This article is written by Udita Prakash, a student at UPES, Dehradun. This article talks about the competition law in the UK and how it plays an important role in business.
Competition law is a legislative body that aims to prevent market distortions caused by anti-competitive practices in part of the business. In the United States, Canada, and the European Union, competition law is also known as antitrust law. The purpose of competition law is to ensure a fair market for consumers and producers by prohibiting unethical practices designed to gain greater market share than can be achieved by honest competition. The impact of anti-competitive practices includes not only the difficulty of smaller companies entering or succeeding in the market, but also rising consumer prices, declining services, and reduced innovation.
Objectives of 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.
The objective of Competition Law are as follows:
- To avoid practices that adversely affect competition, that is other companies that may lose profits and close their businesses because they are not doing business in an open competition.
- Encourage and maintain competition in the market. Without fair competition, society cannot get the best products and prices.
- Protect consumer interests as the consumers must pay a fair price for the right product.
Two major laws protecting objectives of competition law in the UK.
The Competition Act, 1998
According to the rules of the Competition Act, 1998 companies cannot:
- Keep a fixed price, this is an agreement between participants on the same side of the market who buy or sell a product, service, or commodity only at a fixed price. This will prevent other companies from competing. It also prevents the public from benefiting from free competition.
- Limited production.
- Agree with companies in the same market to limit production to reduce competition.
- Open up the market.
- Companies cannot share the market with their competitors. In other words, they cannot agree on who will bid on which contract. For example, we take this contract, you accept the offer, instead of competing fairly.
- Competition law applies to all agreements that limit competition. This generally affects large companies, but the same applies to small businesses.
The Enterprise Act, 2002
The Enterprise Act, 2002 law prevents the creation of commercial business cartels. A cartel is an association of manufacturers or suppliers whose purpose is to keep prices high and limit competition. Within the cartel, companies do not compete with each other. Doing so will increase the gross profit by not lowering prices with competitive pricing. These laws give the Competitive Markets Authority (CMA) the legal authority to investigate the violations and take action accordingly. Proceedings can range from large fines to the dismissal of businesses, directors, and even imprisonment. Therefore, non-compliance with these laws can have major and serious consequences. It is imperative that companies, large and small, be aware of competition law and its implications, regardless of which market they operate in.
How does competition law affect businesses in the UK
Competition law has a positive impact on companies by establishing a competitive business culture and enabling them to improve and develop to remain strong competitors in this area. Competition law also ensures that organizations with a dominant position in the market cannot abuse this position to harm other companies. Competition law encourages companies to improve while having a positive impact on consumers who have a wide range of services to choose from for market competition. Therefore, companies need to continue to comply with competition law to ensure that the market is dynamic and valuable.
Anti-competitive behavior includes agreements that are deliberately aimed at reducing competition in the market for the benefit of the parties involved. For example, the contracts may include price-fixing, market share, production control, and collusion. If the company is not involved in these anti-competitive agreements, it will be at a disadvantage. Therefore, it is of utmost importance for regulators to enforce competition law to prevent organizations from engaging in such anti-competitive behavior. Moreover, if an organization has a dominant position in the market, it can use its position to harm all other business competitors. For example, in June 2017, the European Commission investigated Google for abuse of its position in the market after Google placed products such as Google Shopping on top search engines that were at a disadvantage to other shopping services.
How to protect a business from anti-competitive behaviour
To comply with competition laws and protect the company’s reputation, it is important to know the behavior of other companies around us and whether they are anti-competitive or not. The main anti-competitive business behaviors are:
- Invalid contracts that show evidence of sharing sensitive commercial and market information.
- Horizontal or vertical agreements appear to have anti-competitive purposes, such as sharing information about future prices so that relevant organizations can adjust prices.
- Unconditional cartel.
- Abuse of dominant position in the market. With predatory prices and an agreement not to serve other companies in the region, there is evidence of an exclusive agreement that may involve companies linked to retailers.
Competition law compliance within a business
If an organization does not comply with competition laws and engages in anti-competitive behavior, it can have the following catastrophic consequences:
- Economic impact, as if a company is found guilty of violating competition law, it can be fined up to 10% of the company’s global sales.
- Directors and management convicted of violating competition law may face criminal charges and be disqualified from their position as directors for up to 15 years.
- A guilty company is also at risk of action by a third party, such as a customer or business partner, affected by the guilty company’s anti-competitive behavior. As they may face fines and definitely a hurt reputation.
Therefore, compliance with competition law is a wise decision. To comply, the management team must run the program and communicate compliance with competition law throughout the organization. This allows us to establish a culture of competition law compliance and directly confirm with the employees that anti-competitive behavior must not be compromised. This will later create a system of trust. If an employee is found to be against competition law, the management team will be notified. This can effectively reduce the risk of anti-competitive practices in the workplace.
To conclude, I would say that enforcement of competition law in the UK has a greater significance, as the UK is one of the developed countries and needs these regulations to have smooth conduct in business and fair competition in the market.
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