What is the definition of competition law?
Competition law aims to ensure that businesses offer the best possible products to customers at the best prices, due to the competition that exists within the market. It was established to maintain market competition by ensuring there is regulation of business conduct which could be considered anti-competitive. As a result, the consumers will benefit from receiving a range of different services and price rates to choose from.
In the UK, companies are subject to the regulations stated in the Competition Act 1998 and the Enterprise Act 2002, and when anti-competitive behaviour extends to EU member states, UK companies will be subject to the Treaty on the Functioning of the European Union (TFEU). Competition law As part of an organisation you should be well trained in the intricacies of competition law.
A short history of competition law:
Competition law exists internationally; the United States refers to anti-trust law, whereas China and Russia refer to anti-monopoly law. The principles of competition law have been prevalent within the UK since the Roman Empire and are evident within the reigns of King Henry VIII and Queen Elizabeth I. The precursor of UK competition law was the English Law of Restraint of Trade. Competition law has evolved with the changing business conditions in the UK over the centuries to tackle the appropriate issues.
Essentially, competition law exists in the UK because of the British classic trade theory on competition. This theory states that agreements and certain practices can be regarded as unreasonable due to the restraint which they can pose on tradespeople. According to Adam Smith, a Scottish economist, market and trade are positive as long as there is competition involved, as well as legislation which prevents dominant and greedy forces from taking hold.
In 2014 the Competition and Markets Authority (CMA) was created as a non-ministerial government department with the responsibility of strengthening competition in the market and ensuring that anti-competitive practice occurs as little as possible. The CMA enforces competition law and monitors the conduct of businesses to ensure each business is complying with it. CMA is the body which protects the market and organisations such as your own from being placed at a disadvantage due to the anti-competitive behaviour conducted by others.
The Principles of Competition Law are:
The guiding principles of competition law are:
1) Preventing the practice of agreements which could restrict free trading and competition between different organisations. Essentially, if an agreement is achieved between two businesses with the goal to distort competition, this will in turn affect trade in the UK and the EU, and is therefore considered to be unethical business conduct.
2) Preventing the abusive behaviour of an organisation which is dominating the market. This behaviour could include practices such as price gouging, predatory pricing and tying.
The UK and EU competition laws are invested within:
- The Competition Act 1998
- The Enterprise Act 2002
Chapters I and II of both the Competition Act 1998 and the Enterprise Act 2002 deal with the anti-competitive behaviour which might affect trade within the UK.
The agreements which are prohibited under Chapter I and Article 101 of the Competition Act 1998 and the Enterprise Act 2002 are as follows:
- Agreements which have the purpose to fix purchase, selling prices or trading conditions.
- Agreements which have the purpose to control the markets, production, technical development or investment.
- Agreements between organisations to share markets and supplies.
- Agreements which will place trading parties at a disadvantage through creating agreements that have dissimilar conditions to similar transactions.
If anti-competitive behaviour is conducted beyond the UK to the EU, the Treaty on the Functioning of the European Union deals with this in Articles 101 and 102.
What happens if you don't comply with competition law?
If an organisation demonstrates a lack of compliance with competition law they will face potentially serious repercussions. The defiance of Chapter I and II of the Competition Act 1998 and the Enterprise Act 2002 could inflict the following penalties upon an organisation:
- An organisation could be subject to the fine of 10% of the global turnover for breaching Chapter 1 or Article 101.
- If there are provisions within certain agreements which breach Chapter 1 or Article 101, these agreements will be deemed unenforceable and there is the potential to render the entire agreement unenforceable.
- If an organisation has breached Chapter 1 or Article 101, they will face potential actions from customers and competitors who believe that they have been directly affected by the organisation's anti-competitive behaviour.
- With reference to an individual within an organisation, there is potential for an individual to be disqualified from being a company director and to be subject to criminal sanctions.
Competition law is considered of utmost importance within the market and therefore for organisations across the UK and the EU, it is a legislative requirement to comply with this law. Essential training and understanding of this law are beneficial to an organisation as a whole.
Why is competition law so important?
Competition law ensures that competition is prevalent within the market, as over the centuries it has proved to be a vital component that is required for the market to prosper. Once there is competition, it encourages businesses to think of new creative approaches to business to ensure their products and services are refreshing on the market. This encourages modernisation within markets as there is a concerted effort from different businesses to create an efficient service.
Ultimately, competition law is relevant to you; whether you are a member of an organisation or a consumer, competition law will have a positive impact upon you. This is because competition law is committed to ensuring that the anti-competitive behaviour conducted by businesses is penalised, in order to deter businesses in the future from pursuing such behaviour. Anti-competitive behaviour means that consumers lose out because they no longer have a wide range of choice for services, and the respective businesses in the market lose out because competition in the market is decreased.
It is particularly important if you are part of the management team within an organisation to set the example and communicate to all employees that anti-competitive behaviour will not be stood for. To further encourage employees to comply with competition law, your organisation can establish a training programme for competition law, establishing all of the rules to employees and ensuring their compliance with competition law.