Cheating or Competing? Its your business to know the difference.

Healthy competition between suppliers is good for businesses and customers alike. As a business, it means that when you’re choosing a supplier, potential candidates will offer the best possible service at the lowest price they can, because they want you to choose them.

But sometimes suppliers get together and collude, instead of competing. This is what’s known as anti-competitive behaviour and businesses engaging in it are sometimes described as a ‘business cartel’. This behaviour stops customers getting a fair deal – here’s why.

1. Prices go up

If your suppliers agree to keep their prices artificially high, you may have no choice but to pay them at an inflated price.

2. Innovation and efficiency go down

Offering innovation and efficiency helps suppliers compete for your business. But if they’re no longer competing with each other, they’ll be less motivated to do so, resulting in things like longer lead times.

3. You get poorer service

Suppliers who risk losing your business will make sure they keep providing good service. But suppliers who have agreed between themselves not to compete have less to fear – and less motivation to look after you.

4. Businesses don’t actually have a real choice of suppliers

You might appear to have a choice, on the surface. But if those suppliers have colluded to offer the same thing for the same price, that choice is just an illusion – and bad for your business. Also, other honest businesses aren’t able to operate on a level playing field.

5. Industry reputations suffer

If elements of an industry or sector become known for being anti-competitive or behaving like a business cartel, people may become suspicious of everyone in the industry – even those who have never behaved in this way.

Businesses that agree to collude rather than compete stop customers from getting a fair deal and prevent other businesses from competing fairly. If you’re senior within your business it’s particularly important to be clear on the risks of breaking competition law and to lead by example – promoting a culture of compliance led from the top down is key.

Competition law exists to help businesses put their customers first and protect consumers and other businesses from being ripped off. If your business colludes with others to engage in price fixing, market sharing or bid rigging, whether regularly or just once, here’s what can happen.

1. You can be fined or even imprisoned

Anti-competitive collusion can lead to fines for the businesses involved of up to 10% of their annual worldwide turnover. Individuals can also face personal fines and even prison sentences

2. You can be disqualified from acting as a company director

This disqualification can last up to 15 years, seriously affecting your business options.

3. You could be pursued for damages

Even if you avoid a fine or criminal charges, your customers could launch a civil claim for damages cases against you.

4. Your business’s reputation could be damaged

Engaging in anti-competitive behaviour not only affects those directly involved, it can also damage the entire business if customers decide they no longer want to work with you.

5. You can spend years fighting legal cases

Cartel investigations are meticulous and will divert significant senior management time away from legitimate business activity.

If you suspect a business is engaging in anti-competitive behaviour by colluding with its rivals (sometimes described as acting like a business cartel), you might think it’s not your problem. You may not be getting directly ripped off, so is it any of your concern what they do?

Anti-competitive behaviour is bad news for all of us – and here’s why.

1. Prices are kept artificially high

This could mean everyone pays more than they should for goods and services. It can also mean the public sector has to pay more than it should for things such as facilities for hospitals or schools – and as a taxpayer, that’s your money being wasted.

2. Customers don’t have a real choice

Colluding businesses deprive their customers of getting a fair deal.

3. Businesses can’t compete on a level playing field

Businesses that aren’t colluding can’t compete with those who are. Newer or smaller companies might be locked out, meaning we miss out on the new ideas and efficiencies they might have offered.

4. Lack of innovation

Being innovative can be expensive. Businesses competing fairly may choose to make this investment as it might give them the edge. But businesses that are colluding have little motivation to innovate to offer a better product or service – and that’s bad news for all of us.

5. Whole industries can suffer a negative impact

Anti-competitive behaviours can damage the reputation of entire industries, affecting jobs and status, both at home and abroad.

To help you know what to look out for, here are 6 ‘red flags’ that could indicate they’re acting like a business cartel.

1. Discussing prices, rates or fees with a competitor

Businesses should never fix or discuss prices with their competitors. This is especially relevant if they’re discussing potential future price changes or how different companies may react to changes in the market, as well as any discussions about agreeing a common approach to pricing, or not to go below a minimum price.

2. Discussing customers or territories with a competitor

If there is any kind of agreement or understanding to share or restrict who can sell to who, whether based on geographic location, type of service or type of customer being sold to, this is anti-competitive.

3. Discussing future plans

Competing businesses must not share competitively sensitive commercial information such as pricing intentions, business plans or marketing strategies.

4. Sharing other commercially sensitive information

Look out for people sharing information that’s not in the public domain, such as a business’s costs, profit margins, sales volumes or production capacities.

5. Prices fluctuating across the board

If prices offered by competing companies seem to go up and down together in circumstances where you wouldn’t expect this, they could be being illegally fixed.

6. Unusual things on pricing documents

For example, you might see metadata showing that a document relating to price was created by someone outside the organisation.

1. Price-fixing

If you’re a buyer, look out for competitor prices that seem to go up and down together in circumstances where you wouldn’t expect this.

2. Market sharing

If you’re a supplier, hearing competitor suppliers say something along the lines of, “We’ll only accept jobs in the North and leave anything we get in the South to you” is a sign of anti-competitive behaviour. If you’re a buyer, warning signs include a supplier telling you they can’t serve your region or providing strangely high quotes.

3. Bid rigging

As a competitor, never disclose commercially sensitive information with competitors. Listen for questions like: “What did you charge for that last contract?”

As a buyer or procurer, look out for contracts that seem to be regularly awarded to a small set of suppliers or other suspicious bidding activity such as identical bids, unusually high bids, a clear gap between winning and losing bids or the same incremental difference between bids.

4. Cover bidding

As a competitor, never agree to submit a fake bid that deceives customers into thinking they’re getting a genuinely competitive offer. If you’re a buyer, some quotes coming back with seemingly very inflated prices relative to the budget or estimate you gave, with no real reason as to why, should be cause for concern.