What is the Competition Act?
Competition underpins any healthy economy, encouraging innovation and development, driving better prices, and overall stimulating markets and delivering a positive experience to consumers. This why competition law is so important. Regulating and curbing anti-competitive behaviour is essential for protecting our markets and preserving a healthy level of competition. This article gives you a brief overview of competition law in the UK and a summary of the Competition Act 1998.
What is competition law?
Competition law is all about ensuring that the economy enjoys a healthy amount of competition and nurtures an environment which encourages businesses to improve and innovate for the benefit of their customers and deliver lower prices.
Indeed, competitive markets should enjoy beneficial (for consumers) price competition and increased innovation and development of new products amongst other things. Competition Law exists to govern potentially anti-competitive behaviours which may seek to prevent, restrict or distort competition in the market.
Fundamentally, competition law addresses:
- Anti-competitive agreements
- Abuse of substantial market power
- Potentially anti-competitive mergers
- Public subsidies which distort competition or investment decisions
The Government’s guide to ‘Competing Fairly in Business’ highlights some key behaviours that are anti-competitive. Namely:
- Price fixing
- Dividing and sharing markets
- Bid-rigging and discussing tenders
- the abuse of a dominant position in the market
- The disclosure of sensitive commercial information
UK Competition Law
In the UK, competition law is formed by two major acts: the Competition Act 1998 and the Enterprise Act 2002 (as amended in 2013 by the Enterprise and Regulatory Reform Act 2013), which together form the legal framework for regulating and governing competition in UK markets.
1. Competition Act 1998
The Competition Act 1998 aims to regulate: (i) agreements between enterprises which might prevent, restrict or distort competition in the UK; and (ii) the abuse of a dominant position in the market which could have an effect in the UK. The companies concerned do not need to be based in the UK to be caught by the 1998 Act.
2. Chapter I of the Competition Act 1998
Chapter I of the Competition Act bans agreements between businesses that might prevent, restrict or distort competition within the UK. It is heavily influenced by Article 101(1) of the Treaty on the Functioning of the European Union (“TFEU”).
Agreements that fall under this section of the act include those which look to fix the price of goods or services, limit the rate of production, share or divide markets or that try to discriminate between customers, for example.
Crucially, agreements don’t have to be formal or written to fall under the Act. Even informal verbal agreements or understandings can be regulated by the Act.
A major example of an anti-competitive agreement, and the most serious type, is a cartel. A cartel is where businesses decide not to compete with each other, typically on price.
3. Chapter II of the Competition Act 1998
Chapter II of the Competition Act 1998 deals with businesses that are abusing their dominant position in the market. It is modelled on Article 102 of the TFEU.
A business may be considered to be in a dominant position if they’re immune to the market conditions or competitive pressures. Businesses are typically presumed to be dominant where their market share exceeds 50%, though lower market shares can lead to a finding of dominance in appropriate cases. Abuse of a dominant position may manifest in overly high prices or limited production.
Enterprise Act 2002
The Enterprise Act 2002 aimed to ‘modernise UK merger control by restricting ministerial involvement in merger decisions.’ It was amended by the Enterprise and Regulatory Reform Act in 2013 which created the CMA.
In the UK, a non-ministerial department called the Competition & Markets Authority (‘CMA’) is responsible for promoting competition and investigating anti-competitive behaviour. There are also specific industry regulators such as Ofcom, Ofgem and the FCA which are empowered to investigate anti-competitive behaviour in their specific sectors.
The CMA’s responsibilities are wide and diverse, extending to:
- Investigating when organisations merge to ensure that this doesn’t serve to reduce the amount of competition in that sector
- Auditing entire markets to check that the competitive process is operating effectively to the benefit of consumers
- Taking action against cartels or culprits of anti-competitive behaviour, including imposing fines of up to 10% of UK Group turnover and seeking prison sentences against Directors.
Individuals or businesses concerned about anti-competitive behaviours can report directly to the CMA, though it will typically be more effective if such complaints are properly reasoned.
National Security and Investment Act
The National Security and Investment Act allows the British Government to block acquisitions of UK assets by foreign companies. This effectively facilitates more government intervention in various types of transactions that the Act deems to be matters of national security. The expanded version of the 2021 Act that came into force earlier this year broadens the reach beyond mergers and acquisitions to include transactions such as minority investments, acquisitions of voting rights and assets.
Competition Law and Brexit
As we saw earlier, the Competition Act was modelled on the TFEU’s Articles 101 and 102. The result of this was that many cases would have the same outcome whether they were dealt with under EU or domestic law. Critically, EU law would always take precedence over national law.
However, as a result of Brexit, UK courts are no longer required to follow EU competition case law. As such, the UK and the EU now have completely separate competition regimes, albeit they are very closely aligned for now.
Tech giants & Competition Law
One of the biggest conversations in the sphere of competition law is about the ‘dominance of tech giants in digital markets and their ability to stifle competition.’ After a consultation and recommendations from an expert panel, a Digital Markets Unit (DMU) was established within the CMA to specifically monitor and govern the digital markets.
FAQs about Competition Law
1. Who regulates competition in the UK?
The CMA is responsible for regulating competition and investigating any alleged anti-competitive behaviour.
2. What is the main purpose of competition law?
Competition law is designed to promote consumer welfare by protecting the level of competition within markets and prohibit anti-competitive behaviour such as cartels and the abuse of a dominant position within a market.