Price-fixing cases ‘common’
Rewards outweigh the risks, experts say, in an industry where margins are small
The recently revealed 14-year industry-wide arrangement to co-ordinate bread prices in Canada doesn’t seem to shock experts, who say price fixing is a common and tempting practice in the country.
Any possible reward, they add, appears to outweigh the risks of penalties and losing consumers’ trust.
Grocery giant Loblaw Companies Ltd. and George Weston Ltd. revealed earlier this week they participated in a co-ordinated bread pricing scheme from late 2001 to March 2015. The companies tipped off the Competition Bureau and struck an immunity deal to avoid criminal charges or other penalties from the ensuing investigation.
According to court documents, the regulator is also investigating the alleged involvement of Canada Bread, Walmart, Sobeys, Metro and Giant Tiger as well as “other persons known and unknown.”
Details about the investigation are sparse and no criminal charges have been laid. Many of the companies say they don’t suspect their companies broke laws, and that they are fully co-operating.
“Price-fixing cases are actually quite common,” said Jim Brander, a professor at the University of British Columbia’s Sauder School of Business in Vancouver.
For grocery stores, which have small margins, a seemingly small jump in price for a product can provide big gains, he added.
Between 2001 and 2015, the consumer price index for bread, rolls and buns rose 96 per cent, according to Statistics Canada. During that same time frame, CPI for all food purchased from stores increased about 45 per cent.
Historically, fines were quite small compared to the gains companies could make, said Brander, so the penalties were not a major deterrent.
Penalties for conspiracy — the umbrella under which price-fixing falls — include fines up to $25 million and imprisonment for up to 14 years, or both. That’s up from a previous $10 million and five years.
In recent history, the competition watchdog pressed criminal charges, which were eventually stayed, against several parties in a pricefixing arrangement in the country’s chocolate industry. It also charged and fined a number of individuals and companies involved in a Quebec gasoline price-fixing cartel.
However, it’s difficult to be caught and prosecuted, said Fred Lazar, an associate economics professor at York University’s Schulich School of Business in Toronto. After all, Canada’s major grocers allegedly managed to do this for nearly 15 years, he said.
“What’s required for the Competition Bureau to have a case is a smoking gun,” he said. “Some type of memo, some letter, something on a computer that basically states, ‘Yes, you know, my competitor and I are co-operating and we’re increasing prices.’”
Without that, it’s difficult for the bureau to prove collusion, he said.
There are many people at an organization, such as those whose salary is tied to the financial performance of the business, who have incentive to improve profits and engage in price fixing, Brander said.
These individuals may meet each other at industry events, like a conference, he said, or it could be as simple as picking up the phone and dialing the number of someone at a competitor.
“You’re not going to say on a phone call or a text message, you know, ‘Let’s fix prices,’” he said. “But, you might say, you know, ‘Let’s have lunch.’”