An essential facet of the mixed economic system in Australia is that competitors are required to compete against each other and refrain from working together to manipulate prices and monopolise the market. Many economists believe that price fixing on local, state, federal and international stages is the cause of billions of dollars of lost revenue for taxpayers, businesses and governments.
Cartel conduct is the illegal collusion among competitors in order to restrict competition, force up prices, and reduce choices for other businesses, and ultimately, consumers. Price fixing is a core component of illicit cartel conduct, and involves competitors agreeing on, controlling, maintaining, or manipulating pricing in order to reduce competition between them.
What is Price Fixing?
Price fixing is when two or more businesses collude to fix prices for their goods or services. By not competing, the colluding businesses are no longer incentivised by the low prices of the competition, which can negatively impact businesses that are trying to operate fairly in highly competitive markets, as well as ultimately reduce choices for consumers. This is why competition law is essential, as it protects consumers and other businesses from suffering at the hands of anti-competitive collusion that can artificially affect market conditions and drive price changes.
Ultimately, price fixing is a form of cheating that intends to gain an illegal edge over the competition and make customers pay more than they should.
How Does Price Fixing Work?
Market share is driven by consumer demand, which means that everyone has an equal chance. Price fixing works by one company approaches another competing company (or companies) and proposes that they work together in reducing, elevating, or maintaining prices at a certain level in order to reduce competition. These proposals can revolve around prices for products and services, minimum prices, or strategies pertaining to discounts, rebates, allowances, and credit terms.
Price fixing can be difficult to identify because it does not require a formal agreement or a signed document among competitors. Because price fixing is illegal, colluding companies are very covert and may have representatives meet socially, chat casually, and hint at their intentions without being explicit.
Price Fixing Techniques
Price fixing is a broad term for the collusion between businesses to fix or manipulate prices, but there is more than one way to engage in price fixing.
Vertical Price Fixing
Vertical price fixing refers to upstream and downstream collusion between different tiers of the supply chain i.e. manufacturers, wholesalers, and retailers. This will usually involve an agreement to raise, lower, or stabilise prices in a way that may, for example, not allow customers to receive a discount. An example of vertical price fixing is the case of Nine West Group, a shoe supplier that coerced retailers to sell their shoes at a fixed minimum price.
Horizontal Price Fixing
Horizontal price fixing refers to financial agreements and price collusion made amongst direct business competitors i.e. those on the same supply chain levels (horizontal), whether they be wholesalers, retailers, or producers. An example of horizontal price fixing would be if two competing fruit stores decided to set the prices of broccoli at an elevated cost of $9 per kilo. This would mean that no matter what, they were selling broccoli at a high price and were insured that their competition wasn’t undercutting their price and giving consumers the choice of choosing. Is Price Fixing Illegal?
Price fixing is illegal, and can have far-reaching, negative impacts on society. By refusing to compete fairly and honestly, businesses can gain an unfair advantage, monopolise the market, and ultimately provide worse products and services to society whilst reaping the monetary benefits.
Why is Price Fixing Illegal?
Price fixing is illegal in Australia because it is classified as an element of cartel conduct, a corporate crime that can have negative ramifications for consumers, small businesses, and taxpayers. When companies agree not to compete, they can drive up the prices for goods and services, reduce quality through atrophy of competition, and ultimately cut competitors out of business which is bad for the market.
Price Fixing Law
Australia has the Competition and Consumer Act 2010 which governs how businesses operate and cooperate at the level of suppliers, competitors, and customers, and includes sections on price fixing sections which intend to protect consumers, lower prices, and effectively prevent companies from fixing prices by outlining regulations and punishments, should they make such agreements.
Price Fixing and the ACCC
The Australian Competition and Consumer Commission is the watchdog in charge of regulating anti-competitive conduct and keeping an eye on possible price-fixing conspiracies. The ACCC will investigate complaints of potential price-fixing, bid rigging, and market sharing, and if necessary, take legal action against businesses. They also have the power to provide exemptions to price fixing for joint ventures and related companies.
What is Not Illegal Price Fixing?
While price fixing is illegal, there are exceptions where manipulations of the market price are not considered illegal. These include vertical integration, parallel pricing, and joint ventures.
Vertical integration is when a company acquires other companies along its supply chain to save money, increase efficiency, avoid supply disruption, and ultimately increase profits. An example is Amazon, which began as an online marketplace, but has since expanded to create its own products and services, and have its own distribution network. This means that Amazon owns multiple companies along the supply chain, and is able to fix prices across them all. This is generally considered an exception to the rule and does not negatively affect consumers.
Companies may engage in parallel pricing, which is when competitors quickly adjust their prices in order to match the prices of their competition. While this sounds like price fixing, it remains competitive behaviour and therefore does not breach anti-competition laws. As long as there is no collusion between the companies, their prices are allowed to fluctuate and respond to each other, as long as it is in a competitive manner.
A joint venture is a business agreement in which multiple parties or companies agree to develop an entity by contributing equity, and sharing expenses, revenue, and assets. As such, all companies are equally invested in the project and therefore some exceptions can be made in terms of competition conduct.
The criteria surrounding the characterisation of joint ventures are fairly flexible and there are some notable points that have been provided as a guideline by the court:
- Even if the contributions of each party to the venture may commence at a later date, the joint venture defence may still apply before those contributions have begun
- Even if the ideas, assets or skills contributed to the joint venture by a party remain unused, this does not change the nature of the arrangement between the two parties
- The subjective view of each party is not a determining factor, but is relevant and may be taken into consideration
- The main activity of the joint venture does not need not be carried out by all parties
- An alleged cartel cannot be deemed to substantially weaken competition if it can show that its purpose is to contribute to the establishment, viability and success of the joint venture
Price Fixing Examples
Despite price-fixing agreements having serious consequences, some companies still try to get away with manipulating prices in collusion with their competition in order to gain a financial advantage and take advantage of their customers or suppliers. Below are two examples in which Australian-based companies attempted to price fix and were subsequently caught and punished, however international price fixing is also very common.
Hai Ha Money Transfer and Price Fixing
In 2022, a group of Sydney and Melbourne-based cartel members operating in the money exchange business were sentenced to jail with a business being fined $1 million dollars after being found guilty of colluding to fix AUD and Vietnamese dong exchange rates. The price fixing began in 2012 when Vina Money Transfer, Hong Vina Fast Money Transfer, and Hai Ha Money Transfer, which were all located within 500 metres of each other, agreed to begin fixing rates. A joint operation between the Federal Police and Australian Competition and Consumer Commission lawfully accepted communication between members in 2014 which began the downfall of the money exchange syndicate.
Flight Centre Limited and Price Fixing
In 2016 Flight Centre Limited, Australia’s largest travel agency came before the High Court for attempted price fixing and vertical supply arrangements of flight prices. The ACCC alleged that the company had attempted to get three international airlines to raise online prices at least six times since 2012 and that it did so knowing that it contravened Australian competition law. The popular travel company lost the case and was ordered to pay $12.5 million, which was still short of the punitive price of $22 million dollars that the ACCC had initially proposed.
Price Fixing Defence Examples
Price Fixing falls under the umbrella of cartel conduct and is strictly enforced in Australia by antitrust laws and the Competition and Consumer Act. However, there are defences to price fixing charges, particularly in the exceptional instance of a joint venture. This refers to the agreement and collaboration between related companies who intend to collectively acquire supply of goods and services, share the risks and share the profits. Subsection 93AB(1A) of the Trade Practices Amendment Act states that exceptions can be made for certain conduct if the corporation has given the ACCC a collective bargaining notice outlining the details of the arrangement and the finer points of the contract. Some of these exemption laws can be complicated and hard to figure out.
If you believe that you held a viable exemption to price fixing due to a collective bargaining notice but have been charged with cartel conduct, you should seek advice from a legal team that is experienced in cartel conduct and competition law.
Requirements to qualify for the defence
The most common defence to price fixing charges is the joint venture defence, which requires several qualifications to be applicable. In defending criminal charges, the cartel provision must be “for the purposes of a joint venture” and there must be a reasonable necessity for undertaking the joint venture.
Important to note is that In this scenario, the defendant bears the burden of proof. For civil charges, the joint venture must “not be carried out for the purpose of substantially lessening competition”. This defence also exempts certain conduct if the purposes of the cartel provision within the joint venture are:
- for the production and/or supply of goods or services
- carried on jointly by the parties to the contract
- carried on by a body corporate formed by the parties to the contract for the purpose of enabling those parties to carry on the activity by means of their joint control, their ownership of shares in the capital of that body corporate.
Remember that the requirements to qualify for defence will always vary according to the scenario at hand and the precedents that characterise the particular situation.
Individuals and corporations that have been charged with engaging in price-fixing agreements are always afforded the right of appeal. If an appeal is lodged the case may be re-heard in front of the Full Court at the Federal Court of Australia. Along with the right to appeal against liability, defendants will always have the right to appeal against the penalty imposed. No matter which step of the legal procedure applies to your business, consulting a legal professional will help you establish the best course of action, as well as contingency plans that provide the optimal alternatives for your particular situation.
LY Lawyers and Price Fixing
Price fixing is a major concern for industrial economics and the principle of free competition. White collar crime is rarely considered as serious as blue-collar crime, but it is a very serious matter which can affect everyone. If you have been accused of price fixing or any other kind of corporate crime, it is imperative that you seek legal advice from experts who are experienced in dealing with these often complex and multi-faceted cases. Failure to seek legal advice can often have dire consequences for those accused of a crime such as prison terms, criminal fines, and long-term impact on their employability, reputations and livelihoods.
LY Lawyers are Sydney’s most trusted criminal lawyers and offer services for all kinds of criminal matters, including white-collar crimes such as cartel conduct, fraud, embezzlement and more. We have offices throughout NSW, including Sydney CBD, Parramatta, Liverpool, and even in Wollongong, Newcastle, or Gosford. Call LY Lawyers on 1300 95 299 or contact us online to book your free consultation today.