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NZ cartel crackdown aims to cut price gouging by up to a fifth

Thursday 28th January 2010

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A crackdown on cartels in New Zealand led by Commerce Minister Simon Power could save consumers facing prices up to 20% higher by companies gouging them.  

International research suggests customers pay about a fifth more for goods and services from companies colluding to fix higher prices, and stiffer penalties, including jail-time for executives, will likely act as a greater deterrent from anti-competitive business practices.  

Power is pitching to make cartel activity a criminal offence, allowing the judiciary to impose jail terms for illegal anti-competitive behaviour, and is calling for submissions on a Ministry of Economic Development discussion document.  

“Many cartels are so big that the current fines are seen as a cost of doing business, rather than a deterrent, so I believe it's time to look at further measures to deter potential cartels,” Power said in a statement.

“Such activities cause significant harm by reducing economic output, undermining trust in markets, slowing productivity growth, and distorting investment signals by making cartels appear more profitable than they would be in an undistorted market.” 

The MED paper proposes lifting the individual financial penalties to a maximum $5 million, and introducing jail-terms with a maximum sentence of between five and seven years.  “The single intervention most likely to have a significant impact on deterrence and detection is the possibility of imprisonment,” the report said.  

The Commerce Commission currently has 17 cartel cases either in litigation or under investigation, 10 of which are international cases, including the regulator’s case against Air New Zealand and other airlines over price fixing, and seven that are purely domestic.  

It’s regularly pursued a similar number of cases since it introduced a leniency policy in 2004. The programme encourages participants in a cartel to act as whistleblowers in exchange for a softer penalty, and the regulator sees it as the single most effective tool available to detect cartels.  

Last year, the Commerce Commission allocated $2.95 million for “coordinated behaviour cases,” which is mostly used for cartel investigations, out of its $13.94 million budget to enforce regulation.

The MED paper said the regulator’s level of funding probably wasn’t hindering cartel deterrence, though an increase “may see some small gains.”  

The discussion document found “significant” benefits to adopt Australia’s new provisions, through reducing trans-Tasman compliance costs, and moving towards harmonising the neighbouring nations – something both governments are seeking.  

Power has been working to bring the Australian and New Zealand markets closer together since he was appointed Commerce Minister in 2008.  

"New Zealand is committed to ensuring that businesses operating in both the Australian and New Zealand markets are faced with the same consequences for the same anti-competitive conduct,” he said.

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