Collusion settlement in refrigerator compressor industry

10 October 2011

Commerce Commission reaches settlement over collusion in refrigerator compressor industry

The Commerce Commission has agreed to a settlement with a major manufacturer of compressors following an investigation into cartel conduct. The settlement, with Empresa Brasileira de Compressores S.A (Embraco), includes the Commission and Embraco jointly submitting to the High Court on the penalty that should apply for alleged breaches of the Commerce Act.

The Commission began investigating the cartel in 2009 following information received from an informant who was granted immunity under the Commission's cartel leniency policy.

In its statement of claim filed in the High Court at Auckland today, the Commission alleges that in 2005 and 2006 Embraco met with a competitor and exchanged information on prices, production capacities and other market intelligence, relating to the supply in New Zealand of refrigerator compressors. A compressor is a device that compresses refrigerant gas to produce the cooling effect in a refrigerator.

In particular it is alleged that senior staff of Embraco agreed with their competitor that each company would seek to increase prices for some compressor units supplied into New Zealand.

The Commission alleges that Embraco breached section 30 of the Commerce Act in that the agreements between Embraco and its competitor had the purpose or likely effect of controlling or maintaining the price of compressor units.

“Collusion between major players in any market has the potential to harm other competitors, downstream markets, and ultimately consumers. Our leniency programme has proved effective at flushing out participants in a number of such illegal agreements,” said Kate Morrison, Commerce Commission General Manager, Competition.

“This case also shows the Commission’s continuing commitment to avoiding drawn-out litigation where agreement of suitable settlement terms is possible.”

Further details of the settlement will be announced once the Court has issued its decision. As the matter is now before the Court, and pending the Court’s review of the proposed settlement, the Commission will be making no further comment.

Background

Section 30 of the Commerce Act makes price-fixing agreements between competitors unlawful. This includes agreements with the purpose, effect or likely effect of fixing, controlling or maintaining prices, or that provide a mechanism for doing so. An agreement can be a formal document, such as a contract. An agreement can also be very informal.

These kinds of agreements are sometimes referred to as cartel agreements. Cartel agreements are deemed to substantially lessen competition, because in practice they are almost always harmful. These agreements aim to maximise the profits of cartel members, while maintaining the illusion of competition. Cartel conduct can damage the economic welfare of New Zealanders by raising prices and reducing choice, innovation, quality and investment.

A company that contravenes section 30 may be ordered to pay pecuniary penalties under section 80 of the Commerce Act, which provides that any penalty must not, in respect of each act or omission, exceed the greater of:

- $10 million; or

either

- if it can be readily ascertained and if the Court is satisfied that the contravention occurred in the course of producing a commercial gain, three times the value of any commercial gain resulting from the contravention; or - if the commercial gain cannot be readily ascertained, 10 per cent of the turnover of the body corporate and all of its interconnected bodies corporate (if any).

ENDS

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