Price fixing

Price fixing occurs when competitors agree on pricing rather than competing against each other. The Competition and Consumer Act refers to the ‘fixing, controlling or maintaining’ of prices. This may be in the form of:

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

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

Signs of possible price fixing in tenders to government agencies

• Tenders or quotes are much higher than expected. This may indicate collusive pricing, or it may just be overpricing (not illegal in itself). It may simply reveal that your estimates are inaccurate. It is in your commercial interest to make inquiries and determine whether your price expectations are reasonable.
• All suppliers raise prices simultaneously and beyond what seems to be justified by changes in input costs. You can ask suppliers why this is so. You might also consider surveying suppliers of inputs so you are better equipped to recognise suspicious pricing movements.
• Prices submitted are much higher than previous tenders or published price lists.
• Tenders are missing detailed ‘workings’ to show how the tender price was calculated, where this was requested (this may indicate cover pricing)
• A new supplier’s price is lower than the usual tenderers. This may indicate there has been collusion among the incumbent tenderers.
• Prices drop markedly after a new supplier tenders. This may indicate that the existing suppliers have been colluding and the new supplier has forced them to compete.

Impacts

When businesses get together to decide not to offer discounts, or to increase or maintain minimum prices, it can affect consumers, as well as small businesses that rely on those suppliers for their livelihood.

Take freight for example. A lot of consumer goods are transported by freight. If the price of freight is artificially maintained or inflated by a cartel, it can affect the whole supply chain, and result in higher prices for all sorts of goods and services.