Competition Law for Small Businesses: Which Agreements Are Prohibited

Why competition law also affects small businesses

Many owners consider competition law a topic for large corporations, mergers, and Brussels. The reality at Germany’s Federal Cartel Office (Bundeskartellamt) looks different. Recent cases include regional construction companies that divided tenders among themselves, retailers that coordinated prices, and manufacturers that imposed minimum prices on dealers. Anyone working in a small market often knows their competitors personally. That makes conversations easy and agreements tempting.

That raises one question: What does competition law prohibit a small business from agreeing, what remains permitted, and how does it protect itself from a violation in everyday business? To answer it, we first clarify the terms, sort prohibitions and exceptions, introduce the prisoner’s dilemma as a mental model, review findings, and weigh two views.

A cartel rarely begins with a contract. It begins with a sentence on the sidelines of a meeting that nobody contradicts.

Terms: cartel, horizontal and vertical agreement

• Cartel: An agreement or concerted practice between companies that restricts competition, for example on prices, customers, or territories. A written agreement is not required.
• Concerted practice: Coordination without a formal agreement, for example when competitors tell each other about their planned price increases and then act accordingly.
• Horizontal agreement: An agreement between companies at the same level of the market, that is, between actual or potential competitors. It is subject to stricter competition law scrutiny than an agreement between supplier and customer.
• Vertical agreement: An agreement between companies at different levels of the market, such as between manufacturer and dealer. It is more often permitted, but not always.
• SME cartel (Mittelstandskartell): A cooperation among small and midsize companies that, under § 3 GWB, the German Act against Restraints of Competition, is exempt from the cartel prohibition under certain conditions.

The basis is the prohibition of anticompetitive agreements in Article 101 of the Treaty on the Functioning of the EU and in § 1 GWB. It applies to all companies regardless of size. How competitors can still cooperate sensibly and lawfully is described in detail in Cooperating with competitors.

What is prohibited and what remains allowed

The sanctions are considerable. Companies face fines of up to 10 percent of the worldwide turnover of the corporate group in the previous year. Individuals involved, such as managing directors, can receive their own fines. Injured customers can claim damages, and for cartels the law presumes that damage has occurred. Then there is the federal competition register: public contracting authorities must check before larger awards whether a bidder is registered for certain violations, including cartel fines above a minimum amount. For businesses that live from public contracts, as described in Public tenders, this can weigh more heavily than the fine.

The mental model: the prisoner’s dilemma and leniency

Why are cartels exposed even though all participants want to stay silent? Game theory explains this with the prisoner’s dilemma. Two suspects are questioned separately. If both stay silent, they get off lightly. If one confesses and incriminates the other, they go free while the other gets the full penalty. Because each must fear that the other will talk first, confessing is the safe choice for both.

Competition authorities use exactly this logic with the leniency program. The first company to report a cartel and cooperate fully can be completely exempted from the fine; later applicants receive reductions. The EU has had this rule since 1996, and in Germany it has been set out in the GWB since 2021. For every cartel member, this creates a constant question: how sure am I that none of the others is writing the application right now?

For a small business, a sober insight follows. Anyone who takes part in an agreement places their fate in the hands of all other participants, including those they barely know. A single competitor who wants to get out or protect itself is enough. The leniency program turns every accomplice into a potential witness.

What research and authority figures show

Jeong Yeol Kim and Charles Noussair (2023) compared different leniency programs in a laboratory experiment. Participants could form cartels, agree on volumes, and report their fellow players. Their finding: leniency programs did not change how often cartels were formed, but they made them be exposed much more often and thus prevented agreements from succeeding over time. Higher fines had a stronger effect; a reduction for a second whistle-blower brought no additional effect. The authors also refer to estimates according to which only about 13 percent of cartels in the EU and 13 to 17 percent in the US are detected.

The experiment recreates a market in the laboratory with students, not real businesses. Its logic, however, fits an observation from practice: a cartel, once formed, remains unstable because every participant can leave at any time. The low probability of detection tempts participation; the leniency program makes this calculation unpredictable.

The totals fluctuate strongly, which the office itself partly attributes to chance, since a few large proceedings determine the result. In 2025, it imposed around 10 million euros on six companies and three individuals and received 815 tips about possible cartel violations. The number of tips is the more important figure for small businesses: many proceedings begin with a customer, an employee, or a competitor reporting something. How whistle-blowers are protected is described in Whistle-blower protection.

The typical traps in everyday business

Hardly any owner plans a cartel. Most violations arise in situations that seem routine. The following points should be known in the business, especially to everyone who has contact with competitors.

• At association meetings, trade fairs, and regulars’ tables, nobody talks about their own prices, surcharges, costing, capacities, or individual customers.
• If the conversation goes there, you visibly object, leave the group, and record this in writing.
• In tenders, there is no contact whatsoever with competitors about participation, prices, or bids, except in a justified bidding consortium.
• Market surveys and benchmarking through associations contain only aggregated, older data that cannot be traced back to individual businesses.
• Dealers are not given minimum prices, not even orally or through pressure on supply.
• There is no agreement with competitors not to poach each other’s employees.

Associations are particularly sensitive. They are valuable for small businesses, as Networking with a plan describes, but also the place where competitors regularly sit together. Reputable associations work with an agenda, minutes, and competition law notices. If these are missing, caution is advised.

Two views: law for corporations or law for everyone?

The first view considers competition law a tool against large companies. Small businesses have no market power, their agreements harm nobody, and the Federal Cartel Office has more important things to do. Some agreements even protect against price pressure from large buyers, as described in When a few suppliers dominate a market.

The second view counters that the prohibition applies to everyone and has particular effect in small, regional markets. If the three roofers in a small town coordinate their prices, local customers pay more, and there is no fourth supplier to compensate. De minimis rules for small market shares explicitly do not apply to price, territory, and customer agreements.

I consider the second view accurate, and not only legally. Cartels violate what sustains trust in markets: that a price arises from competition and not from a conversation the customer knows nothing about. There are permitted ways to protect against powerful buyers, such as the SME cartel for rationalization or joint purchasing. Anyone who fixes prices instead trades a market problem for a legal problem.

Competition law precautions in a small business

1. Set rules

   Write down on one page what is never discussed with competitors: prices, surcharges, costing, capacities, customers, bids, employees.

2. Name contacts

   Define who in the business has contact with competitors, for example in the association or in bidding consortia, and give these people the rules in person.

3. Document meetings

   For meetings with competitors: agenda beforehand, minutes afterward. Conversations that stray are ended and recorded.

4. Review sales contracts

   Check contracts with dealers and partners for price requirements, territorial restrictions, and non-compete clauses, as touched on in Setting up sales partnerships.

5. Ask when in doubt

   Before every cooperation with a competitor and after every unclear conversation, involve a competition law specialist before acting.

Conclusion: which agreements are prohibited

To the guiding question: competition law prohibits a small business from agreements and concerted practices with competitors on prices, discounts, customers, territories, volumes, and bids, from exchanging current or planned prices and capacities, from imposing minimum prices on dealers, and from no-poach agreements. These prohibitions apply regardless of size, and de minimis rules do not cover them. Justified bidding consortia, joint purchasing, and SME cartels under conditions remain permitted. The prisoner’s dilemma shows why agreements are a bad deal: whoever takes part becomes dependent on all the others, and the leniency program rewards whoever talks first. The limits of this article: the table simplifies heavily, and the experiment on leniency programs comes from the laboratory.

1. This week: Write the rules for conversations with competitors on one page.
2. This month: Discuss them with everyone who deals with competitors in associations, at trade fairs, or in bidding consortia.
3. This year: Have dealer and partner contracts reviewed for price and territory requirements.

The surest protection against cartel proceedings is a price you can explain at any time without mentioning a competitor.