Monday, 19 October 2020

Business Cartels: An Explainer

Written by Alex Cheng

Reading Time: 3 minutesReading Time: 3 minutes

What is a business cartel?

According to the Competition and Consumer Act 2010 (Cth) (CCA) and the Australian Competition and Consumer Commission (ACCC), business cartels are agreements by two or more businesses to engage in anti-competitive behaviour such as:

  • price-fixing: agreeing to offer a product or service at the same price
  • market sharing: allocating customers and suppliers between themselves instead of competing for them
  • bid-rigging: agreeing to not compete with each other for supply tenders, which frequently involves the use of cover pricing, whereby a provider intentionally submits a bid at a price higher than the agreed winner of the tender, to hide the bid-rigging
  • supply constraints: agreeing to keep the availability of a good or service low

The ACCC have provided at least one example of each type of anti-competitive behaviour on their website.

Here are some examples of each of them:

Price-fixing

Visy and Amcor, the two dominant cardboard box providers, agreed to raise the prices of their products together.

Market sharing

TNT Australia, Ansett Industries, and Mayne Nickless were freighting providers who agreed not only to avoid poaching clients from each other, but also to punish customers who switched providers by providing them with service so bad that the client would return to the original provider on a more expensive contract.

Bid-rigging

McMahon Services supplied the other competing company, SA Demolition and Salvage, with a cover price for a Commonwealth Department of Defence contract.

Supply constraints

The Tasmanian Atlantic Salmon Growers Association instructed members to cull their stocks by 10% in order to prevent the prices of Tasmanian Atlantic salmon from dropping.

What does the law say about business cartels?

Part IV of the CCA outlaws business cartels.

Penalties of up to $10,000,000 apply if businesses knowingly agree or believe they are agreeing to engage in price-fixing, market sharing, bid-rigging, or supply constraints, whether by a formal contract, arrangement, or understanding. There can also be further civil or criminal penalties.

Similar penalties apply to businesses that carry out price-fixing, market sharing, bid-rigging, or supply constraints while knowing or believing that it is part of a contract, agreement, or understanding.

Visit here for more information regarding penalties.

However, some businesses can become exempt if they have submitted a collective bargaining notice to the ACCC, which the ACCC has approved and the collective bargaining notice is in force.

Additionally, businesses can become exempt if they make their agreement subject to the ACCC’s authorisation and apply for the authorisation.

See here for more information regarding exemptions.

Why are business cartels illegal?

According to the ACCC, business cartels are unfair to customers and businesses, and unhealthy for the economy. The lack of competition means customers pay a higher price. Additionally, the protection afforded to the members of the cartel can make it difficult for other businesses to compete. Furthermore, the protection may:

  • Promote inefficiency
  • Stifle innovation
  • Prevent investment
  • Inflate costs
  • Block infrastructure projects
  • Reduce consumer confidence

See the ACCC website for more information.

What should you do?

The ACCC advises several actions for business owners in relation to business cartels.

Understanding what a business cartel is should help you avoid becoming part of one. In essence, you should make decisions regarding pricing, bids, supply, and market share independently from other businesses.

Still, not everyone will do the right thing. The ACCC advises businesses to look out for cartels to avoid becoming a victim of one. This involves diligence regarding the actions of your suppliers and competitors, including taking note of suspicious price changes or patterns in bid outcomes.

Where there is suspicious behaviour, you should report it to the ACCC. If you are part of a business cartel, you may apply for immunity when you report it.

Keeping a business lawyer involved throughout all your business decisions, including before, during, and after disputes should assist in ensuring that you remain compliant with the law.

If you are a consumer, you may also report business cartels and should consult a consumer lawyer if you have become a victim of a cartel.

description

Create and access documents anytime, anywhere

Sign up for one of our legal plans to get started.

You may also like