How Does Competition Law Affect Business?

Graph of competition law

Competition law focuses on ensuring competition between businesses is healthy, as it means companies strive to better their services and win the most customers. This means customers win as service quality is much improved, and organisations win over their competitors by generating more revenue. Competition law governs these interactions and ensures that businesses are not gaining any unfair advantages over their competitors.

As a result, any business committing an offence which is a breach of competition law can have very serious consequences imposed on them.

What is Competition Law?

When organisations fight for the biggest slice of the pie, there must be laws that ensure there isn’t any cheating or misbehaviour by companies of all sizes.

The Competition and Consumer Protection Commission (CCPC), and the Competition and Markets Authority (CMA) are both responsible for enforcing the law of competition in the UK. The European Commission does so for both the European Union and the UK & Northern Ireland.

These bodies enforce laws like the UK 1998 Competition Act and 2002 Enterprise Act. They ensure that businesses operate on a level playing field and do not abuse their power by committing ‘anti-competitive behaviour’.

What is Anti-competitive Behaviour’?

Companies may commit any of the following offences and be liable to serious penalties.

  1. Cartels

Organisations may group together and agree to not compete for a specific share of the market. When two or more organisations agree to minimise competition, they form a cartel.[1] There are four cartel offences in business competition law, and these are:

  • Price fixing, which is when organisations agree to charge the same prices or offer discounts at the same time[2]
  • Bid rigging, which refers to when businesses agree to not bid on each other’s contracts – under law, organisations cannot discuss bids for contracts under any circumstance
  • Market sharing, which occurs when a company agrees to stay away from another’s’ customers
  • Sharing information, which involves any pricing or production figures

Consequently, cartels are illegal, but are highly secretive as a result.

  1. Abuse of a dominant market position

A dominant position in a marketplace is when a company has above a 40% market share and is “not affected by normal competitive restraints”.[3]

An organisation may commit an abuse of a dominant position when they unfairly raise their prices or limit production that negatively affects customers.[4]

How Does it Affect Businesses?

Competition and business law affect organisations in very positive ways. They promote good business practices and attempt to instil a transparent and fair competition culture. It means that organisations cannot purposefully mistreat its customers or cheat competitors just to gain a business advantage.

This means that all businesses must draft compliance policies in order to fulfil the law of competition. To ensure the long-term survival of the organisation, any measures must come with huge commitments to upholding them. This means clear goals must be laid out and made available to all in something like a company handbook.

To successfully foster a pro-compliance environment, any provisions must come from the higher echelons of an organisation, in order to diffuse down. The law of competition and compliance favour everyone, including customers and organisations alike. This must be communicated to employees, so that they accept internal policies and put them into practice. In turn, employee-employer trust will build-up, leading to a more productive and efficient workplace.

If policies are not made, businesses will be heavily penalised. A breach of competition law can lead to a fine of 10% of an organisations’ global turnover.[5] In addition, individuals can face a maximum 5-year prison sentence, and directors can face 15 years of suspension.[6]

You can view our Competition Law online training course here.