A group of 10 pharmacies in the Nelson and Tasman area have been accused of price fixing by the Commerce Commission. Prices Pharmacy 2011 Limited, which operated two businesses involved, has had civil proceedings filed against it and its directors. We looked into what price fixing is and how to steer clear of it.
The Commerce Commission has alleged that Prices Pharmacy 2011 Limited and its directors Stuart Hebberd and Jason Wright facilitated a price-fixing agreement with competing Nelson pharmacies at a pharmacy owners’ meeting in April 2016. The meeting was attended by 10 pharmacy owners.
The alleged agreement resulted in the dispensing charge shoppers paid for fully funded prescription items increasing from $5 to $6 in May 2016. The Commerce Commission alleges that the conduct ended in June 2016 when pharmacy owners received additional taxpayer funding from the Nelson Marlborough District Health Board.
The Commission is seeking a declaration that Prices Pharmacy 2011 Limited and its directors contravened the Commerce Act, along with financial penalties and costs. It’s also issued warnings to nine other companies whose pharmacies were represented at the meeting. These pharmacies and companies are:
- Savine Holdings Limited (Bay Pharmacy, Motueka)
- Tasman Pharmacies Limited (Greenwood Street Pharmacy, Motueka)
- Tasman Pharmacies Limited (Unichem 162 High Street Pharmacy, Motueka)
- Queen Street Pharmacy Limited (Queen Street Pharmacy, Richmond)
- Wakefield Pharmacy 2012 Limited (Wakefield Pharmacy)
- Richmond Mall Pharmacy 2001 Limited (Unichem Richmond Mall Pharmacy)
- Nelson City Pharmacy Limited (Life Pharmacy, Nelson City)
- McGlashen Pharmacy Limited (McGlashen Pharmacy, Richmond)
- Fry’s Pharmacy Limited (Fry’s Pharmacy, Richmond)
- Mapua Pharmacy Limited (Mapua Pharmacy)
It’s not illegal for a business to follow the prices of its competitors or carry out similar pricing strategies independently, but any kind of contract, arrangement or understanding between competing businesses that has the purpose, effect or likely effect of fixing, controlling or maintaining the price of goods or services constitutes price fixing.
Price fixing is anti-competitive because it removes the opportunity for consumers to shop around seeking lower prices. It’s illegal under the Commerce Act, and can result in heavy penalties: when found guilty in the courts, individuals are subject to a maximum of $500,000 each; and for a body corporate, which ever is greater of $10 million; three times the commercial gain; or if this cannot be easily established, 10 percent of turnover.
Every separate breach of the Act (even if done by the same person) may incur a penalty.
The pharmacy sector has been warned twice before about similar conduct, in 2004 and 2014. Duncan Cotterill partner Nick Crang says it’s hard to say how common price fixing agreements are: “You only know about them when they get found out.”
“Typically, when they are entered into people do them in secret, either because they might know it’s illegal, or it’s not something they want customers to know because people want customers to feel that things are being priced in an open and free market.”
Avoiding price fixing agreements is key to maintaining the consumer confidence that businesspeople rely on to stay afloat, Crang says. He warns that it’s not impossible to unintentionally blunder into a situation which could be interpreted as engaging in price fixing behaviour when businesspeople meet with competitors, and advises that in these meetings, they should make sure they avoid the subject of pricing.
The Commerce Commission’s website recommends that businesses engaging with competitors should take steps to proactively avoid price fixing agreements by:
- Make sure that you and your staff are familiar with the requirements of the Commerce Act. Keep records of who has attended training.
- Think carefully about who you are, or may be, in competition with, especially if sub-contracting is involved.
- Do not agree prices, discounts or any matters relating to price with your competitors (unless it is a specific sub-contract you are discussing).
- Do not exchange pricing information with your competitors.
- If you are approached by another business to discuss pricing, allocating customers, bids for contracts or restricting outputs you should raise an objection straight away. Leave the discussion immediately.
- Review internal documents, policies and procedures for compliance with the Commerce Act.
- If you become aware of anti-competitive conduct, contact the Commerce Commission straight away.