Business / Covid 19

Under-pressure businesses warned to avoid anti-competitive behaviour

07:24 am on 5 May 2020

Businesses are being warned about unwittingly entering into cartels as operations become increasingly under pressure due to the lockdown.

Cartel agreements can lead to penalties up to $500,000 for individuals and around $10 million for bodies corporate. Photo: Unsplash / Chris Liverani

A cartel is an agreement where two or more businesses agree not to compete with one another.

Buddle Findlay partner Tony Dellow said conversations between companies about pricing, customers or the operating environment could get them into trouble.

"We're a small country, and we've got a lot of companies, and so people tend to know each other. Many times people running businesses have actually been working for the same employer together and then they become competitors and they often don't think of themselves as competitors. So that's a great risk," Dellow said.

"I do think it's quite likely that the temptation to get in touch with a competitor and say, 'let's not cut each other's throats', is possibly heightened in the Covid-19 world."

Dellow said often parties were not aware they were breaking the law.

"This is very serious stuff and the unfortunate thing is, unlike robbery or burglary or something which you can't do accidentally, a lot of people who get prosecuted for this kind of thing, don't really think they're doing anything wrong.

"So people are coming under pressure. They need to be very careful about talking to their competitors about anything to do with pricing or the strategies or who's going to supply particular customers or any of those kinds of things."

The Commerce Commission said given the exceptional circumstances, businesses may be required to collaborate to ensure security of the supply of essential goods.

Chair Anna Rawlings said despite that competitive markets must be maintained.

"We have previously stated that we have no intention of taking enforcement action against businesses that are cooperating to ensure New Zealanders continue to be supplied with essential goods and services during this unprecedented time.

"However, we have also made it clear that this approach will not extend to an unscrupulous use of the Covid-19 pandemic to engage in non-essential collusion or anti-competitive behaviour."

The commission has issued guidance setting out the factors it would take into account when considering whether the collaboration was genuine.

"Ultimately, we will assess each arrangement on a case-by-case basis, taking into account the current environment and the longer-term impact on competition from any collaboration," Rawlings said.

Dellow said if businesses were in doubt they should err on the side of caution and not discuss anything, or seek legal advice.

The penalties for entering into a cartel are up to $500,000 for individuals and around $10 million for bodies corporate. As of April 1 2021 guilty parties may also face prison time.

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