Crisis for society - increased risk of cartels?
Illegal price collusion and collusive tendering can result in extensive damage for the community. One of the most important tasks of the Competition Authority is therefore to detect such collusion.
In the early part of 2009 it became clear that the Government wanted to find a remedy for the crisis in the building and construction market. Public building and highways projects valued at a total of almost NOK 20 billion were advertised during the early spring under a package of measures designed to combat the financial crisis. At the same time the Government promised the Competition Authority NOK 400,000 in extra funding.
Speaking at a press conference at the offices of the Competition Authority when this promise was announced, the Minister of Government Administration and Reform, Heidi Grande Røys, said: "We have to make the best possible use of society’s money. We will catch these villains so that this money can be spent on goods and services."
The relationships among the resources spent on processing cases under Sections 10/11, 16 and 9 e in 2009 are shown in the figure on the right.
(Registration commenced in January 2009, and we are reserving ourselves against the possibility that there may be some uncertainty during the first year as the system is being tested.)
In connection with the major competitive tenders that were advertised during the spring of 2009, the Competition Authority placed special focus this year on the building and construction trade and the risks of illegal collusive tendering. Illegal collusive tendering can include the following:
- Fictitious bids: the companies agree that one of them will submit the lowest bid. The others submit bids containing high prices or terms that would not be accepted.
- Omission: a company that would normally submit a bid fails to do so.
- Bid rotation: the companies take it in turns to submit the lowest bids.
- Market sharing: the competitors share the market between themselves. This can be done either geographically or along product lines.
Detecting cartels, including illegal collusive tendering, is a top priority for the Competition Authority.
Cartel activity is a collective term for various types of cooperation which, in a variety of ways, either partly or fully impede market competition. This means that two or more parties in the same market cooperate on something over which they should have competed. For example, instead of competing for contracts and deliveries, as customers expect, the members of a cartel enter into agreements relating to market sharing, discounts and prices and how much to bid for contracts.
One of the consequences of competition crime is higher prices. International studies have indicated that illegal collusion can result in price increases of 10-30 per cent. Each year the state and municipal authorities purchase goods and services worth over NOK 300 billion. If the parties involved collude on public procurement the losses can be considerable.
Improving knowledge about the Competition Act
Throughout 2009 the Competition Authority has been working towards increasing the knowledge within Norwegian trade and industry about the Competition Act. Early in the year, a checklist was prepared for use by public purchasers to help detect illegal collusive tendering (bid-rigging). This checklist is the result of international cooperation under the auspices of the OECD in which the Competition Authority has played an active role. The checklist is available on the Authority's website and has been marketed at a number of meetings with purchasers, including KS (the Norwegian Association of Local and Regional Authorities), KOFA (the Public Procurement Complaints Board), several private procurement fora and managers responsible for procurement and tendering in major municipalities and projects. This has been one of the Authority's most important initiatives in 2009.
One important initiative continued after 2008 is the provision of information about the leniency programme.
Cartel activities can be penalised with large fines, but the first company to break ranks and notify the Competition Authority will be allowed to escape a fine. Other cartel participants may have their fines reduced if they cooperate during the investigation.
This arrangement is called leniency, and experience acquired from the EU, the USA and other countries indicates that a well-functioning leniency programme is the most important tool for detecting cartel activities.
Unfortunately, surveys conducted on behalf of the Competition Authority show that business managers are not sufficiently aware of this programme. The Competition Authority has therefore initiated several information campaigns about the programme. In 2009 one of these campaigns on the Airport Express Train showed both that cooperation among competitors can be penalised and that there are ways to extract oneself from such cooperation. Please refer to www.konkuransetilsynet.no for further information and to view the film that was used during the campaign.
During the course of the year we have been working on spreading the message about the risks of illegal collusive tendering and the opportunities for leniency by giving a number of talks at our own seminars, and as guests at other seminars.
Main focus on the building and construction trade
The most important activities of the Authority involve seeking out various types of competition crime, and as mentioned the building and construction trade has been a key focus during the past year. Projects within the Competition Authority have been designed to allow the Authority to familiarize itself with the parties involved in the various markets that together constitute the building and construction trade. This work is ongoing.
Strengthening the Authority's investigation expertise
The work to strengthen the Authority’s expertise in conducting investigations was divided into two parts in 2009.
First, specialist employees responsible for processing digital evidence attended further courses in order to ensure that the Authority is able to benefit fully from the equipment used for dealing with such evidence. Second, special courses on taking statements were organised for investigators and other personnel who could become involved in investigating cases for the Authority.
Securing evidence in two cases
In 2009 the Competition Authority secured evidence related to two different cases in seven different locations against a total of five companies. Nine formal statements were taken in connection with the investigations of these two cases.
Investigative work
| Activities |
2006 |
2007 |
2008 |
2009 |
| Securing evidence § 25 – cases/locations |
2/4 |
2/6 |
3/5 |
2/7 |
| Depositions (formal statements) § 24 – cases/locations |
2/7 |
3/12 |
4/12 |
2/9 |
| Assistant to the ESA/European Commission – cases/locations |
1/2 |
0 |
2/3 |
0 |
Other important activities
Case against Tine
The action brought by Tine against the State through the Competition Authority, because Tine would not accept a fine of NOK 45 million, was heard by the Oslo District Court during the autumn of 2008. In a judgement handed down on 25 March 2009 the Court overturned the decision made by the Competition Authority. The Authority has appealed against this judgement to the Borgarting Court of Appeal. This appeal comprises both an assessment of the evidence and interpretation of the law.
Monitoring dairies
Monitoring of gross margins in the dairy sector was continued in 2009. The purpose of this activity is to check whether Tine's gross margins are low enough to constitute a margin squeeze that would be damaging to competition and in breach of Section 11 of the Competition Act
To the top
During the course of 2009 the Authority has ordered discontinuation and fines in three cases of illegal cooperation which restricted competition.
The Competition Authority was quick to establish its own control unit to follow up illegal conduct. During the past twenty years over forty cases have been reported to the authorities and decisions have been made to impose fines and confiscations worth large sums of money by Norwegian standards. The prohibitions in the Competition Act and the Competition Authority's vigorous control activities are well known among business owners and their legal advisers. It is important that they know that the Authority follows up signs of serious breaches of the prohibition regulations by using whatever force and weight deemed to be necessary. It is thought that this has an important and necessary deterrent effect.
The results of the Competition Authority's investigations follow analyses and evaluations of evidence and statements. This can be a time-consuming process which often means that cases are not decided in the same year as when they were opened. During the course of 2009 the Authority made decisions in the following cases relating to breaches of the prohibition regulations:
- Taxi Midt-Norge AS was fined NOK 300,000 for breaching the law in its bid for the transport of patients in Nord-Trøndelag. This case concerned illegal collusive tendering among the company's 270 licence holders. In the same decision the Authority ordered the cessation of these illegal activities. Afterwards, the Competition Authority wrote a letter to the health authority about how they should formulate calls for tender to ensure real competition for contracts.
- Grunnarbeid AS and Gran & Ekran A/S, two contractors in Trøndelag, were fined NOK 5 million and NOK 2 million respectively for engaging in illegal collusion in individual bids they had submitted for the maintenance of seven bridges in Steinkjer. The Competition Authority believes that the two companies were not actually competing and that the two bids were submitted in order to increase the price and create the impression of competition. The two companies have denied this and have sued the Competition Authority. The case appeared before the courts in April 2010.
- Norges Turbileierforbund (the National Coach Owners’ Association) was fined NOK 400,000 for breaching the law by encouraging its members to increase their prices. Several articles in the Association's membership magazine supported price increases and among other things made suggestions about the extent of such increases and how it could be accomplished by using a price calculator that was made available to its members. In its decision the Authority ordered the cessation of these illegal activities. The Association has rejected this and has sued the Competition Authority. The case appeared before the courts in February 2010.
Penalties regarding illegal cooperation and abuse of dominance
| Decisions |
2006 |
2007 |
2008 |
2009 |
| Decisions regarding illegal cooperation (cartel) - § 10 – fines and interventions – cases/companies |
0 |
0 |
2/4 |
2/2 |
| Decisions regarding illegal cooperation (cartel) - § 10 – fines only – cases/companies |
0 |
1/1 * |
0 |
1/2 |
| Decisions regarding illegal cooperation (cartel) - § 10 – interventions only – cases/companies |
0 |
1/2 |
1/2 |
0 |
| Decisions regarding abuce of dominance § 11 – interventions only – cases/companies |
0 |
1 * |
0 |
0 |
* The decision is a violation of both § 10 and § 11
In many ways 2009 has not been a very typical year. The financial crisis has affected economic activity, and this can be seen in the Competition Authority's statistics. Work has started to ensure that the Government's package of measures is used as intended without competition crime reducing its impact, and this work is still ongoing. For example, the results of the investigative projects into the building and construction trades have provided the basis for new projects in 2010. For several years the Competition Authority has placed top priority on the detection of cartels, and it has spent this time developing expertise and providing trade and industry with information about the law, prohibition regulations and leniency. This initiative will be continued, particularly in conjunction with the work being carried out on combating illegal collusive tendering.