Regulator poised to pounce on cartels

Paula Rebstock

The Commerce Commission has set its sights on price-fixing cartels and is ready to announce a "significant breakthrough".

"Domestic cartels do exist in New Zealand," commission chairwoman Paula Rebstock told a competition law conference in Wellington yesterday.

"The commission has just made a significant breakthrough in a cartel investigation, and we expect to be announcing this development in the next few weeks," she said.

The announcement would bring a round of applications for leniency as cartel members "realise the danger they are in of being prosecuted by the commission", if overseas experience was any guide, Rebstock said.

The commission is investigating several possible domestic cartels.

Rebstock said cartels could be big or small, domestic or international and be conducted with "pen and paper, or with laptop and email".

"The commission does not discriminate," she said. "Wherever cartels may be, the commission will use all the tools at its disposal to discover, pursue and attack them. New Zealand is a country where cartel participants should never feel safe."

However, the commission's tough stance has raised concerns with at least one corporate lawyer, who questioned some of its choices of target.

Competition lawyer Neil Anderson, of Chapman Tripp, said few would take issue with the commission's tacking traditional price-fixing or blatant cartels, but there was difficulty with "grey areas".

Some conduct that might be labelled price-fixing was not necessarily conduct "that we as consumers would fear", and the commission might pursue well-intentioned joint bidding deals.

Last year the commission warned six Manawatu funeral directors about price-fixing after they submitted a joint bid to the police for the work of transporting bodies. While the bid was unsuccessful, Rebstock said that if it had been successful the commission would have considered court action.

Anderson said companies engaging in blatant price-fixing generally understood they were breaking the law.

"They know it's unlawful - there's a good appreciation of it. What is not so well understood is where the line lies between legitimate co-operation and illegitimate cartel behaviour."

Rebstock said the regulator was after cartels, which by their nature were secretive and participants were "by definition dishonest".

Under leniency rules, the commission said it would go easy on the first member of a price-fixing cartel to dob in the rest.

Alan Lear, an Auckland barrister who specialises in competition law, said the term "cartel" covered most arrangements between competitors, but in New Zealand the only cartel behaviours that were always outlawed were price-fixing and bid-rigging.

He agreed that larger businesses were well aware of the issue, but said it was hard to say if smaller businesses were.

There was a good case for New Zealand to follow Australia and remove some uncertainty around joint ventures, said Lear. Joint ventures between competitors could sometimes enhance competition.

Businesses should realise price-fixing was not good business practice anyway - despite an obvious attraction.

"It is very easy to do and on its face makes good business sense, because it's a way of maintaining or improving profit margins."

Research had, however, shown that price-fixing did not work in the long term and it removed a company's ability to use pricing as a competitive tool.

There was also no way to ensure partners would not cheat on any arrangement, said Lear.

"Price-fixing is actually bad for your business," he said.

What is a Cartel?

* Cartel conduct includes price-fixing, excluding competitors, collusive tendering, bid-rigging, production or sales quotas, and market sharing.

* Cartels usually operate informally and in secret.

* Penalties can be high - $500,000 for an individual.

* A company can be fined the greater of $10 million, three times the value of any commercial gain resulting from the behaviour or 10 per cent of the company's turnover.