Following extensive research conducted with businesses across the UK, the Competition and Markets Authority (CMA) talk us through competition law and risky ‘cartel’ behaviours.
What competition law means for your business
Ask yourself this: if you find yourself talking shop with a direct competitor, are you sure you know what is and isn’t safe to discuss? Do you know that it’s illegal, for example, to agree prices or that letting slip a future pricing strategy at a one-off meeting could land you in trouble?
At the Competition and Markets Authority (CMA) we researched businesses across the UK to get a handle on how much they know about competition law and risky ‘cartel’ behaviours.
According to our research, the majority (77%) of businesses in the South West don’t understand the law well and very few (5%) run any training on it. Combined with this lack of knowledge, our research shows that many businesses meet with rivals, often in social situations. This isn’t in itself illegal, in fact meeting up with others in your industry is a common, legitimate part of business life. However, if businesses aren’t clear on what can and can’t be discussed with rivals and are in the dark as to what constitutes a cartel – this poses a significant risk for law breaking.
Getting back to basics – the definition of a cartel
Cartels occur when competitors get together and agree not to compete against each other, cheating customers out of a fair deal.
Cartels also make it extremely difficult for other competing businesses that aren’t part of the cartel to survive and grow. They deprive new businesses of a level playing field.
Three of the most common cartel behaviours are price fixing, market sharing and bid rigging.
- Price fixing occurs when competitors agree their prices – for example by agreeing to offer the same price or to charge a minimum price, rather than offering a fair competitive price.
- Market sharing is when businesses split up the market – sometimes by geographical region, or by customer type – and agree not to sell to the same people.
- Bid rigging occurs when two or more rivals agree who will win a bid to a third party, they can then bid inflated prices. Often the businesses will share out profits of the winning bid, and/or take it turns to win.
There are serious consequences for individuals and businesses caught in cartels – businesses can be fined up to 10% of annual global turnover, individuals can face personal fines, directors can be disqualified for up to 15 years and in the most serious criminal cases individuals can face prison.
Cartels can be closer to home than you may think. Last year, the CMA found that a group of Somerset estate agents based in Burnham-on-Sea were in a price fixing cartel. They agreed amongst themselves minimum prices of their commission rates for the sale of residential properties, with the potential that home owners were denied opportunity of getting the best possible deal when selling their property.
Five of the estate agents involved were fined in total over £370,000 and two directors were disqualified.
Helping businesses to comply
We believe that the majority of firms in the South West want to do the right thing and comply with the law. Most of those we surveyed understand the value of fair competition and believe competition law helps to provide a level playing field for businesses. You, like us, believe competing fairly is the right thing to do.
To help you identify and report illegal business practices the CMA has a wealth of information on its Stop Cartels campaign page, including:
- Real life case studies that lift the lid on where other businesses have broken the law and what the lessons are for others
- New online tools such as an online quiz and a ‘cartel checker’ to help users understand if what they have seen is illegal
- A new online reporting form that makes the reporting process quicker and easier
- A reporting film that explains what happens next when you report
What should you do if you spot a business cartel?
Simple answer. Report it.
If you think you may have been involved in a cartel then it’s better to Be Safe, Not Sorry and report it to the CMA first, as you may benefit from immunity from fines and prosecution if you report before others do.
If you think you’ve witnessed others breaking the law, Do What’s Right and report it to us in confidence, you may benefit from a financial reward.
To find out more about our Stop Cartels campaign and how competition law applies to you and your business, visit www.gov.uk/stopcartels