Understand the risks and law behind price fixing
9 January 2018
Price fixing is illegal in Australia and there are heavy penalties imposed on companies that ignore the law. So what is price fixing and what are the legal risks it poses to businesses?
The legal and regulatory framework of price fixing
The Competition and Consumer Act 2010 (the CCA – previously the Trade Practices Act 1974) prohibits anti-competitive conduct.
At a basic level, the CCA prohibits companies from engaging in conduct that limits or prevents competition. The CCA provides that businesses must comply with various regulations when it prices or advertises products or services. One of these is a provision that companies and businesses cannot price fix. This legislation is enforced by The Australian Competition and Consumer Commission (ACCC).
What is price fixing?
The CCA refers to price fixing as the ‘fixing, controlling or maintaining’ of prices. This illegal practice occurs when two or more competitors agree (or collude) to buy or sell goods or services at a certain price point rather than competing against each other. Price fixing agreements are also sometimes referred to as cartels. Price fixing is different to parallel pricing, in which there is legitimate (and commercial) adjustment of highly visible prices displayed by competitors to match price movements.
How is price fixing enacted and how to avoid it
Price fixing agreements do not have to be formal affairs. They can start as a casual conversation between managers of competing companies at an industry function. Such conduct becomes illegal price fixing when there is an agreement reached between businesses to fix prices, as opposed to a business using legitimate efforts on its own to obtain the best price it can achieve. This agreement can be written, informal or verbal. There are a few exceptions to the prohibitions on price fixing including agreements between related companies.
A case in point
In 2016, Woolworths Ltd and Colgate-Palmolive Pty Ltd were both ordered to pay significant fines after the Federal Court found that Colgate-Palmolive Pty Ltd (Colgate), PZ Cussons Australia Pty Ltd (Cussons) and Unilever Australia Limited (Unilever) “entered understandings which limited the supply, and controlled the price, of laundry detergents” and that “Woolworths was knowingly concerned in an anti-competitive understanding which they admitted was reached between laundry detergent manufacturers.” Woolworths was fined AU$9 million, while Colgate was fined AU$18 million.
The case – which reportedly began via informal phone conversations – is a timely reminder for corporations to ensure that their competition law compliance programs are up to date and that they adequately educate staff about what constitutes price fixing and anti-competitive behaviour.
Some legal risks for businesses engaging in price fixing
- Penalties: including corporate fines and individual penalties such as in Colgate-Palmolive case discussed above where a sales director – in addition to a sizeable financial penalty – was disqualified from managing corporations for seven years.
- Loss of reputation: consumers lose confidence and trust in companies that have been convicted of legal breaches.
- Court orders: for example, orders for corporations to update their trade practices compliance programs.
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