Chair says law preventing cartel conduct applies to competing franchisees
The Commerce Commission has commenced civil proceedings asserting cartel activity among key Christchurch real estate market players, including Harcourts franchisees Four Seasons Realty 2017 Limited, Gold Real Estate Group Limited, Grenadier Real Estate Limited, and Holmwood Real Estate Limited.
In a news release, the Commerce Commission said the alleged cartel conduct also includes Harcourts Group Limited, the franchisor of those businesses.
Dr John Small, Commerce Commission chair, explained that the franchisor’s and franchisees’ execution of agreements impacting customer prices, including commission rates, amounted to alleged cartel conduct under the Commerce Act 1986, given that the franchisees competed with one another for customers.
According to Small, the Commerce Commission alleged harm in this conduct because franchisees significantly shared Christchurch’s real estate market.
“For most Kiwis, buying and selling a house is a major transaction,” Small said in the news release. “People should be able to trust the process is free of collusion.”
Small noted that the Commerce Commission was not faulting the franchise model in general.
“The franchise model is tried and tested and can work really well for Kiwis,” Small said. “Typically, franchises are organised so that franchisees don’t compete with each other.”
However, Small stressed that the law preventing cartel activity was applicable to competing franchisees, just as it was to any other business. Small added that the present case involved alleged cartel conduct in the context of a franchise relationship.
“Franchisees need to be aware of when and where they compete with one another and ensure that they do not engage in cartel conduct, which carries significant risks such as criminal sanctions and potential penalties under the Commerce Act,” Small said.
In its news release, the Commerce Commission explained that s 30 of the Commerce Act prohibits entering into a contract or arrangement or reaching an understanding that includes a cartel provision.
The Commerce Commission noted that a cartel provision is a provision in a competitors’ agreement with the purpose, effect, or likely effect of fixing prices, limiting output, or allocating markets.
The Commerce Commission added that the legislation forbids agreements restricting output or allocating markets because it presumes that such arrangements substantially lessen competition, regardless of whether they actually impact prices.
