Price fixing and the Commerce Act 1986 12 April 2017 Nick Crang, Partner Specific advice should always be obtained before relying on any aspect of the content of this presentation or associated materials.

Structure of presentation Purpose of competition law and the Commerce Act 1986 (‘the Act’) Understanding your obligations under section 30 of the Act Examples of behaviour that could be caught under the Act Practical tips Scenario

Purpose and Background Promote competition in markets for the long term benefit of New Zealand consumers. Breaches of the Commerce Act may result in penalties being imposed by the courts on businesses, trade associations and individuals. The Commerce Commission is responsible for investigating alleged breaches of the Commerce Act.

Obligations under section 30 Competitors must not enter into any contract, arrangement or understanding that has the purpose or effect of fixing, controlling or maintaining the price of goods or services. The following kinds of agreements between competitors are illegal under this section: Bid rigging Market sharing Price fixing Agreements to restrict output

Bid rigging Bid rigging is when there is an agreement between competing businesses as to which of them should win or compete for a bid for services. Participants in a bid rigging cartel may take turns to be the ‘winner’ by agreeing about the way they submit tenders, including some competitors agreeing not to tender. Examples: Christchurch bus cartel Brisbane fire protection cartel

Market sharing Market sharing occurs when competitors agree to divide or allocate customers, suppliers or territories among themselves rather than allowing competitive market forces to work. Market sharing can include allocating customers by geographic area, or agreeing not to compete for established customers.

Price fixing Price fixing is when there is an agreement between competitors to fix, control or maintain the price, or any component of the price of goods and services. In effect, price fixing includes any agreement or conduct that interferes with the competitive determination of price, and includes agreements to: set a minimum price; eliminate or reduce discounts; adopt a formula for computing price; increase prices; or hold prices firm. Examples: Lysine price fixing conspiracy (‘The Informant’) Property brokers Manawatu

Price fixing (continued) Commerce Commission v Property Brokers Limited and Timothy John (2017) Justice Gilbert stated price-fixing agreements: “fundamentally undermine the proper functioning of competitive markets” “have the potential to substantially erode the benefits the public is entitled to expect from them” “are antithetical to the purpose of the Commerce Act” “are regarded as serious misconduct”

Agreements to restrict output Output restrictions occur when competitors agree to prevent, restrict or limit the volume or type of particular goods or service available. The effect of this is that it artificially increases demand for the product or service, and so increases the price. Example: Tasmanian salmon growers’ cartel

Practical tips During association meetings, be mindful that matters relating to pricing are not appropriate. Members should take care when gathering or exchanging information. Seek external legal advice as soon as any potential competition issues arise.

Scenario Tara owns ‘Best Plumbing Services’ in Nelson. Nicola, who has recently moved to Nelson, established ‘Leaky Plumbing Services’. Nicola and Tara did their apprenticeship together, and have remained close friends ever since. Nicola and Tara decide to catch up for dinner. After a few drinks, Nicola mentions to Tara that the hourly rate charged for her services is a lot lower than what she was able to charge in Wellington. Tara agrees that competition is tough in the Nelson market and it would be easier if they weren’t in competition with each other. Are Nicola and Tara in breach of the Commerce Act, if: they both agree that Nicola will only provide plumbing services in the Richmond area, while Tara will only provide plumbing services in Appleby? Nicola is not concerned by this, as most of the services she provides are in Richmond anyway. Nicola and Tara exchange their hourly rate. Two weeks later, Leaky Plumbing Services raise their hourly rates to be the same as Tara’s. following the Council’s request for tenders on a big plumbing job, Tara, knowing that Nicola needs some help getting established in Nelson, tells Nicola that Best Plumbing Services will submit a tender with a high cost for services so that Nicola’s tender looks more competitive.

Thank You Nick Crang, Partner d +64 4 471 9440 m +64 21 616 884 duncancotterill.com