PLEASE NOTE: Information in this article is correct at the time of publication, please contact DFA Law for current advice on older articles.
This article summarises the key legal issues that you need to consider when dealing with competitors. Read it carefully before speaking to any of your competitors, either formally or informally, as there is always the possibility of infringing competition law.
Competition law is designed to ensure that businesses compete fairly with each other. Failure to comply with competition law can have serious implications for your business, including large fines.
Certain serious breaches of competition law may also expose an individual to the risk of criminal prosecution. Businesses can be exposed to claims that may exceed any fines imposed on them.
All forms of cartel activity are strictly prohibited. The term “cartel” is used to describe any organisation or arrangement between at least two competitors that is designed to reduce competition between them and so increase prices or profitability beyond the level that could be achieved competitively.
The main examples of cartel activity are:
Any understanding or agreement about price levels or increases can constitute price fixing. Even a statement to a competitor like “we intend to increase prices next year”, can constitute unlawful price fixing.
Unlawful price fixing includes:
- Setting minimum or target prices for particular customers or sales in general.
- Co-ordination of the timing of price increases.
- Agreeing many aspects of trading conditions such as discounts, margins, rebates, credit terms, advance payments, minimum prices and list prices.
This is when companies agree the outcome of a tender or pitch process amongst themselves, either by deciding in advance which company will bid, who will bid the best price or what the tender process should be.
Bid-rigging eliminates fair competition from a tender or pitch process and so removes the customer’s free choice. It will almost certainly lead to the customer paying higher prices.
This may involve an agreement to allocate particular customers or sales territories to individual cartel members.
You must not agree to share confidential or commercially sensitive information with competitors, for example, prices, margins, customers or sales information. This could lead to co-ordinated commercial behaviour and is therefore illegal.
Other forms of information exchange may be permissible, for example, if the information provided is historical (and has no value in predicting future commercial behaviour), anonymised, aggregated, independently compiled and public.
Limiting output or sales
Sales or production quotas are often used to control the market position of cartel participants and maintain artificially high prices.
Other forms of co-operation
Several other forms of co-operation with competitors may breach competition law. To be safe always take legal advice before doing any of the following:
- Joint purchasing agreements.
- Research and development agreements.
- Specialisation agreements (where competitors agree to specialise in the production of certain types of goods).
- Standardisation agreements (for example, where companies agree basic technical standards for products).
- Joint advertising.
- Joint sales.
- Any other form of joint venture.
Each of these can be prohibited if the objective or effect is to reduce competition. However, they may be permissible if, for example, there are customer benefits that outweigh any anti-competitive effect.