Competition Law Understand the legal rules relating to monopolies, mergers and anti-competitive practices

3.3 define dominant positions within the EU common market LO 3: Understand the legal rules relating to monopolies, mergers and anti-competitive practices 3.1 outline monopolies and anti-competitive practice legislation in the UK 3.2 explain the role of the Competition Commission within the context of monopolies and anti-competitive practices and the UK Office of Fair Trading 3.3 define dominant positions within the EU common market 3.4 consider the application of EU exemptions to potentially anti-competitive practices

Competition Policy Broadly, competition is the cornerstone of any market economy since it encourages efficiency through competition between businesses and may lead to lower prices for the consumer. However if unchecked, it may lead to aggressive competition where stronger firms in the market seek to take over and dominate the market by pushing out competitors leading to Monopoly Hence laws have to be put in place to regulate competition and this is being done with the use of legislation and EU Laws.

Monopoly In its pure form, it is said to be a single supplier or firm in a particular market sector. For the purposes of regulation, it exist when a single or group of firms controls 25% or more of a particular market sector known as Scale monopolies (if connected businesses) or Complex monopolies (if unconnected businesses) Some instances include ; Where a business has exclusive ownership of scare resources e.g. Microsoft owning Windows Operating System Government granting monopoly rights to a firm e.g. Royal Mail, postal services since 1654 granted by Oliver Cromwell until 2006 when monopoly rights was lost Producers having patent rights over designs or copyrights over ideas, songs and other writing. Merger by two or more businesses

Main Objectives of Competition Legislation in the UK Prohibit agreements which restrict free trade and competition between businesses, e.g. Cartels Ban abusive behaviour by a business dominating the market in form of abuse of monopolistic position or anti-competitive practises, e.g. predatory pricing Supervise the merger and acquisition of large corporations

Main Legislation Regulating Competition Laws in UK The Competition Act 1998; This legislation consolidates previous legislation and introduces the prohibition of agreements or practices which distorts competition in the UK. Broadly, its gives powers to enforcement bodies to fine up to 10% of UK annual turnover or to competitors or consumers rights to claim damages from Competition Appeal Tribunal The Enterprise Act 2002; This legislation builds on the changes made by CA 1998 and introduces a number of new measures to strengthen the UK competition laws. The Enterprise and Regulatory Reforms Act 2013; this legislation mainly reforms the regulatory bodies for enforcement of anti-competitive practices

Competition Act 1998 Competition Laws in the UK is largely regulated by the Competitions Act 1998 The legislation specifically introduces two prohibitions in line with the Treaty of Rome Articles 81 and 82, now Articles 101 and 102 of the Treaty of Lisbon 2009. Chapter 1 prohibition relates to practices which restrict or distorts competition Chapter 2 prohibition relating to abuse by an undertaking of a dominant position in the UK

Chapter 1 Prohibition on Distorting Competition under Competition Act 1998 Agreements to which prohibition 1 applies includes, Agreeing to fix purchase or selling prices Agreeing to limit or control production Agreeing to share markets or supply sources, Agreeing to apply different trading conditions to equivalent transactions hence placing some parties at a competitive disadvantage Such an agreement should have an ‘appreciable effect’ on competition (involving parties who control 25% or more of the market). Some agreements may be exempted from the prohibition if not obviously harmful to competition

Chapter 2 prohibition on abuse of dominant Position (Competition Act 1998) Abuse of Dominant position here includes; Imposing unfair purchase or selling prices Limiting production, market or technological development to the prejudice of consumers Applying different trading conditions to equivalent transactions to the detriment of some parties Two conditions have to be present for determining whether the chapter 2 prohibitions apply Whether an undertaking is dominant (40% control of market according to OFT and 50% market share according to ECJ) If dominant whether it is abusing its dominant position No exemptions apply for chapter 2 prohibition

The Enterprise Act 2002 Part 1 of the above legislation abolished the statutory position of Director General of Fair Trading and transferred the functions to the Office of Fair Trading which became a corporate body The OFT was responsible for undertaking market studies of businesses not operating well for consumers under its Market Policy Initiatives (MPI) Division. Most of the functions of the Office of Fair Trading has now been taken over by the Competition and Markets Authority as from April 2014 This changes were made under the Enterprise and Regulatory Reforms Act 2013

Enterprise Act 2002 Cont.. Part 2 of the legislation established an independent Competition Appeal Tribunal which replaces the CC Appeal Tribunal Part 3 reforms the UK merger control framework replacing the provisions in the Fair Trading Act 1973 Merger control is no longer the responsibility of the Secretary of state but the OFT and CC now transferred to the CMA, which means more independence from politics There is now a new ‘competition test’ instead of the old ‘public interest test’ to determine whether the merger will substantially lessen competition in the UK

Enterprise Act 2002 Cont.. Under the Enterprise Act 2002, the OFT was responsible for carrying out initial investigation where two or more entities have merged and seize to exist as separate entities , now done by the CMA. The entity taken over must have a turnover of at least 70m p.a. or the combined business should have potential to constitute 25% of the market in the said industry and the merger could increase their share of the market and substantially lessen competition. Case in point could be Office of Fair Trading v IBA Health Ltd (2004) where two companies involved in supply of Healthcare software had their merger investigated by OFT and found not to be harmful and on appeal this was reversed by the CAT and upheld in the Court of Appeal. The legislation now makes cartel agreements such as price fixing and limitation of supply a criminal offence

Regulatory or Enforcement Bodies Office of Fair Trading responsible for granting exemptions, investigate suspected breaches, make decisions enforceable by the courts and publish advice and information. Its role in anti competitive practices have been transferred to the Competition and Market Authority (CMA) as from April 2014 Specific Watchdog Agencies such as Ofcom, Ofgem and Ofwat, regulating telecom, electricity and gas and water industries respectively do share the same powers above for their specific industries. Competition Commission examining cases sent to it from the OFT, watchdog agencies and the Secretary of State for Business and taking independent decisions. The body is now called Competition and Markets Authority as from April 2014

Competition Commission The main body that enforces competition legislations in the UK It is now known as the Competition and Markets Authority as from April 2014 taking most of the functions of the OFT as well relating to anti competition practices The recent Enterprise and Regulatory Reform Act 2013 which came into force in 2014, has extended the role of the body further Cases come to it from other regulatory bodies They make recommendations and can now take decision in the form of remedies to deal with issues relating to mergers, market investigations e. t. c. They also hear cases on appeal from decisions of the other regulatory bodies

European Community Competition Laws The main source of competition law is from the Treaty of Rome 1957 as amended and updated by the Treaty of Lisbon 2009 Article 81 of that treaty now Article 101 of Treaty of Lisbon bans practices which distorts competition between members states of the EU. Such practices shall include, price fixing, restriction in production, market sharing Article 82 now Article 102 of Lisbon Treaty prohibits abuse of monopolistic position by a business in the EU. These will include imposing unfair buying and selling prices to different clients Enforcement of these Articles are the responsibility of the European Commission

Role of the European Commission under EU Competition Laws They have the responsibility to investigate and control any mergers within the EU dimension. The criteria which would trigger investigation would include the fact that the both businesses to be merged have an aggregate turnover in excess of 250 million Euros within the EU or a world turnover in excess of 5 billion Euro. Once the commission is notified about such a situation they have to decide within a month whether to launch a full investigation and this investigation is to complete within 4 months. If it is found out that such a merger will significantly affect effective competition, it will be blocked. The European Commission can grant Exemptions (individual or Block) to EU businesses where it deems necessary to allow for collaboration

Questions 1) What is competition policy all about 2) What constitutes monopoly in the English legal system 3) What constitutes qualifying merger for investigation purposes 4) Explain and give examples of anti-competition practices 5) State a and explain the role of a legislation regulating anti-competitive practices