What is Competition Law?

What is Competition Law?

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.

Major UK Competition Law

There are two major UK laws protecting competition:

  • the Competition Act 1998
  • the Enterprise Act 2002

The Competition Act 1998

Under the rule of the 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 their 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[1]. 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)[2]  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)[3].

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 the 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.

You can view our Competition Law online training course here.

[1] Oxford English Dictionary

[2] https://www.gov.uk/government/organisations/competition-and-markets-authority

[3] https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=celex%3A12012E%2FTXT