The Perils of Price Fixing

Business is subject to cut-throat competition and margins are tight. Except, that is, when competitors are tempted to agree on prices or the division of customers so that profits are maintained or expanded. Either way, this is a price fixing arrangement or cartel and is illegal under the Commerce Act 1986.

This Paper sets out:

• the prohibition against price fixing in the Commerce Act;
• the enforcement actions available to the Commerce Commission, with examples of both high-level and low-level enforcement actions;
• some practical advice on how to avoid price-fixing.

Of Consumer Ownership and Regulatory Intervention

Introduction

This Paper considers the potential rationale for regulatory intervention in an industry and the alternatives that are available. The concept of pareto-efficiency is introduced, and then some of the real world conditions which prevent this optimal state from being achieved are discussed. Alternatives for overcoming problems of consumer bargaining power are discussed, focussing on consumer ownership options and regulatory intervention.

Pareto-Efficiency

The gold standard of welfare economics is the pareto-efficient allocation of resources. Pareto efficiency occurs when it is impossible to make any one individual better off without making at least one other individual worse off. This may require that anyone who is made worse off is compensated by those who are made better off: if the loss is less than the gain then an improvement in pareto efficiency will occur.

Ronald Coase

On 2 September 2013, one of the great economists of the 20th Century, Ronald Coase, passed away. Coase is particularly remembered for two seminal contributions to economics:

The transaction cost theory of the firm, which states that firms exist because a hierarchical system of organisation has lower costs than relying on the market to co-ordinate production.

The Coase Theorem, which effectively states that absent transaction costs when there are well defined property rights, the distribution of those property rights has no effect on production. By direct implication the only effect of regulatory intervention is the redistribution of wealth; it does not affect production. In later years Coase described this result as “an obvious point”: “all [the theorem] says is that people will use resources in the way that produces most value”.¹