Editors note: This blog was originally published in December 2016 and has since been updated for optimal relevance.
Over the last few years, the Competition and Markets Authority (CMA) have stepped up their efforts to crackdown on price fixing in the UK. However, a recent survey found that only 57% of companies in the UK know that price fixing is illegal.
So, what are the rules on price fixing in the UK? What are the consequences? And most importantly, how can you avoid price fixing and other anti-competitive practices?
What are the rules on price fixing in the UK?
In the UK, businesses and their owners, managers, and employees, must not discuss the prices they are going to charge their customers with their competitors.
A company would be breaking the law if they agree with another business:
- to charge the same prices to customers
- to offer discounts or increase prices at the same time
- to charge the same fees to intermediaries, e.g. retailers selling products on the company's behalf
What are the penalties for price fixing?
The issue is, price fixing leads to over-inflated prices and unfair treatment of consumers. It creates an unfair environment for customers, who end up paying more for lower quality goods and services.
If found guilt of price fixing, a company can face a fine of up to 10% of turnover. Individuals themselves can also receive personal files, director disqualification - or even jail time.
The cases below show just how significant the financial penalty can be.
Trod Ltd were fined £163,371 after admitting agreeing with its online competitor GB Posters not to undercut prices for posters and frames sold on Amazon marketplace. The two companies sold a range of sports and entertainment-branded merchandise between 2001 and 2015 and fixed prices using automated software. GB escaped fines after reporting the cartel to the CMA.
Bathroom supplier Ultra Finishing Ltd were fined a whopping £826,000 by the CMA after admitting Resale Price Maintenance (RPM) between 2012 and 2014. Ultra threatened retailers with penalties if they sold products below the RRP, including ceasing supply, withdrawing their rights to use their images online, and charging them more for products.
How to avoid price fixing:
Follow these tips to avoid price fixing and other anti-competitive practices:
1. Be aware of key risks
Competition law applies to all businesses. Whether you're a small or large business, in the online markets, sales, or bricks-and-mortar outlets, you need to be aware of the risks.
These risks include having competitors who are also your customers and contact you with competitors through work or social occasions, for example when you cross paths at trade events and award ceremonies. If you have staff that regularly move between businesses in the same sector, this can also be a risk.
2. Remember that some conversations are off limits when meeting competitors
Pricing strategies should never be discussed with competitors. This means no discussing prices or fees, discussing (carving up) customers or territories, or colluding to work together to agree rules not in the interests of consumers are all completely off limits. Sharing information about your commercial plans in general is also to be avoided as it could increase your risk.
3. Be proactive
This is where knowing the risks makes it easier for people to spot and prevent red flags for potential price fixing.
If you do find yourself in a trade meeting where price fixing or other anti-competitive practices are discussed, be sure to have your objections minuted (if possible). Make your excuses and leave promptly, then report it to Legal/Compliance.
4. If you're in a dominant market position, don't abuse it
Aside from price fixing, anti-competitive practices include abusing a dominant position. If your company has more than a 40% market share or is not affected by normal competitive restraints, then you hold the 'dominant position'.
If this applies to your business, you must not deliberately make losses to squeeze smaller businesses out of the market, stop supplying existing customers or prevent them buying from competitors, or impose unfair terms in contracts. All this counts as abuse of that dominant position.
5. Report concerns to the CMA's cartel hotline
Your company should have its own procedures and policies for reporting price fixing and other anti-competitive pricing.
The CMA's latest cartel awareness campaign, Do What's Right, provides useful information for reporting cartels. If you've been directly involved, you can call 020 3738 6833 for confidential guidance. If you speak up first, you may avoid sanctions.
If you've seen price fixing take place, you can also report it on 020 3738 6888.
How much do your employees really understand about competition law and its practices? Click the link below to download our free training presentation, packed with interactive learning activities, to use in your company.