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New Zealand business runs on market competition. This relies on businesses competing with each other to be the best choice for consumers. You want to make your product or service the most attractive option for consumers, so you take steps to put you ahead of other businesses. The law protects this kind of competition. Accordingly, there can be severe penalties if your business engages in anti-competitive behaviour. This article will explain: 

  • what anti-competitive behaviour is;
  • when it becomes criminal behaviour; and 
  • what you need to watch out for.

Why Is Competition Important?

Other businesses that trade in the same industry as you are your competitors. Therefore, you must compete with them to offer the best choice for consumers. For example, there may be:

  • quality standards you have to meet to stay a relevant competitor; and
  • certain consumer guarantees that you have to uphold.

This means that businesses should not offer sub-par products or charge unnecessarily high prices. Therefore, consumers will have fair and reasonable options that suit their needs.

What Does Anti-Competitive Behaviour Look Like?

Anti-competitive behaviour refers to business practices that:

  • undermine competition; and
  • may give businesses unfair advantages over others.

This includes businesses taking unfair advantage of their dominant position in the market, seeking to force out other competitors. 

For example, if two businesses agree to lower their prices to force out competitors that cannot maintain those prices, this would be anti-competitive behaviour. This is known as predatory pricing.

Anti-competitive behaviour (also known as restrictive trade practices) can include:

  • agreeing to something that substantially lessens market competition;
  • collectively allocating parts of the market (whether that be geographic location or customer demographic);
  • collaborating with another business to fix, maintain or control pricing (also called cartel conduct);
  • agreements with other businesses that effectively restrict output or capacity;
  • abusing market power for anti-competitive purposes;
  • outlining a minimum price that others that cannot sell your product below (known as resale price maintenance; and
  • abusing or taking advantage of your business’ dominant position in the market for anti-competitive reasons. 

What Is a Cartel?

When two or more businesses agree not to compete with each other, this is called a cartel. They engage in collaborative conduct that may: 

  • give them an unfair advantage over the competition; and 
  • deprive consumers of a fair deal. 

The law severely penalises cartel conduct and you can be criminally liable if you engage in this kind of behaviour. Cartel conduct includes:

  • price fixing (where an agreement between competitors interferes with how they reach a price, such as agreeing to a minimum price to charge);
  • bid rigging (where competitors agree to place fake bids to raise auction prices or collaborate in some way to interfere with bidding, also known as collusive tendering);
  • market allocating (where competing businesses or companies allocate certain parts of the market to each other. For example, where one business agrees only to sell their products in the North Island, and the other agrees to only operate in the South Island);
  • restricting output (where two or more competitors agree to limit the volume or scale of the product they buy and sell); and
  • cover pricing (where competitors collaborate to make market prices seem higher than they actually are).

How Can I Avoid Criminal Liability?

In the past, the law punished cartel conduct with fines and you were only civilly liable. From 8 April 2021, however, if you intentionally engage in cartel conduct as an individual then you could be punished with:

  • up to seven years imprisonment; and/or
  • a criminal fine of up to $500,000.

If your company intentionally engages in cartel conduct, you could be fined up to $10 million. 

This criminal liability applies to:

  • price fixing;
  • restricting output; and
  • market allocating.

Other forms of cartel conduct would result in similar civil fines. This means that you need to be aware of what anti-competitive behaviour looks like so that you can avoid it in your business. For example, when engaging with competitors, you should:

  • make sure you and your employees are familiar with the legal requirements  around anti-competitive behaviour;
  • not agree on any arrangements regarding prices, discounts or sales with your competitors (unless it is for a specific sub-contract);
  • not coordinate with your competitors to restrict the output of your products, or allocate areas of the market to each other;
  • be very careful about how you discuss pricing with competitors, as well as how you discuss your target market and customer information;
  • not engage if another business or company approaches you to discuss these things. They may say it is standard industry practice, but that is usually not the case;
  • get legal advice or contact the Commerce Commission if you are unsure about anything or have concerns about anti-competitive conduct. Those who self-report to the Commerce Commission may be granted some leniency in the penalties the court gives.

Key Takeaways

Anti-competitive behaviour and cartel conduct are serious issues, and the law does tolerate those that engage in these actions. This results in severe penalties, including hefty fines and imprisonment. So, make sure you know what this kind of behaviour looks like, and do not engage in it, or else your business will face significant repercussions. If you would like more information or want to know how your business can avoid anti-competitive behaviour, contact LegalVision’s regulatory and compliance lawyers on 0800 005 570 or fill out the form on this page.

Frequently Asked Questions

What is anti-competitive behaviour?

Anti-competitive behaviour refers to business collaboration that undermines the competitive nature of the market. For example, this can include businesses working together to force out smaller businesses or companies, or agreeing on minimum prices.

What is a cartel?

A cartel is when two businesses agree not to compete with one another in the market. For example, this can look like allocating geographic or demographic areas of the market to one another, or drafting up agreements that undermine market competition.

How does cartel conduct affect my business?

If you (as an individual) engage in cartel conduct, you could be faced with severe punishment, ranging from a fine and a ban from operation to imprisonment. If other businesses in your industry engage in cartel conduct, then this can affect which consumers choose your business for their needs.

Is price fixing illegal?

Price fixing refers to when two or more businesses or companies collectively arrange an interference with how they determine prices for anti-competitive purposes. For example, this could include capping the value they price their products at or collectively agreeing to include extra fees in their prices.

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