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The Life of a Company

Competition Act

The Competition Act 1998 harmonises United Kingdom competition law with the established E.U. regime.

The Act repealed obsolete and often obscure competition legislation from the seventies most notably the Restrictive Trade Practices Act.

The Act must be applied in a manner consistent with the existing jurisprudence and decisions of the European Court.

The Scope of the Act

The Act contains prohibitions based on Articles 81 and 82 of the Treaty of Rome. These prohibitions are treated in Chapters one and two of the Act respectively.

Article 81 prohibits agreements between undertakings which are anti-competitive. Such agreements include price fixing, limiting production, investment or development, market sharing, predatory pricing and discrimination and other restraints of trade.

Article 82 prohibits undertakings from abusing their dominant position in the market.

Article 81 is primarily aimed at anti-competitive behaviour and article 82 with monopolistic behaviour and abuses.

The Definition of an ‘Undertaking’

The Act applies to all ‘undertakings.’ An undertaking has been widely defined by the European Court and includes sole traders, partnerships, companies, trade associations, trade unions, committees, sporting bodies, cooperatives, public bodies and professional organisations.

Chapter One Prohibitions

The prohibitions under chapter one mirror the terms of Article 81 of the EC Treaty. The prohibited business practices or agreements covered by this provision can therefore be deduced from the case law of the European Commission and the European Court. An ‘agreement’ is very broadly defined as will be seen.

  • Price Fixing

Price fixing is outlawed. Typically price fixing occurs between producers in order to boost profits or maintain market share. Price fixing agreements are often unwritten and can only be proved where a number of companies are shown to vary their prices in concert. This type of corporate activity is called parallel behaviour.

  • Market Sharing Prohibitions

Dividing up a market either geographically or by product is illegal.

  • Concerted Practices

Chapter one prohibits all types of concerted practices between undertakings which result in anti-competitive outcomes. Concert includes legally binding contracts and unwritten gentlemen’s agreements which are not binding upon the parties.

  • Unilateral Conduct

Chapter one requires that two or more undertakings engage in anti-competitive behaviour. It follows that a unilateral action by an undertaking does not breach Chapter One but as it will be seen unilateral action, it may potentially be a breach of a dominant position under Chapter Two.

  • Market Shares

Chapter one investigations will only be triggered when the parties under investigation have 25% or more of the market. It is postulated that firms engaged in concerted behaviour with less than 25% of a share of the market are unlikely to result in significant anti-competitive effects or consumer harm.

Chapter Two Prohibitions

It is an offence under the Act for an undertaking to abuse a dominant position in the market. Dominance means market power. Market power is the power to influence the market by unilateral action. Thus if a firm has a dominant position in a particular market it may be able to raise prices with impunity. Similarly, suppliers of certain unique products including raw materials may be able to influence price by restricting supply, refusing to supply, supply on onerous terms, link supply to the purchase of other products or services or by raising prices. The undertaking must have a dominant position within the United Kingdom. The dominance must affect trade within the United Kingdom.

  • Dominance

It is not an offence or contrary to law to be dominant in a market, indeed dominance does not necessarily indicate monopolistic power or consumer detriment. It is an offence under Chapter two to abuse a dominant position. Dominance is normally measured by market size and market power. The dominant behaviour need only be in a part of the UK. The Act can therefore catch localised monopolistic behaviour.

  • Conduct likely to be deemed Abusive

The Act outlines the type of conduct likely to be considered abusive.

Supermarkets with no local competition charging above their national average price is a recognised exercise of local dominance. Whether this type of local behaviour will be considered an abuse remains to be seen. The market need not be localised and could extend to the whole of the UK. The Act merely gives the competition authorities the opportunity to investigate local monopolistic behaviour.

Discriminatory pricing is another example of abuse. This occurs where the same category of customers are charged different prices for the same product.

Finally, predatory pricing is also outlawed in some circumstances. Predatory pricing occurs when prices are lowered to force a competitor from the market or prevent market entry.

  • Market Shares

There is no minimum market share threshold under Chapter two.

  • Fines

Breach of the Competition Act can lead to the imposition of a maximum fine of 10% of UK turnover for a maximum of three years during which the offence has been committed. There are numerous examples of the OFT imposing fines for breaches of the Competition Act. The most recent is the case of price fixing between some of the large supermarkets and their suppliers in the dairy produce market resulting in combined fines of £49.51M being imposed on Arla, Asda, Dairy Crest, McLelland, Safeway, Sainsbury’s, Tesco, The Cheese Company and Wiseman for coordinating increases in the prices paid for certain dairy products in 2002. See www.oft.gov.uk/news-and-updates/press/2011/89-11

Leniency/Whistleblowing

A business may receive total or partial immunity from fines that the OFT could apply for infringements of the Competition Act and or Article 81 if it comes forward with information and assists the OFT with its investigations into any breach of competition law.

Total immunity is available to the first member of the cartel to come forward with relevant information, and who also meets other conditions.

Reductions in penalty of up to 50 per cent are also available in other circumstances.

For further information on competition law please contact our business lawyers based in Scotland today by telephone on 0141 332 0915 or by e-mail to arrange a free initial consultation.

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