The effectiveness of the Australian economy is underpinned by healthy competition between businesses. Anti-competitive behaviour interferes with the market’s ability to allocate resources effectively and has significant harms to your industry. Price fixing, when you work with your competitors to fix prices, not only reduces consumers’ choices but is illegal. Learning about price fixing and its consequences, can ensure your business complies with Australian Competition Law.
What Are the Features of Price Fixing?
Price fixing is when competitors agree upon pricing or pricing arrangements. As per the Competition and Consumer Act 2010 (Cth), this includes activities cause the ‘fixing, controlling or maintaining of prices’. Furthermore, price fixing arrangements do not have to be formally documented. Any sort of arrangement between competitors regarding the regulation of price in the market can lead to illegal price fixing. These arrangements can include the following understandings or agreements on:
- Minimum prices
- Formulas for determining pricing
- Rebates or credit terms
- Prices for selling goods or services
What Are the Consequences of Price Fixing?
Besides the wider economic impacts, engaging in price fixing can have significant personal consequences. Engaging in price fixing can result in you and your business receiving significant fines. Moreover, you personally can receive lengthy jail sentences for attempting to fix or colluding in fixing prices in your industry. It can also have non-legal impacts upon your business, by disincentivising innovation and leaves you vulnerable to efficient new entrants. Regulating price fixing in Australia is performed by the Australian Competition and Consumer Commission (ACCC).
What Are The Warning Signs?
Even if you do not price fix, it is important to know the signs of price fixing. This can allow you to keep tabs on your competitors and your suppliers, and ensure that other parties are not engaging in anti-competitive behaviour. By keeping track of your suppliers’ prices, you can prevent your business falling victim to paying higher prices than necessary as a result of price fixing. The following are examples of situations that may indicate potential price fixing in an industry:
- Suppliers raise prices in unison and beyond what can be reasonably expected. To protect yourself against this, you are entitled to ask suppliers to justify price increases.
- A significant drop in price after a new entrant into an industry.
- A significant increase in price as compared to previous tenders by suppliers.
- Supplier tenders for potential supplier agreements are missing ‘working’ to indicate how tender prices were calculated.
What Is Not Illegal Price Fixing?
Not all cases of similar pricing mechanisms are the result of illegitimate price fixing. Firstly, in highly competitive markets, prices by sellers are typically close to each other as the products are usually relatively similar to each other. Secondly, industries with highly visible pricing structures such as petrol, often results in price matching by competitors in the market. Furthermore, joint-venture and other forms of legitimate company collusion are exempt from regulations governing price fixing. Moreover, you can apply to the ACCC if you wish to price fix and can demonstrate it is in the ‘public benefit’.
Conclusion
Price fixing can result in significant consequences for your business, industry and the wider economy. By keeping informed about it, you can prevent your business from significant legal ramifications. If you are concerned about an arrangement with one of your competitors regarding pricing, it is best to get in contact with a competition lawyer to ensure your arrangement complies with the law.
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