Cartels raise prices to the detriment of customers
In a cartel, companies that compete with each other aim to restrict competition by reaching an agreement on the price or level or terms of production of a product or service. Typically, the aim is to raise prices and/or limit the output by entering into secret agreements. In various studies, cartels have been found to raise the prices of products and services 10–30 per cent above the normal price level.
Cartels are the most severe restrictions of competition and cause financial losses to their customers, markets, and society at large. Cartels are prohibited in the Competition Act. As a sanction for a cartel, the Market Court may impose a penalty payment as proposed by the Finnish Competition and Consumer Authority (FCCA).
Cartels typically agree upon prices, price increases or the sharing of customers
Healthy competition between companies benefits society because it encourages companies to make improved products and services at lower prices. In a cartel, companies replace healthy competition by mutual agreements on prices, price increases or the sharing of customers.
Cartels may exist in various forms. The most typical forms of cartels include:
- price cartels
- the sharing of markets or customers
- bidding cartels
- limiting production or technological development
- purchasing cartels
More detailed information on different cartels is available on the FCCA website [.ﬁ]›.
Other types of cooperation between competing companies may also be prevented in the Competition Act. For example, the FCCA has repeatedly intervened in illegal cooperation that has taken place between business associations. Activities of associations may be in a prohibited or “legally grey” area especially when they concern pricing in their sector. Furthermore, the exchange of strategically significant or confidential business information may also comprise cooperation prohibited in the Competition Act. The Competition Act also lays down a set of principles concerning joint bids to customers. Companies are always responsible for the legitimacy of their activities.
A cartel agreement does not have to be a binding written agreement, as various forms of mutual understanding and joint activities can also be prohibited cartel agreements. A cartel may be based on a verbal agreement or other mutual understanding of activities in markets.
Not all cooperation between competing companies is prohibited. Cooperation is prohibited if its object or effect is to restrict competition. Cooperation which restricts competition may be permitted only if the benefits of cooperation to the economy are greater than the damage caused to competition (cf. Competition Act, section 6, TFEU Art. 101(3)).
Significant sanctions may be imposed on cartels – the first whistle-blower may be exempted from penalty payments
As a rule, the FCCA brings all identified cartel violations forward to the Market Court. Upon the FCCA’s proposal, the Market Court may impose a penalty payment on companies that have participated in a cartel. This can be at most 10 per cent of the revenue of the company that has participated in the restriction of competition for the last year of its participation in the infringement.
However, a member of a cartel may be exempted from penalty payments in full or be imposed a reduced penalty payment. Only the member of a cartel that first reports the cartel to the authorities can be fully exempted from penalty payments. Other members of a cartel can, however, apply for a reduced penalty payment if they can provide the FCCA with new information on and evidence of the infringement.
Public procurement can attract cartels
The annual value of public procurement in Finland exceeds EUR 35 billion. Such a massive use of public funds may attract companies to agree on who wins each bidding process and at what price.
Procurement units can look for any signs of cartels. They are listed in the FCCA’s blog [.ﬁ]›.
The prevention of cartels in public procurement calls for cooperation between procurement units and the competition authority. An easy way to report any suspicions of competition restrictions is to call the FCCA’s specialists directly. The FCCA also has a tip-off form [.ﬁ]› on its website for reporting suspicions.
Increased awareness is an important part of the prevention of cartels
The content of the Competition Act and the activities of the FCCA is not necessarily well known to the greater public. This is why the FCCA is working continuously to increase general awareness of cartels. It is important that companies and associations of undertakings are aware of the current legislation, also regarding competition law. Similarly, customers – consumers, companies and procurement units – need to know that these types of illegal arrangements exist and that any suspicions of prohibited agreements can be reported confidentially to the FCCA.
The efficiency of the identification and prevention of cartels is improved by cooperation between the authorities. It is important that the authorities that focus on various economic crime and violations are aware of the basic elements of the Competition Act. For example, a case of corruption may be linked to cartel activities as well.