Delivering for consumers
Companies can distort competition by cooperating with competitors, fixing prices or dividing the market up so that each one has a monopoly in part of the market. Anti-competitive agreements can be open or secret (e.g. cartels). They may be written down (either as an “agreement between companies” or in the decisions or rules of professional associations) or be less formal arrangements.
Why are cartels so bad and how do you spot them?
Companies in cartels that control prices or divide up markets are protected from competitive pressure to launch new products, improve quality and keep prices down. Consumers end up paying more for lower quality.
Cartels are illegal under EU competition law, and the Commission imposes heavy fines on the companies involved. Since cartels are illegal, they are generally highly secretive and evidence is hard to find.
The Commission’s 'leniency policy' encourages companies to provide inside evidence of cartels. The first company in a cartel to do so will not have to pay a fine. The policy has been very successful in breaking up cartels.
Companies conclude agreements every day. Are they all illegal?
Agreements are almost always illegal if the participants agree to:
- fix prices
- limit production
- share markets or customers
- fix resale prices (between a producer and its distributors).
But an agreement may be allowed if it:
- has more positive than negative effects
- is not concluded between competitors
- involves companies with only a small combined share of the market
- is necessary to improve products or services, develop new products or find new and better ways of making products available to consumers.
Research and development agreements and technology transfer agreements are often compatible with competition law, because some new products require expensive research that would be too costly for one company working alone. Agreements on joint production, purchasing or sales, or on standardisation, may also be legal.
Distribution agreements may be illegal, for example, if producers force retailers to decorate the shop or train staff in a particular way. But they may be allowed if the aim is to provide a suitable environment for storing or selling the product, to provide customers with personalised advice, or to prevent one distributor from 'free riding' on a competitor's promotional efforts. Each case must be assessed individually – taking account of the market position of the companies involved and the amounts involved.