What Is Competition Law And Why Should Your Business Care?

Competition law affects every business, regardless of size or sector. Whether you’re negotiating with suppliers, submitting tenders or discussing pricing strategies, the rules governing anti-competitive behaviour are always in play. Getting it wrong can result in significant fines, director disqualification and even criminal prosecution.

This article provides an overview of the key principles of UK competition law, the types of conduct that may give rise to an infringement and the consequences of non-compliance.

What is competition law?

Competition law is a set of rules designed to promote a fair market and protect businesses and consumers from anti-competitive behaviour. In the UK, competition law is principally governed by the Competition Act 1998 and the Enterprise Act 2002 and is primarily enforced by the Competition and Markets Authority (CMA). These rules apply to businesses of all sizes across all sectors, so it’s essential that organisations understand their obligations.

What may a breach of competition law look like?

There are two key types of anti-competitive activity that organisations might engage in:

1. Agreeing not to compete with another organisation
2. Abusing a dominant position.

As explored below, each of these categories covers a range of conduct, and businesses should be alert to them.

1. Agreements not to compete

Price fixing
Price-fixing is one of the most commonly encountered forms of anti-competitive behaviour. This may include discussing with competitors the prices you charge or are considering charging, agreeing to charge the same prices to customers, offering discounts or increasing prices at the same time.

It’s important to note that price-fixing doesn’t require a formal written agreement. Even an informal understanding can be sufficient to constitute an infringement.

Bid rigging
Bid rigging involves discussing bids for a contract with competitors, such as sharing information with a competitor about its bid, agreeing to take turns to win contracts or paying another organisation not to bid. Bid rigging is treated particularly seriously by regulators and can arise in both public and private procurement processes.

Market sharing
Businesses should avoid intentionally sharing markets or customers with their competitors. This could include, for example, agreeing with another organisation not to approach its customers or not to compete for certain customers in a specific location. These agreements are harmful because they deprive customers of the benefits of genuine competition.

Sharing information
Businesses shouldn’t share information that reduces competition between organisations, for instance regarding prices, production or supply chains. This includes informal exchanges at trade events, industry conferences or even casual conversations. Even unintentional disclosures of commercially sensitive information can give rise to competition law concerns.

Cartels
Cartels arise where two or more businesses agree, whether in writing or otherwise, not to compete with each other. This can include agreements to fix prices, engage in bid rigging, limit production, share customers or share markets.

Cartels are considered the most serious form of anti-competitive conduct. They are often covert and can be difficult to detect, but competition authorities have extensive investigatory powers, including the ability to conduct dawn raids, to uncover such arrangements. Businesses and individuals involved in cartel activity face the most severe penalties under competition law.

2. Abuse of a dominant position

A business that enjoys substantial market power over a period of time may be in a dominant position. This is based not only on the size of the business or its market position, but also on whether the business is able to behave independently of the normal constraints of the market (for example, a supermarket that is able to raise prices by 20% with no material impact on demand). The relevant market may be defined widely or narrowly, depending on the product or service in question and the geographic area in which the business operates.

A business may hold a dominant position if it has either more than 40% market share or is not affected by normal competitive restraints. However, dominance alone isn’t unlawful; it’s the abuse of that dominance that gives rise to a competition law infringement.

Examples of abuse of a dominant position include charging consistently low prices that don’t cover costs in order to drive out competition, imposing unfair trading conditions on suppliers or customers or refusing to supply goods or services without objective justification.

Businesses that hold a dominant position should take particular care to ensure that their commercial strategies don’t inadvertently cross the line into abusive conduct and should consider seeking specialist legal advice where there is any doubt.

3. Other potentially anti-competitive agreements

In addition to the specific infringements outlined above, there are a number of other arrangements that may fall foul of competition law. These could include:

• Joint selling or purchasing arrangements with competitors
• Retailers agreeing with a supplier not to sell below a particular retail price
• Having a particularly long exclusivity period in a commercial agreement
• Tying or bundling products or services together in a way that restricts customer choice.

If you’re unsure whether a particular arrangement may raise competition law concerns, it’s advisable to seek legal advice before entering into the agreement.

What are the potential consequences for breaching competition law?

There can be serious consequences for both businesses and individuals, including directors, for non-compliance:

• Fines of up to 10% of annual worldwide turnover
• Invalid contracts
• Director disqualification
• Severe reputational damage
• Individuals who engage in cartel activity can be prosecuted and sentenced to up to five years in prison and/or a fine
• Company directors can be disqualified from managing a company for up to 15 years.

In addition, third parties that have suffered loss as a result of anti-competitive behaviour may bring private damages claims against the offending business. The financial and operational impact of a competition law investigation, even where no infringement is ultimately found, can be substantial, making compliance and early prevention far more cost-effective than dealing with enforcement action after the fact.