I’m Georgina Laverack, an Assistant Director at the Competition and Markets Authority, and in this mini-series of blogs we’ll be simplifying some complex issues covering:
- Why anti-competitive behaviour is bad for business
- The consequences of breaking competition law
- Why anti-competitive behaviour is bad for the economy
- The red flags to look out for at work
- Specific cartel behaviours to look out for in everyday life
This week we’ll be covering 5 reasons why cartel behaviour is bad for business.
Healthy competition between suppliers is good for businesses and customers alike. As a business, it means that when you’re choosing a supplier, potential candidates will offer the best possible service at the lowest price they can, because they want you to choose them.
But sometimes suppliers get together and collude, instead of competing. This is what’s known as anti-competitive behaviour and businesses engaging in it are sometimes described as a ‘business cartel’. This behaviour stops customers getting a fair deal – here’s why:
Prices go up
If your suppliers agree to keep their prices artificially high, you may have no choice but to pay them at an inflated price.
Innovation and efficiency go down
Offering innovation and efficiency helps suppliers compete for your business. But if they’re no longer competing with each other, they’ll be less motivated to do so, resulting in things like longer lead times.
You get poorer service
Suppliers who risk losing your business will make sure they keep providing good service. But suppliers who have agreed between themselves not to compete have less to fear – and less motivation to look after you.
Businesses don’t actually have a real choice of suppliers
You might appear to have a choice, on the surface. But if those suppliers have colluded to offer the same thing for the same price, that choice is just an illusion – and bad for your business. Also, other honest businesses aren’t able to operate on a level playing field.
Industry reputations suffer
If elements of an industry or sector become known for being anti-competitive or behaving like a business cartel, people may become suspicious of everyone in the industry – even those who have never behaved in this way.
If you've seen anti-competitive behaviour, report it.
For a more in-depth look at the topics raised in this blog, go to our dedicated cartels webpage.