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Market competition is a fundamental part of business in New Zealand. It influences how your business navigates the market and ultimately makes a profit. The law protects this competition and punishes businesses that undermine the market’s competitive nature or those that hope to gain an unfair advantage. Likewise, the law protects competition by regulating what information businesses can exchange with each other, including discussing pricing information. If you or your business attempts to discuss pricing with a competitor, there are severe penalties in place. Hence, it is crucial that your business does not engage in anything that could be considered anti-competitive. This article will explain the seriousness of anti-competitive behaviour and the legalities around discussing pricing with competitors. 

What Is Anti-Competitive Behaviour?

A competitor is any other business that provides the same products or services as you. Competition in the market means that businesses keep prices fair and product quality high. The outcome is to ensure that your business remains the most attractive option for your customers. This means that customers receive a fair deal, and businesses will not arbitrarily set higher prices. As a business, you owe your customers certain guarantees to offer a reasonable price for your produces or services. Likewise, larger businesses cannot exert their market power over smaller businesses.

Anti-competitive behaviour is behaviour that seeks to undermine the market’s competitive nature. It may seem counterintuitive to punish behaviour that can involve co-operation between businesses. However, unlawful collaboration can create an unfair advantage that has lasting consequences for other businesses and consumers. Anti-competitive behaviour includes:

  • consenting to something that substantially decreases competition in the market;
  • agreeing with another business to fix, maintain, or control pricing (also known as cartel conduct);
  • collaboration with another business to restrict output or capacity;
  • collectively deciding to allocate parts of the market or customers;
  • taking advantage of or abusing a dominant position in the market for anti-competitive purposes;
  • abuse of market power, for example, through predatory pricing; and
  • specifying a minimum price that someone can sell your products at (also known as resale price maintenance).

What Is Cartel Conduct?

Cartel conduct is a serious kind of anti-competitive behaviour with severe penalties in place. Cartel conduct includes: 

Price fixing

When two or more businesses agree to sell their goods or services at a specific price.

Bid rigging

Also known as collusive tendering, this happens when bidders agree about who should win a bid out of the group of them. This could involve some bidders not bidding at all, or bidders deciding on a price where they will collectively stop bidding.

Market sharing

When businesses allocate certain parts of the market to each other and agree not to compete for the same customers. Market sharing can apply to a specific product, geographic location, or customer demographic.

Restricting output

When two or more businesses/competitors agree on a specific volume or value to limit their goods or services. This includes preventing or restricting the products or services they both buy and sell.

What Qualifies as Price Fixing?

Competitor based pricing is a common way to decide how to price your products. However, you should be wary when discussing pricing with your competitors. This can open you and your business up to liability. 

Additionally, price fixing can be quite broad and does not stop at just agreeing with a competitor to sell your goods at a specific price. It covers any agreement between competing businesses to charge a set price or interfere with the price-determining process. Price fixing can include:

  • agreeing to a minimum cost to charge;
  • deciding with another business to lower prices for a period of time;
  • devising a collaborative shared scheme for determining prices;
  • creating a shared price schedule;
  • collectively capping discounts or sales; or
  • sharing information about how you decide on your prices with another business.

Even just discussing possible prices with a competitor could make your business liable for cartel conduct. You do not have to necessarily decide on a specific price together to risk punishment for anti-competitive behaviour.

Furthermore, price fixing can lead to businesses selling their goods over or under value, forcing customers to pay more than what they are worth. Therefore, the law heavily penalises businesses who engage in price fixing methods. From 8 April 2021, engaging in this kind of conduct could lead to a prison sentence. Even verbal remarks to other competitors about how you decide your prices could prompt a government investigation. Therefore, you must be careful when discussing issues such a product price with a competitor.

For example, say you run an online business in an online marketplace. You could decide collectively with other competitors to pass on the cost of the website listing fee to your customers, thereby increasing what you charge customers overall. This conduct could amount to price fixing.

Key Takeaways

Discussing pricing with a competitor could amount to price fixing, so it is best to avoid this kind of behaviour. Price fixing is when you agree with a competing business to charge for your goods or services at a specific price, or collectively interfere with how you and your competitors decide this price. This goes against business competition, and you could face severe penalties. If you would like more information or help ensuring that your business is complying with its anti-competition obligations, contact LegalVision’s New Zealand regulatory and compliance lawyers on 0800 005 570 or fill out the form on this page.

FAQs

What is a business competitor?

A business competitor is another business that sells or potentially sells the same goods or services as you. They are competing with you to be the most attractive choice for customers.

Can I discuss prices with competitors?

You should not discuss your pricing strategy with business competitors. This could amount to price fixing, which is anti-competitive behaviour. Anti-competitive behaviour is against the law, and you and your business can face severe penalties, including imprisonment.

What is price fixing?

Price fixing is when two or more competing businesses agree to charge for their goods or services at a certain price. It also includes coordinating on a method to decide how they price those goods or services. This is a kind of cartel conduct, and it is against the law.

What is cartel conduct?

Cartel conduct is a kind of anti-competitive behaviour that involves businesses collaboratively controlling the price or quantity of goods or services, or carving out areas of the market for each other. Types of cartel conduct include price fixing, bid rigging, market sharing, and restricting output.

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