Cartel Conduct Explained: Price Fixing, Bid Rigging and Market Allocation

Cartel conduct is treated as one of the most severe violations of competition law in South Africa. It involves agreements or coordination between competitors that undermine fair competition.

The Competition Commission actively investigates cartel behaviour and has significantly increased enforcement in recent years. If your business is involved in cartel conduct, the consequences can be severe:

• Administrative penalties of up to 10% of annual turnover

• Personal liability for directors and managers

• Criminal exposure in certain cases

• Reputational damage and exclusion from future tenders

Barter McKellar advises businesses on identifying, managing and defending cartel-related risks before they escalate into enforcement action.

What is Cartel Conduct?

Cartel conduct refers to agreements or coordinated practices between competitors that eliminate or reduce competition.

Under the Competition Act 89 of 1998, certain forms of cartel conduct are automatically prohibited. This means:

• No justification is permitted

• No defence based on commercial benefit is allowed

• The conduct is unlawful regardless of its impact

This creates a strict liability environment where even informal arrangements can trigger liability.

The Three Main Types of Cartel Conduct

1. Price Fixing

Price fixing occurs when competitors agree to fix, maintain or control prices. This may include:

• Agreeing on minimum prices

• Coordinating price increases

• Agreeing on discounts or pricing structures

Importantly, price fixing does not need to be formal. It can arise from:

• Informal discussions

• Industry meetings

• Email or messaging exchanges

Even a “gentlemen’s agreement” can constitute a cartel.

2. Bid Rigging

Bid rigging occurs where competitors coordinate their responses to tenders. Common examples include:

• Agreeing in advance who will win a tender

• Submitting artificially high or “cover” bids

• Rotating winning bids between competitors

This is particularly high-risk in industries reliant on public or private procurement. Authorities actively scrutinise tender processes and patterns.

3. Market Allocation

Market allocation involves competitors dividing markets among themselves. This may be done by:

• Geographic areas

• Customer segments

• Product lines

For example, competitors may agree not to compete in certain regions or for certain clients. This conduct removes competitive pressure and is strictly prohibited.

Why Cartel Conduct is So Risky

Cartel conduct is classified as a per se prohibition under South African law. This means:

• The Competition Commission does not need to prove harm

• The mere existence of the agreement is sufficient

• Intent is often inferred from conduct

As a result, businesses can face enforcement action even where:

• There was no written agreement

• The arrangement was informal

• The parties did not consider the conduct unlawful

How Cartels Are Detected

Many businesses assume cartel conduct will go unnoticed. This is increasingly not the case. Investigations are often triggered by:

• Whistleblowers

• Competitor complaints

• Leniency applications by cartel participants

• Market monitoring by the Commission

The Competition Commission also conducts dawn raids and forensic data analysis. In many cases, one participant reports the cartel to obtain leniency, exposing all other parties.

Penalties and Consequences

The consequences of cartel conduct are severe and far-reaching. These include:

• Administrative fines of up to 10% of annual turnover

• Possible criminal liability for individuals involved

• Disqualification from public procurement processes

• Civil damages claims from affected parties

For directors and senior management, exposure is personal and significant.

Common Risk Scenarios

Cartel conduct often arises in situations that may initially appear low risk. Examples include:

• Discussions with competitors at industry forums

• Participation in trade associations

• Informal coordination on pricing or tenders

• Joint ventures without proper legal structuring

Businesses frequently underestimate how easily legitimate interactions can cross into prohibited conduct.

What to Do if You Suspect Cartel Conduct

If there is any indication of cartel behaviour within your organisation, immediate action is required. You should:

• Seek legal advice before taking any internal or external steps

• Preserve all relevant documents and communications

• Avoid discussing the issue internally without guidance

• Consider whether leniency options may be available

Delay can significantly reduce available legal protections.

The Role of Leniency

South Africa operates a Corporate Leniency Policy. This allows a cartel participant to:

• Avoid or reduce penalties

• Cooperate with the Competition Commission

• Provide evidence against other participants

However, leniency is typically only available to the first applicant. Timing is therefore critical. Once another party has applied, this option may no longer be available.

How to Avoid Cartel Risk

Proactive compliance is essential. Businesses should:

• Implement competition law compliance programmes

• Train employees on prohibited conduct

• Establish clear internal reporting mechanisms

• Review interactions with competitors

Failure to implement safeguards increases the risk of inadvertent violations.

How Barter McKellar Can Assist

Barter McKellar provides strategic and practical advice on cartel risk, including:

• Conducting internal investigations

• Advising on leniency applications

• Representing clients in Competition Commission proceedings

• Developing compliance programmes

• Managing dawn raid responses

Our focus is on protecting your business while navigating complex regulatory exposure.

Take Action Before the Risk Escalates

Cartel conduct investigations often begin without warning and escalate quickly.

By the time the Competition Commission becomes involved, options may be limited.

Early legal advice can:

• Contain exposure

• Preserve strategic options

• Protect directors and the business

Speak to a competition law specialist at Barter McKellar. Request confidential advice on cartel risk.