Competition law exists to ensure that businesses operate in open and competitive markets. The law aims to promote healthy competition and fair trading. Businesses need to be aware of the main rules to avoid breaking the law or becoming a victim of others’ anti-competitive practices. There are serious repercussions and heavy penalties for infringements.
The objectives of competition law are:
- To prevent practices which have an adverse effect on the competition, i.e. other businesses/ companies losing profit and potentially going out of business because they are not operating on an open playing field.
- To promote and sustain competition in markets. Without fair competition, society would not get the best products and prices.
- To protect the interests of consumers. Consumers should pay a fair price for the right product.
Two major UK laws protecting the Objectives of Competition Law
The Competition Act 1998
Under the rule of the Competition Act 1998 businesses may not:
- Fix prices.
- This is an agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price. This prevents other businesses from being able to compete against them. It also prevents the public from the benefits of free competition.
- Limit production.
- Make an agreement with the businesses in the same market to limit production in order to reduce competition.
- Carve out markets.
- A business can not share out markets with its competitors. In other words, they cannot agree on who will bid for which contract, e.g. we’ll take this contract, you take that one; instead of competing fairly.
- The Competition Act applies to any agreement which limits competition. It generally impacts on large scale businesses but it applies equally to small scale businesses.
The Enterprise Act 2002
This act makes it illegal to create business cartels. A cartel is an association of manufacturers or suppliers with the purpose of maintaining prices at a high level and restricting competition. Within a cartel, businesses do not compete against each other. By doing so they increase their collective profits by not driving prices down by competitive pricing.
These laws provide the Competition and Markets Authority (CMA) with the legal authority to investigate breaches and take action. Action can range from significant fines for businesses, disqualification of directors and even imprisonment.
Failure to comply with these laws can, therefore, have significant and serious consequences. It is essential that businesses, no matter how big or small, which market they operate in, are aware of competition law and its implications.
It is important to note these laws apply to the UK, however, for some businesses anti-competitive may behaviour extend beyond the UK to other EU Member States. This is prohibited by Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU).
UK and EU competition law prohibit two main types of anti-competitive activity:
- anti-competitive agreements (under the Chapter I / Article 101 prohibitions);
- and abuse of a dominant market position (under Chapter II / Article 102 prohibitions).
These laws prevent any arrangements of agreements which manipulate competition and impact upon trade in both the UK and EU. It is important to note that currently, the UK Government has said it will make no changes to this law if the UK leaves the EU. Following Brexit, UK businesses will still be subject to European Union competition law.
 Oxford English Dictionary