Every commercial enterprise decides independently the policy they intend to adopt on the market. They each decide on the priority to give towards improving their product or service quality, to offer more competitive prices or to be innovative by creating new products or services.
In a healthy and competitive market the main aim of economic operators is to attract customers to their business. Consumers also benefit as a natural consequence by having a wider choice of products or services offered on the market and being able to compare prices before deciding which to choose.
All this goes downhill if competitors start to agree among themselves on ways to limit competition on the market. If companies agree to share a certain market between themselves, or to fix prices of a certain product or service, this would certainly harm the consumer as well as the economy.
Cartels are the most serious of competition infringements, as they involve collusion between competitors to be able to set higher prices and reap higher profits for themselves to the detriment of consumers and economic efficiency. If companies coordinate their actions and eliminate competition between them, they would have no incentive to lower their prices, to improve the quality of their products or services, or to bring new ideas to the market. The companies within the cartel would have the security of knowing that the other members of the cartel agree not deviate from the set prices or conditions agreed upon.
One of the main focuses of competition authorities is the detection of cartels but this is also very difficult to do as members of cartels usually meet in secret to discuss competitively sensitive issues.
There are various forms of cartels, and they may also result in either an isolated occurrence, a series of acts or in continuous conduct.
“Penalties can reach up to 10% of the total worldwide turnover of the enterprises involved in the cartel”
This is why competition authorities have different ways to combat cartels. One is to impose penalties when cartels are detected. In Malta, the Office for Competition proposes penalties when instituting court proceedings for an alleged cartel infringement and they are imposed by the commercial section of the Civil Court. The penalties can reach up to 10% of the total worldwide turnover of the enterprises involved in the cartel.
Another deterrent is the settlement procedure. The European Commission can settle cartel cases through a simplified procedure. Under this procedure, the parties involved, after having seen the evidence in the Commission’s file, choose to acknowledge their involvement in the cartel and their liability for it. In return for this acknowledgement, the Commission can reduce the fine imposed on the parties by 10%.
This procedure is found in Malta’s Competition Act as well, but there is an important difference. Under Maltese law, the reduction of the penalty can be up to 35% and is not limited to cartels. This was introduced to further encourage firms that join cartels to settle with the Office for Competition, to save on litigation costs and avoid lengthy procedures before the Office and in court.
The settlement procedure helps national competition authorities handle more cases with the same resources, thus enhancing their procedural efficiency.
Another deterrent against cartels is potential legal action for damages instituted by parties harmed by the cartels’ conduct.
Above all, the Commission also introduced an important system of whistleblowing in this regard – the Leniency Programme. This is a situation where an enterprise that has taken part in a cartel can subsequently decide to report it to the national competition authorities. If this evidence provided helps the authorities concerned to conduct a targeted inspection or find a breach of competition rules, the whistleblowing enterprise will receive immunity from fines. The enterprise concerned will receive a reduction from the fines if the competition authority already knew about the cartel, but the enterprise provided further information of significant added value.
This whistleblowing system is also available in Malta, through the Immunity from Penalties and Reduction of Penalties in Cartel Investigations Regulations, Subsidiary Legislation 379.10. Leniency programmes are considered an effective investigative tool in the fight against cartels.
All the above-mentioned tools assist competition authorities to uncover cartels, which is among the most crucial fields of operation for any competition enforcer.
Bernice Bianchi is a senior legal officer at the MCCAA’s Office for Competition.
