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Why Cartels Need to be Illegal

The Fijian Competition and Consumer Commission (“FCCC”), formerly known as Fiji Commerce Commission, has been established under Section 7 of the Fijian Competition and Consumer Commission Act 2010 (“FCCC Act
15 Jan 2018 11:00
Why Cartels Need to be Illegal

The Fijian Competition and Consumer Commission (“FCCC”), formerly known as Fiji Commerce Commission, has been established under Section 7 of the Fijian Competition and Consumer Commission Act 2010 (“FCCC Act 2010”).

The provisions of Competition and Consumer Law in Fiji are covered under Part 3, 4, 6, 7, 8 and 9 of the FCCC Act 2010.

 

Further on Cartel :

As alluded earlier, cartels exists when businesses agree to act together instead of competing with each other.

A cartel is an agreement between firms to act in concert on prices, production levels and territories.

The elimination of rival firms that formerly compete is accomplished not by integration of production activities, as would happen in the case of a merger.

Cartels can also construct private barriers to prevent entry, such as threat of retaliatory or predatory price wars and patent pooling.

For all these reasons, cartels are the most egregious of all anti-competitive conducts, and afford the firm the luxury to remain inefficient.

 

Why are Cartels Illegal!

Cartel activities are an imposition on the entire community – consumers, taxpayers and businesses.

The extra profits cartels generate are at the expense of everyone in the supply chain, and they also restrict healthy economic growth.

 

The particular damage caused to other businessess can be direct or indirect:

  • Inflated input costs – cartels artifically inflate costs along the entire supply chain, causing businesses and their customers to pay more than they should.
  • Inflated capital costs – when cartels are part of the supply chain, the costs of capital items such as buildings and plant become inflated, leading to higher operating costs (including rent, interest, and opportunity costs) over the life of the asset.
  • Lack of innovation – cartel conduct protects inefficient suppliers from the operation of market forces and stifles innovation.
  • Lack of investment – cartels typically attempt to block the entry of new players into their industry in order to defend market position. In the long term this can reduce investment opportunties and economic growth.
  • Locking up resources – cartels interfere with normal supply and demand forces, and can effectively lock out other operators from access to resources and distribution channels.
  • Negative customer senitment – cartel activity can damage consumer confidence in an entire industry sector, and this mistrust may extend to law-abiding businesses that are not involved in cartel conduct.
  • Higher taxes and reduced services – cartels that target the public sector extract extra costs that are paid by all consumers through rate and taxes.
  • Less infrastructure – bid rigging in public infrastructure projects can inflate costs, which ultimately reduces the capacity of the public sector to invest in projects that benefit our community.

Strongly enforing competition laws and breaking up cartels have been proven to benefit and well runs businesses that compete fairly.

 

Proven types of Cartel Conducts!

A cartel provision is one that has the purpose or effect of – fixing, controlling or maintaining prices; and or for the purpose of:

  1. Allcating customers, suppliers or territories;
  2. Preventing, restricting or limiting output;
  3. Bid rigging, such as collusive tendering.

 

It is a breach of the FCCC Act 2010 for competitors to make an agreement containing a cartel provision, and a further breach to put it into effect.

Businesses are considered to be competitors if they or any related companies are, or are likely to be, in competition in any relevant market for the supply or acquisition of goods or services.

 

Types of Cartel Conduct!

There are four types of common prohibited cartel conducts under the competition law.

It is common for cartels to employ more than one strategy at a time.

To start of, FCCC wishes to talk about Price Fixing” strategy, which is employed by cartels.

 

Price Fixing:

Price fixing occurs when competitors agree on pricing rather than competing against each other.

The Act refers to the ‘fixing’, as controlling or maintaining or prices. This may be in the form of:

  1. Agreed selling or buying prices (this does not necessarily mean that the prices are set at the same level by all parties to the agreement).
  2. Agreed minimum prices.
  3. An agreed formula for pricing or discounting goods and services.
  4. Agreed rebates, allowances or credit terms.

Such agreements may be in writing but are often informal and verbal between the parties.

 

How to avoid joining a cartel!

If you are invited into an arrangement that seems like a cartel, you should seek independent legal advice and notify the FCCC immediately on the same.

Remember that if you don’t report suspicious activities to FCCC, others might choose to break ranks and report your involvement to us.

Next Week: Further on Section 67 of FCCC Act 2010.

 

 

Feedback:  monica.aguilar@fijisun.com.fj




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