A capitalist market economy relies upon several principles: private property, control of production, accumulation of capital, and competition. The latter, competition, is a vital element of the Australian economy as it demands that businesses compete against each other to keep prices lower, quality high, and innovation continuous. Competition is so important to ethical business practice that anti-competitive conduct has been made illegal. Anti-competitive behaviour by businesses can be applied in different ways, but one of the most popular forms of collusion is market sharing.
What is Market Sharing?
Market sharing is a form of white-collar criminal conduct where competitors collude to divide, allocate or “share” customers, suppliers or territories in order to avoid competing against each other.
What is Anti-Competitive Behaviour?
Anti-competitive behaviour is illegal corporate conduct which seeks to collude with potential rivals in order to avoid fair competition and bolster its profits. Anti-competitive behaviour can involve market sharing, price fixing, bid rigging, and output restriction, all of which are referred to as cartel conduct.
The Australian economy operates under a market capitalist system which means that producers and suppliers utilise the freedom to make and exchange goods and services with consumers for money. According to economic theory, healthy competition between businesses creates lower prices, greater variety, better quality goods and services, and drives innovation. In order to be successful, a business must figure out a way to stand out from its competition and to offer a point of difference so that customers choose them.
When businesses attempt to flout this healthy competition through collusion, this is an attempt to create a monopoly of the market and is considered to be illegal anti-competitive conduct.
What is a Cartel?
A cartel refers to businesses covertly working together to illegally control the market, restrict goods and services, and ultimately bolster profits. By doing this, cartels undermine market competition which contributes to a monopolisation of goods and services, artificially elevated prices for consumers, lower quality products and services, and a disadvantage for businesses attempting to compete legally.
By colluding, companies can reduce choice, quality and services for customers, and undermine other businesses. It can also artificially raise prices for products and services which can be felt by consumers, small businesses, and the taxpayers.
Market Sharing vs Market Share
Market sharing is very different from the term “market share”. Market sharing is illegal cartel conduct which refers to businesses colluding to divide up customers to avoid competing, whereas market share refers to the measurement of the objective size, dominance and competitiveness of a company as it relates to the market that it is in. For instance, if an Australian electronics company sold $20 million dollars worth of televisions in the last year, and the total of Australian televisions sold domestically was $200 million, then that company’s Australia market share for televisions would be 10%.
Market Sharing Laws and Penalties
Market sharing falls under the crime of cartel conduct, which is a direct breach of section 45 of the Competition and Consumer Act, which prohibits contracts, arrangements or concerted efforts to substantially lessen competition in a market. These laws are enforced by the Australian Competition and Consumer Commission, who often work in partnership with federal police when investigating potential cartel conduct.
What is the Difference Between Market Sharing and Exclusive Distribution?
Exclusive distribution is when a supplier agrees to sell its product exclusively through a specific retailer in a certain territory. Unlike market sharing, exclusive distribution is legal.
It is common for non-competition laws to be confused with exclusivity clauses and vice versa, as they both appear to create a monopoly by prohibiting particular distributors from purchasing and reselling particular products.
What is Exclusive Distribution?
Exclusive distribution is an agreement between a supplier and a retailer which grants the exclusive rights within a specific geographical area. It is common for industries which offer luxury items or high-price products such as high-tech electronics, automakers, and appliance manufacturers to utilise exclusive distribution because the products require a specialised level of skill, maintenance, or repair. Examples of companies that use this method are Samsung, Gucci, Lamborgini, Apple, and Mercedes.
In 2008, a class-action lawsuit was filed against Apple and AT&T after iPhone customers discovered that they could not change service carriers. In the court case, the two companies argued that it was not an illegal monopoly as they had a documented agreement on AT&T having exclusive distribution rights for the iPhone. The case was eventually settled out of court for an unknown figure.
The Impact of Market Sharing
Cartel conduct is illegal because it cheats consumers, small business owners and taxpayers of fair competition, competitive prices, high quality products and services, and restricts innovation amongst competitors. Market sharing in particular can restrict economic growth by artificially inflating capital costs in the supply chain, reducing investments by preventing burgeoning companies entering the market, destroying other businesses that cannot compete, and increasing taxes by targeting the public sector.
An Example of Market Sharing
Despite market sharing being illegal, there have still been instances of market sharing in Australia in recent years. One of the most prominent of these cases was the Queensland pre-mixed concrete cartel which operated in south-east Queensland between 1989 and 1994. The cartel was made up of three companies who agreed to divide their customers, who they referred to as “pets” in meetings and phone conversation, and also bid rig and price fix, leading to overcharging of local, state and federal government projects. Each company was fined $6.6 million, and six executives involved incurred hefty fines.
LY Lawyers and Cartel Offences
At LY Lawyers, we have a proven track record in defending cartel conduct charges, including a successful result within the first sentencing proceedings for cartel offences in Australia.
We pride ourselves on our dedication to fighting hard to protect your rights. Whether you feel as though you have been misidentified for anti-competitive behaviour, or have been a victim of an unjust court decision regarding cartel conduct, we have the legal experience and expertise to help you find a solution that helps put things right. Call us today on 1300 595 299 or go online and book a free consultation today.
