisonment

How to report cartel activity

Businesses or individuals can report cartel activity by contacting the Commerce Commission. The Commission can grant leniency to the first member of a cartel to approach it, provided they meet the requirements for leniency. Businesses and individuals can also use the Commission’s anonymous whistle-blower tool. You can read more about cartel activity and how to report it on the Commerce Commission’s website at https://comcom.govt.nz/business/

avoiding-anti-competitive-behaviour/what-

is-a-cartel/reporting-cartel-conduct.