Competition is a natural and healthy part of running a business. No matter the size of your business, every sector has competitors. You may even on occasion work with a competitor to supply goods or services that you would be unable to supply alone. However, you must know the difference between co-operation and collusion to avoid being involved in illegal anti-competitive behaviour.
What is anti-competitive behaviour?
When two or more competing businesses agree to act together instead of competing as they normally do, this is known as collusion. These groups, commonly referred to as cartels, can exist on a local, national or international scale, containing any number of businesses. Businesses who are a member of a cartel benefit, while both consumers and businesses outside the cartel suffer as a result.
How do cartels operate?
Cartels can operate in a number of ways, but the three most common behaviours are:
Members of a cartel may choose to fix the prices of what they are selling. They may sell the same product at the same price or raise their prices to the same level. This means that consumers pay over inflated prices for goods and services.
Example: A group of businesses meet to discuss the price they charge for selling a home and each agree that they will set the same minimum commission rate. Pricing is confidential information, so by agreeing to fix prices, businesses outside the cartel are unable to compete, and consumers are unable to shop around for better deals on commission rates.
This is when businesses agree to divide a market so that they are protected from outside competition. Put simply, businesses agree to not to target the same customers. This could apply to the type of customer, a geographical area or even a particular product. The reduction in competition means that consumers may end up paying higher prices for goods and have less purchasing options available to them.
Example: Two businesses who manufacture the same product agree to split the country along a North-South divide and not sell their product in the other territory. This is illegal as it reduces the pressure on companies to compete, meaning the consumer pays a higher price.
In some situations, such as public supply contracts, businesses will have to place a confidential bid for consideration. [RM1] Companies participating in bid rigging will communicate with each other before bids are submitted to decide the details of the bids and who will win. This results in businesses who are not part of the cartel suffering, as well as harming consumers.
Example: Four companies place a bid to build a new statue in a town centre. Between them, they have agreed that three of the companies will place bids that have an inflated price, are poor quality or do not fit the tender fully. This allows the fourth company to win with a bid that would not have won on a fair and level field.
Why is anti-competitive behaviour harmful?
- It drives up prices for consumers.
- It may reduce the level of service a company offers, as they don’t have to worry about losing business.
- It often reduces motivation to provide better products at better prices.
- It can taint the sector as a whole and harm those companies not involved with cartels.
The Competition and Markets Authority is actively cracking down on cartels and unfair practices. You may have seen their recent “Cheating or Competing” campaign in the media. Businesses found to be in breach of anti-competition law can be fined, and individuals can be imprisoned or barred from acting as a company director for up to 15 years. In addition to this, in some cases customers may choose to claim for damages, leading to costly legal cases.
It is important that you understand what constitutes anti-competitive behaviour so that you can stay on the right side of the law and protect your business from being damaged by the activities of a cartel. If you think your business is being affected by anti-competitive behaviour, you can contact our legal helpline for advice or find out more information on recognising and reporting anti-competitive behaviour from the Competition and Markets Authority website.