The UK Competition Act 1998 regulates competition and the abuse of a dominant position in the market.
The Competition Act 1998 creates a regulatory framework that is tough on those that seek to restrain competition whilst allowing those who compete fairly the opportunity to thrive. The law outlaws two forms of anti-competitive behaviour: anti-competitive agreements and abuse of dominant market position.
The Competition Act 1998 makes provisions about competition and the abuse of a dominant position in the market. It confer powers in relation to investigations conducted in connection with Article 85 or 86 of the treaty establishing the European Community and amends the Fair Trading Act 1973 in relation to information which may be required in connection with investigations under that Act. The Act also makes provision with respect to the meaning of “supply of services” in the Fair Trading Act 1973. Some amendments were made to the Act under the Enterprise Act 2002
Coming into force on 1 March 2000, the Act created a regulatory framework that is tough on those that seek to restrain competition whilst allowing those who compete fairly the opportunity to thrive. The law outlaws two forms of anti-competitive behaviour:
- Chapter I: prohibition of agreements, decisions or concerted practices that have as their effect the prevention, restriction or distortion of trade within the UK. This prohibition is based on Article 101 of the EC Treaty; and
- Chapter II: prohibition of an abuse of a dominant position in a market, based on Article 102 of the EC Treaty.
- Anti-competitive agreements, cartels and abuses of a dominant position are now unlawful from the outset;
- Businesses which are found to be in breach of the prohibitions are liable to financial penalties of up to 10% of UK annual turnover;
- Gives those competitors and customers who have been economically harmed as a result of proven anti-competitive behaviour the power to seek damages from the Competition Appeals Tribunal
- Gives the Director of the OFT significant powers to actively root out anti-competitive behaviour; including the ability to launch 'dawn raids', and to enter premises with reasonable force;
- Allows the OFT the use of leniency provisions to expose cartels
The OFT recognises that the way in which businesses choose to ensure compliance may reflect their size, i.e. smaller businesses may not need to implement a formal compliance programme of the type described in this guide, but you will need to ensure that your employees are aware of and are kept up to date with the implications of and the need to comply with competition law.
The competition regime
The law aims to promote healthy competition. It bans anti-competitive agreements between firms such as agreements to fix prices or to carve up markets, and it makes it illegal for businesses to abuse a dominant market position.
You need to be aware of the main rules to avoid breaking the law or becoming a victim of others’ anti-competitive practices. There are heavy penalties for infringements. Offenders can be fined, disqualified from being a director and, in some cases, sent to prison. Under competition law, mergers between businesses can also be prevented if they might reduce competition, and uncompetitive markets can be investigated through market studies.
Competition law – what is prohibited?
The Competition Act 1998 prohibits anti-competitive agreements between businesses. In particular, you must not:
- agree to fix prices or terms of trade, for example agreeing price rises with your competitors;
- agree to limit your production to reduce competition;
- carve up markets or customers, for example agreeing with a competitor that you will bid for one contract and they will take another;
- discriminate between customers, for example charging different prices or imposing different terms where there is no difference in the circumstances of supply.
Any agreement that prevents, restricts or distorts competition is covered (not just the types of agreement listed above). An agreement could be formal (such as legally binding contracts) or informal (such as unwritten ‘gentlemen’s agreements’). The Act mainly applies to agreements between businesses with a significant combined market share. But even the smallest businesses need to avoid getting involved in anti-competitive agreements, such as cartels. The OFT can also assess whether an agreement may affect trade between EU member states.
Abuse of a dominant market position
The Act also prohibits abuse of a dominant market position. This mainly applies to businesses that have a large market share, usually 40 per cent or more.
Other factors taken into consideration in determining whether a company is dominant include the number and size of competitors and customers and whether new businesses can easily set up in competition. The type of practices that could indicate abuse include charging unfair prices or imposing other unfair trading conditions on customers, limiting production, or refusing to supply an existing customer without an objective reason.The OFT can also assess whether an abuse may affect trade between EU Member States.
The OFT has extensive powers to investigate suspected breaches of competition law and take action. Penalties can include fines of up to 10 per cent of a company’s annual worldwide turnover. Also, directors can be disqualified, given an unlimited fine or even imprisoned.
In addition to any penalty imposed, customers and competitors may be able to privately sue companies that break the law for any losses they have suffered due to the anti-competitive actions.
Dealing with anti-competitive behaviour
The OFT relies on complaints to help us promote healthy competition and protect the interests of consumers and fair-dealing businesses. If you suspect a competitor, supplier, customer or any other business is infringing the law, you should contact the OFT with your concerns.
There are a number of signs that may mean a business you deal with could be breaking competition law. These include:
- a supplier prevents you from selling their products at a discount;
- a long-standing supplier decides, for no apparent objective reason, to stop supplying you;
- you receive quotes from various suppliers that are surprisingly and unusually similar;
- you enter a market and a major competitor responds by charging extremely low prices that you suspect would not cover its costs.
If a business appears to be behaving in any of these ways, it does not necessarily mean it has breached the law. In some cases the behaviour may be legitimate. However, you can contact the OFT for advice on whether the matter is likely to raise competition law issues and if appropriate, the OFT can explain how to submit a formal complaint.
Cartels are the most serious form of anti-competitive behaviour. They are agreements between businesses not to compete with each other. It is a criminal offence for individuals to engage dishonestly in the most serious cartel activities:
- agreements to limit production or supply.
These offences carry a maximum penalty of five years’ imprisonment and/or an unlimited fine.
If you think a business you deal with is involved in a cartel, you should contact the OFT giving as much information as you can to support your suspicions.
If you alert the OFT to a cartel you are or have been involved in, you may be dealt with under the leniency programme. Businesses may be given total or partial immunity from fines and individuals may be given immunity from prosecution. To qualify for leniency, you have to meet certain conditions including admitting participation in the cartel, cooperating with the investigation and stopping your cartel activity immediately.
Supervision and enforcement
- Competition Commission
- Office of Fair Trading (OFT)
Please visit our section on Competition