The Commerce Commission defines a cartel as “where two or more businesses agree not to compete with each other in order to make greater profits. This conduct can take many forms, including price fixing, dividing up markets, rigging bids or restricting output of goods and services”... which “deprive consumers and other businesses of a fair deal. Cartel conduct can result in higher prices and a reduction of choice and quality”.
From 8 April 2021 the Commerce (Criminalisation of Cartels) Amendment Bill will make engaging in cartel conduct a criminal offence with up to 7 years imprisonment. The civil penalties contained within the Commerce Act continue to apply.
Competitor Collaborator Guidelines allow exceptions from the cartel prohibition as follows:
While cartels are unlawful, the Commerce Act recognises that in some circumstances cartel provisions are much less likely to harm competition.
Cartel provisions can form part of agreements that have pro-competitive or benign competitive effects. Such agreements may increase innovation, reduce production costs, enhance product quality, and/or result in lower prices. Therefore, the Commerce Act provides three different exceptions to the cartel prohibition for cartel provisions in certain types of agreements. If an exception applies, then the cartel provision is lawful provided the provision does not have the purpose, effect, or likely effect of substantially lessening competition. The three exceptions cover:
14.1 vertical supply contracts
14.2 joint buying and promotion agreements and
14.3 collaborative activities
Examples that relate to the employment dispute resolution industry include seminars, Continuing Professional Development (CDP) and memberships eg: Wellington Womens’ Law Journal. Also a solicitor may instruct a barrister or QC outside their own law firm or Chambers.
Here is a 90 second clip where Grant Chamberlain from the Commerce Commission describes multi-agency collaboration to deal with cartels:
... and an example of a huge Australian transport cartel that was broken up in the mid 1990s:
In this example, the cartel whose members were found to include TNT, Ansett and Mayne Nickless had engaged in anticompetitive conduct in an attempt to put the complainant company Discount Freight Express (since sold and now called Star Track Express) out of business. Members of the cartel even went as far as following DFE delivery vehicles to its customers’ sites in order to make those customers predatory pricing offers later.
Senior Managers: if you suspect your employees are involved in a cartel how would you address this? Take legal advice with a view to protecting your business from serious reputational harm, and review your company’s sales commission structure.
In our next blog* we will describe how suspected cartels may form in the employment dispute resolution industry.
* 5 February update: 14 January post removed today on receipt of Takedown Notice.