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How does Competition Law affect Businesses?

Compliance Knowledge Base | Competition Law

Posted by: Morgan Rennie Published: Mon, 10 Sep 2018 Last Reviewed: Mon, 10 Sep 2018
How does Competition Law affect Businesses?

Competition law affects businesses positively as it establishes a business culture which maintains competition, thus allowing businesses to improve and develop in order to remain a strong competitor in the field. Competition law also ensures that not one organisation in a dominant market position can abuse this position to the detriment of other businesses. Competition law encourages businesses to better themselves, whilst positively impacting consumers, who have a better range of services to choose from due to market competition. Consequently, it is important for businesses to remain compliant with competition law to ensure the market is dynamic and valuable.

What does competition law prevent from happening in the business sector?

Anti-competitive conduct involves agreements which purposely aim to reduce competition in the market to the advantage of the parties involved. For example, these agreements can incorporate price fixing, sharing of the market, controlling production and bid rigging. If your business is not involved in these anti-competitive agreements, you will be at a disadvantage; therefore it is of the utmost importance for regulative bodies to enforce competition law to prevent organisations conducting such anti-competitive behaviour.

Moreover, if an organisation holds a dominant market position, they have the potential to abuse this position to the disadvantage of all other business competitors involved. For example, in June 2017 the European Commission investigated Google for abuse of its market position following Google placing its products, such as Google shopping, higher up search engine to the disadvantage of other shopping services.

To ensure that abuse of the market such as this does not occur, the Competition and Markets Authority (CMA) and the European Commission enforce competition law in the UK and the EU respectively. Enforcement of competition law principles will allow businesses to thrive in an ethical manner whilst avoiding corruption in the business sector.

How does Competition Law affect Businesses?

How can you protect your business from anti-competitive behaviour?

To comply with competition law and to protect your business' reputation, it is important to be vigilant of the conduct of other businesses around you and whether they are conducting anti-competitive behaviour or not. The key anti-competitive business conducts to be aware of are:

- Invalid agreements, which demonstrate evidence of sharing sensitive and confidential business and market information.

- Horizontal or vertical agreements which seem to possess an anti-competitive goal, such as sharing information about future pricing to allow the organisations involved to co-ordinate their pricing.

- Hardcore cartels.

- Abuse of a dominant market position, with evidence of predatory pricing and exclusive dealings which might involve businesses tying themselves to a retailer under the agreement that they will not serve any other businesses in that area.

Competition law compliance within businesses:

If your organisation does not comply with competition law and it engages in anti-competitive behaviour, you will be subject to the potentially crippling consequences which include:

- Financial repercussions. If a business is found guilty of infringing competition law they could face a fine of up to 10% of the business' global turnover.

- Directors and members of the management, who are found guilty of infringing competition law, could face criminal prosecution as well as being disqualified from their position as a director for up to 15 years.

- The guilty business will also be at risk of action from third parties - either customers or business associates - which have been affected by the anti-competitive conduct of the guilty business, meaning they could face further fines and certainly a tarnished reputation.

Therefore, compliance with competition law is the wise decision. To comply, the management team must conduct a programme and communicate competition law compliance around the organisation. This will allow a culture of competition law compliance to be established and directly affirms to employees that anti-competitive behaviour must not be engaged with. This will subsequently create a system of trust. If an employee is found to be opposing competition law, this will be reported to the management team. Effectively, this will reduce the risk of anti-competitive practice from taking place within the workplace.

If your business complies with competition law, then competition law will affect your business in a positive way by ensuring a dynamic and prosperous market is maintained. If your organisation opposes competition law, you will face serious repercussions for this unethical business conduct. Thus, compliance with competition law is of the utmost importance.

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