This article is written by M.S.Sri Sai Kamalini, a fourth-year student currently pursuing B.A.LLB (Hons) in School of law, SASTRA.This is an exhaustive article which deals with the various provisions related to market studies and market investigations provided in the Enterprise Act, 2002.
Table of Contents
The Enterprise Act, 2002 is a very infamous act of the United Kingdom that came into force on 20th June 2003. The act regulates the market competition and prevents unfair trade practices. This is an act of parliament of the United Kingdom that has made a lot of advancements in the competition law of the United Kingdom. This act has brought amendments in the Insolvency Act,1986 for facilitating the competition law in the United Kingdom. The main reason for enacting this act is to amend the law relating to the protection of the collective interest of the consumers. There are also separate provisions for mergers and market structures under this act.
Gathering Information About Markets
Market information is essential for understanding and bringing necessary changes in the act. It is necessary to understand the nature of markets to facilitate the interest of customers. Market studies provide an overview of the economic status of the country. Market studies are mostly carried out by the Office of fair trading. Gathering information about markets will also help to identify the type of markets that are successful or markets that are suitable for the consumers. The geographical location for gathering information is mostly the United Kingdom and sometimes only a certain area of the United Kingdom is concentrated. Information about markets can also be gathered if there is any complaint of unfair trade practices in that type of market.
Section 11 of the Enterprise Act is concerned with super-complaints. According to this section if a designated consumer body complaints to the office of fair trading about any feature or combination of features of a market that is harmful to the interest of consumers, that is considered as super-complaint. The office of fair trading (OFT) has to publish a response within ninety days after receiving the complaint. The OFT must provide proper reasons for rejecting or accepting the complaints in its response. It should also mention various proposed actions that it is going to follow to solve the issue and it should also provide proper guidance. The designated consumer body can be anybody designated by the secretary of state if it appears to protect the interest of the consumer. According to this section, an order under this section shall be made by statutory instrument or it can also be subject to annulment in pursuance of resolution either houses of Parliament.
The office of fair trading conducts a lot of research on markets that are not suitable for the interest of consumers. The market studies are also done in response to the super-complaints received by the officer of fair trading. The market studies are done on the basis of the guidance provided by the Office of fair trading. The guidance is not regarded as a legal authority but the general principles provided in the guidance must be followed, but whenever the law allows flexibility office of fair trading can deviate from the process mentioned in the guidelines.
Market studies are done for various purposes:
- Promoting the interest of consumers.
- To figure out which type of market is suitable for a certain set of consumers.
- To gain knowledge about existing and developing market practices.
- To find out markets where there may be potential barriers to entry.
- To figure out the problems in certain types of markets and to come up with solutions and proposals for it.
- To find out which markets are working well in order to develop fair competition.
- To examine restrictions on competition.
- To examine issues in markets in which public sector bodies operate as suppliers.
- To develop fair competition as it increases productivity and economic status of the country because the competition is a driver of productivity.
- To figure out various ways of making markets more competitive.
The main procedures followed by the office of fair trading for carrying out market studies:
- Selection of markets to carry out research.
- Cross-checking of the concerns raised by the office of fair trading.
- Initial assessment of markets.
- Preparation of market study proposals.
- Considering the market study proposals against the prioritization principles provided by the OFT.
- Carrying out the research and preparation of reports.
The office of fair trading follows a very dynamic process to carry out market studies. The selection of appropriate markets based on the complaints and for various other reasons is the first step followed. The markets are selected on the basis of complaints raised by the consumers and trade associations. It is also selected on the suggestions provided by the government authorities, local department trading standard services(TSS) and other regulatory bodies. The main reason for choosing a particular market is based on super-complaints and intelligence gathering from publicly available sources. Then the concerns are cross-checked with the information available about markets to check whether it is a valid concern. The office of fair trading then carries out an initial assessment to figure out the productivity level of the markets. It figures the productivity level of markets, the concentration of markets and entry and exits of people in markets. The office of fair trading after carrying out the initial assessments comes up with the market study proposals. The market study proposal contains basic information about markets, identification of all the possible problems. It considers various remedies and assesses the potential impact of market studies and estimates the OFT resources needed to carry out the research. The market study proposals are considered against the office of fair trading’ prioritization principles. The main prioritization principles are:
- Strategic significance,
The office of fair trading decides whether to prioritize a market study proposal for action. The markets will again be re-assessed against the prioritization principle if there is an important change in market structure or conduct in the market after launching the study. The office of air trading can prioritize the study if there is any change in any situation. The study should also be stopped or paused if there is a necessity to divert the resources of the office of fair trading for some other urgent work that is of high priority. The office of fair trading follows the same set of project principles even though the nature of the study can be different. The two major project principles are:
There are four stages that lead to the publication of market study reports once the market study has been prioritized for action. They are:
- Data collection and analysis.
- Informal consultation on finding and recommendations.
The duration of the study differs on the basis of various reasons like the complexity of markets, the study usually takes up to twelve months sometimes if the market is not complex it may get over within five months. In the pre-launch period, a project team is formed which does not have a fixed size and differs according to the need of study, in a typical team there can be three to five members and it can be increased if necessary. The project team works on various issues like refining the scope of the project, reviewing the project proposal, producing a project plan and developing a stakeholder and communication strategy. The project might also form an internal consultative steering committee when the market is complex and it requires high resistance. To launch a market study OFT will first publish a press release often accompanied by a short document that contains various information for describing the study in detail. This will be published on the official website of the office of fair trading. The phase of data collection and analysis is a very important stage as the entire process of market study depends on the result of that process. In this stage, the project team gathers all relevant information that is necessary to test the theory of harm and possible remedies provided for the harm by the office of fair trading. The project team collects the information using various means like:
- Providing questionnaires and conducting surveys with customers.
- Conducting individual meeting with the individual stakeholders.
- Conducting site visits and mystery shopping exercises to find out the experience of consumers.
- Literature review and comparing the markets with similar markets in other countries so that they can assess the issues and can get ideas from other markets that have faced the same issues and have come up with an effective solution.
- Collecting quantitative data using surveys and is supplemented by qualitative data.
The project team analyses all the relevant data collected and comes up with various solutions to address the consumer and competition issues in the markets. The project team might also discuss the findings with the stakeholders informally in order to improve the results and find out relevant suggestions. The key stakeholders are consulted if there are a lot of stakeholders involved. They can also meet the concerned government authorities informally in order to get feedback and suggestions regarding how to implement the plan or remedies proposed. The market study reports that contain all the issues and the relevant recommendations and solutions for those issues are published in the official OFT website. The team should follow the general restrictions that are provided under Section 237 of the Enterprises Act, 2002. Section 239 of the act deals with the consent there are also other relevant sections under this act which permits disclosure when necessary, for example, Section 240 allows disclosure of information if it affects any community obligations. The officials can also disclose information when it is necessary for civil or criminal proceedings. According to Section 245 of the act, it is an offence if a person discloses information in contravention of Section 237(2) and directions provided under Section 243(4). The team will also consider Section 244 which talks about disclosure of specific information. The team will not publish any information if there is any contravention to the public interest. It also excludes commercial information and information relating to the private affairs of an individual so that it will not affect the interest of business and the people involved. It will consult the persons involved before publishing such information so that their interest is protected and it will avoid any conflicts in the future.
There are various outcomes after publishing the report:
- Consumer-focused actions like organizing campaigns to educate the consumers are carried out.
- The office of fair trading may provide recommendations to the persons carrying out the business to improve their standards and make recommendations to improve their business behavior.
- It can also provide recommendations to develop a code of conduct which would make the business more effective.
- It provides recommendations to the government to amend or regulate any policy that affects the interest of consumers. The government should respond to OFT’s recommendation within ninety days.
- A clean bill of health is provided that addresses the public concerns and interests in the markets.
- It can also consult the competition commission when the results show certain markets or combination of markets affect competition.
This is an example report provided by the office of fair trading on quick house sales, you can use this to understand the nature of reports and how the office of fair trading conducts market studies.
Market Investigation References
The system of market investigation is an important tool that helps to control the adverse effects of competition. The procedure of market investigation is a very unique tool that is found in the competition legislation by the United Kingdom. The market investigation is basically a detailed investigation carried out by the competition commission. The competition commission identifies a particular competition concern in a particular market and conducts an extensive inquiry for two years.
Overview of the system of market investigation
The system of market investigation has a very detailed procedure and various steps have to be followed for carrying out the investigation. The market investigations reference provisions provided in the act has replaced the provisions of the fair trading act. The act provides various powers like the power to make references and the discretion to make references. The Enterprises act, 2013 has come up with amendments with respect to the reference process in certain cases, by changing the process for intervention by the Secretary of State and also cases raising public interest issues and introducing a new power to make cross-market references.
Guidelines and other relevant publications
Part 4 of the Enterprise Act, 2002 deals with market investigations and its procedures. There are various supplementary documents released by the office of fair trading that helps in carrying out the process. The office of fair trading has released a market investigation reference guideline known as OFT 511, that provides guidance about making references under Part 4 of the Enterprises act. The OFT 511 clearly describes the reference process, powers of the person making references and procedure of making references. The guidelines released by the competition commission is an amended version describing the powers and procedures. The competition and market authority (CMA) have also released supplemental guidance in the year 2014 describing how to carry out the market investigation.
The making of references
The references can be made by the OFT, sector regulator or even sometimes certain ministers can make references to the competition commission when they have a reasonable ground to believe certain types of market combinations will affect the competition. The references are of four types:
- Ordinary references- These references do not include public interest issues.
- Cross market references- They are new types of reference with respect to specific features or combinations that exist in more than one market.
- Restricted public interest reference– The secretary of state can make this reference where the CMA investigates the competition issues while the secretary of state investigates defined public interest.
- Full public interest reference– The CMA has powers to investigate defined public interest along with the competition issues.
The discretion of the Competition and Markets Authority (CMA) whether to make a reference
Section 131 of the Enterprises Act, 2002 provides power to the office of trading to make references to the competition commission. The office of fair trading will make references to the competition commission only if certain statutory criteria appear to be met. The office of fair trading cannot make references on certain matters where ministerial reference is already made in the same matter and competition commission has not come to a conclusion about it. The references can also not be made if it is restricted under Section 156(1) of this act. Section 132 of the Enterprises Act, 2002 deals with the ministerial power to make references. The appropriate person to make references under this section is the secretary of state. Ministers also have reserved powers to raise ordinary and cross-market references under this section. There are certain situations where CMA has discretion not to make reference, these situations can be:
- Markets concerned are not sufficiently important to justify the reference.
- When the relevant customer benefits arising from the merger outweigh the adverse effects of a substantial lessening of competition.
- In the case of anticipated mergers, the arrangements concerned are insufficiently far advanced or it is unlikely to proceed.
Relationship between the Competition act and Market investigation
Market investigation references address a wide variety of competition concerns that could not be addressed by competition act 1998. The multi-firm conducts are usually provided for reference, the conduct of single firms can be dealt with Competition Act 98 itself. A market investigation reference is the most appropriate way of dealing with the markets where vertical agreements are prevalent but no proper evidence of collusion. Market investigations look after the effectiveness of the competition whereas the competition act concentrates on particular anti-competitive agreements and abuse of dominance.
Relationship with Regulation 1/2003
Market investigation references also have a relationship with Regulation 1/2003 that is known as modernization regulation. The European Community has revised the main regulation implementing Articles 81 and 82 of the EC treaty and the process is famously known as ‘modernization’. The new regulation came into force in May 2004. It imposes an obligation on authorities and courts to apply Articles 81 and 82 where they apply national competition law to agreements or practices that affects the trade between the Member States. It also imposes certain limits on the use of national competition law.
Scale of the problem
The OFT will make references if it has a strong reason to believe it would affect the competition and it considers various factors before making such references like:
- Size of the market.
- The proportion of the market affected by the feature giving rise to adverse effects on the competition.
- The persistence of features giving rise to such adverse effects of competition.
- In rare cases, the office of fair trading will normally leave the weighing of benefits that makes reference to the competition commission.
Availability of remedies
The availability of remedies and prospective value of competition commission reports and investigations are the practical issues to be considered before making the reference. The office of fair trading will not decide to make a reference if it believes there would be no appropriate remedies even after direct investigation of competition commission. The office of fair trading will make direct application to the government authorities if it believes that the adverse effect is primarily because of the laws, regulations and government policies.
Consultation before making a reference
Section 104 provides certain duties of relevant authorities to consult before making a reference. The relevant authority has to consult the people concerned about what is proposed before making a conclusion. The relevant authorities must also take care of the restrictions imposed by the timetable and any need to keep the information confidential. According to Section 104A, the commission can go for public consultation in relation to media mergers. The commission must have regard to consulting the public if it feels that the relevant merger would affect the public.
Content and variation of references
Section 133 of the Enterprises act deals with the content of references. The market investigation reference must specify:
- The enactment under which the reference is made.
- The date on which the reference is made.
- The description of goods and services to which the feature or combination of features is related.
The market investigation reference has to be made in order to confine the investigation to the effects of the features of the markets in relation to supply and acquisition. The description of the places where the goods and services are concerned and persons related to the goods and services.
Restrictions on the ability to make a reference
The OFT has discretion rather than a duty to make references. The OFT cannot make references if appropriate remedies are not available under the act. The office of fair trading will deal with the issues only if it feels it would not be appropriate to deal with the problem identified by means of undertakings in lieu of a reference. The secretary of state has the power to make references if the issue contains certain public interest.
The determination of references
There are various issues to be decided before providing it for references like the size of markets, does the competition of markets have an adverse effect on the customers and the nature of agreements.
The CMA Panel and market reference groups
The competition and market authority replaced the office of fair trading and the competition commission on April 1, 2014, as a part of amendments and reforms to the UK competition regime that was brought under enterprises act 2013. According to the present act, that is after the 2013 amendment competition and market authority is responsible for conducting both the market study and market investigation. There is a CMA board which ensures that all the statutory duty and functions are fulfilled. The members are appointed to CMA panel by the department of business, innovation, and skills and the membership is usually for eight years.
Questions to be decided
Section 134 of the Enterprises act provides various questions to be decided after undertaking market investigation references:
- They have to decide whether certain features of the market or combination of markets distort or restrict the supply or acquisition of any of the goods in the UK,
- Once it is decided that there is an adverse effect on competition, the commission has to decide a lot of additional questions like whether actions should be taken under Section 138 for remedying the adverse effect,
- It can also decide whether it can recommend the taking of action,
- If it is found that there is a detrimental effect on customers or future customers in the form of higher prices, lower quality, less choice and innovation of goods,
- The need to achieve a comprehensive solution,
- The effect of any action on relevant customer benefits,
- The procedure and publications of the report.
Ordinary and cross-reference
There are various questions to be determined before making an ordinary reference or cross-reference. In order to make a cross-market reference, the CMA must have proper reasons for doubting that a feature, or combination of features, of more than one market in the UK, prevents, restricts or distorts competition in the UK. Only features that relate to conduct can be the subject of a cross-market reference. The ordinary references do not contain any issues related to the public interest.
The CMA provides an administrative timetable that provides different stages that have to be followed while carrying out the investigation. The CMA usually takes eighteen months to carry out the investigation and for publishing the reports. The time limits can be extended in certain complicated cases, and also there are no statutory time limits provided. The reason for an extension has to be mentioned before in the administrative timetable. The CC3 provides relevant procedures that have to be followed while carrying out the market investigation reference.
Stage of the Process
The first-day letter, collection of initial information, initial publications
1-2 months after the process
Publication of relevant working papers,
A publication of an annotated issue statement.
Hearing with parties
The final deadline for parties to respond before provisional findings.
Publication of provisional findings
Publication of remedies notice
Consideration of response to provisional findings
Response hearing with parties
Publication of provisional decisions of remedies.
Final deadlines for all parties before submission of final reports
Publication of the final report
Investigations and reports
Section 174 of the Enterprises act 2002 deals with the investigation powers of the office of fair trading. Section 176 deals with the investigation powers of the commission. The office of fair trading may use its power for deciding whether to make a reference under Section 131 or to accept undertakings under Section 154. The office of fair trading has three investigatory powers according to the section:
- To require the attendance of parties to give reference;
- To produce any documents that are necessary for investigation;
- To require the supply of specified information including estimates and forecasts.
Section 176 of the act provides various powers to the competition commission. The various powers are as follows:
- Investigation officer has powers to procure the attendance and certain documents when necessary.
- The commission can impose penalties when necessary.
The commission files different reports in various stages, the various types of reports are:
- Provisional decision report- When the inquiry group has provisionally formed a view about the adverse effects of competition it will be published in the provisional decision report and it is provided for public reference and consultation will be held on the basis of them. It will also contain provisional decision on remedies.
- Response hearings- After the provisional decision report is filed, response hearings will take place with the main parties and potential third parties and the transcripts or notes of response hearings are recorded.
- Final report- The CMA will publish the final decision and necessary remedies in the final report.
Duty to remedy adverse effects
Section 138 provides a duty to remedy adverse effects. The commission has the power to provide any remedy that is actionable and practical. The remedy has to be published in the final report and the commission can deviate from the remedy provided when there is a necessary change in the circumstances. The commission cannot take any action if that does not provide any action to the adverse effect of competition.
Market investigation guidelines
The CC3 guidelines provided by the competition commission in the year 2003 is one of the main publications that provide the procedure and various rules related to conducting market investigations. The CC3 guidelines have been revised in the year 2013. Section 171 ( 3) of the Enterprises act mandates the publication of guidelines. The guidelines have four parts which deal with the various stages and queries regarding the market investigation:
- Part 1 deals with- References and statutory power to make references.
- Part 2 deals with the processes and procedures followed by the competition commission.
- Part 3 deals with the three mains issues to be considered while applying the test of an adverse effect of competition
- Part 4 deals with remedial actions that the competition commission can provide after the inquiry.
Public Interest Cases
The act allows the ministers to ask the competition commission to consider the implications of its competition analysis for any public interest issues. The competition commission is under a duty to inform the secretary of the state that the case raises a public interest issue. Section 152 provides a duty to OFT and competition commission to recommend such cases to the secretary of the state. The cases which affect national security is mostly considered as a valid public interest issue. It is the discretion of the secretary of state to decide whether to make a full or partial reference depending on the complexity of the issue.
Issuing intervention notices
Section 139 deals with issuing public interest intervention notice by the secretary of the state. The secretary of state can provide notice to the competition commission and also to the office of fair trading. The secretary of state can issue intervention notice when market investigation reference has been made to the commission and not more than four months have been passed after making such references. The intervention notice is provided to the office of fair trading when the OFT is considering to accept an undertaking under Section 154 instead of making a reference under Section 131 or if the office of fair trading has published a notice under Section 155(1) or (4).
The intervention notices must contain:
- The subject matter.
- Date of publication.
- The public considerations may be relevant to the case.
- If a market study notice has not been published, then it will contain the date of which process of consultation began and the subject matter of consultation under Section 169 of the Enterprises act 2002.
Restricted public interest references
Section 141 of the act deals with the questions to be decided by the commission. In the restricted public interest reference CMA does not have the power to investigate public interest issues and it is only concerned with the issues affecting the competition. There are certain questions to be decided by CMA following a restricted public reference, they are:
- Whether any feature or combination of features of the market has an adverse effect on competition.
- If CMA figures out there is an adverse effect, it has to decide two kinds of questions on remedy, that is what action should be taken by the state and what action should be taken by the commission.
Full public interest references
The CMA has complete authority when it is a full public interest reference. Following a full public interest reference the CMA has to decide various questions like;
- Any feature or combination of features that would have an adverse effect on competition.
- If there is an adverse effect, any feature or combination of features that gave rise to adverse effect operates or may be expected to operate against the public interest.
- Actions that must be taken to remove the adverse effect on public interest or recommendations of actions to the secretary of the state.
- If the CMA does not find any adverse effect on public interest but if it finds adverse effects on competition, then actions to remove those adverse effects.
Chapter 3 is concerned about enforcement. The competition commission decides whether to implement remedies by means of accepting an undertaking or making an order is determined by the nature of the case. It considers various practical issues and comes to a conclusion.
Undertakings and orders
The content of orders made by the competition commission is limited whereas the subject matters considered for undertakings are vast. The process involving the agreeing of undertakings provides flexibility and suitability in implementing remedies, but this process is also time-consuming. Since the market investigation is market-wide and is not concentrated on the conduct of a particular firm, the implementation of remedies through order would be an effective option as it involves less time.
Undertakings in lieu of a reference
Section 154 deals with the concept of undertakings in lieu of a reference. The undertakings are an alternative option available to the office of fair trading instead of making a reference under Section 131. The undertaking provides a comprehensive solution and it also provides OFT more time to analyze the presence of adverse effects present in a certain combination of markets. When the adverse effect is due to the conduct of certain firms then the undertakings in lieu of reference will be a reasonable solution provided that OFT is confident it will come up with a comprehensive solution. In assessing the customer benefits OFT will consider the same factors like the competition commission. When an undertaking has accepted the office of fair trading may not give a market investigation reference involving the same goods or service for a period of twelve months. Section 155 of the act discusses the procedural requirements that have to be followed to carry out the undertaking. Before accepting an undertaking the office of fair trading has to publish a notice of the proposed undertaking and it has to consider any representation made according to the published notice.
Interim undertakings and orders
Section 158 deals with the interim orders. The relevant authority may come up with certain orders for the purpose of preventing pre-emptive action. The relevant authorities can prohibit or restrict the doing of anything and sometimes they can allow any carrying of any action for safeguarding the assets that are available. The order under this section can come into force when determined by the order or it can be revoked or varied by another order.
Section 159 deals with the final undertakings. According to this section, an undertaking comes into force when it is accepted. The commission may in accordance with Section 138 accepts from any persons it considers appropriate undertakings to take actions specified or described in undertakings. The secretary of the state can also accept in accordance with Section 146 of this Act.
Review of enforcement undertakings and orders
Section 164 provides enforcement undertakings and orders. The relevant authority has the right to enforce the order to any person who is required to comply with that. The duty shall be owed to any person who may be affected by the contravention of undertaking or order.
The relevant authority under this section is the secretary of state or the competition commission. Compliance with an enforcement undertaking or an enforcement order shall also be enforceable by civil proceedings brought by the OFT for an injunction or for an interdict or for any other appropriate relief or remedy.
The Enterprise Act, 2002 provides the supplementary provisions which deal with various concepts like regulated markets, the duties of authorities to consult and gain information. The supplementary provisions also deal with the powers of investigation available to the authorities and the penalties to be awarded for certain offenses.
Section 168 deals with the regulated markets. The Commission or the Secretary of State can decide whether such action would be reasonable and practicable, have regard to the relevant statutory functions of the sectoral regulator concerned. There are various sectoral regulators like civil aviation authority, the office of communications, postal services commission and the secretary of state-provided in the section.
Consultation, information, and publicity
Section 169 provides duties of consultation to certain relevant authorities. If the authority concerned feels is proposing to make a relevant decision in a way that the relevant authority considers is likely to have a substantial impact on the interests of any person. The relevant authority shall, so far as practicable, consult that person about what is proposed before making that decision. In consulting the person concerned, the relevant authority shall, so far as practicable, give the reasons for the relevant authority for the proposed decision.
Powers of investigation and penalties
Section 174 provides powers to the office of trading to investigate a matter. The office of fair trading has powers to make a reference under Section 131 or it can carry out undertaking instead of making references under this section. The office of fair trading has the power to collect relevant documents and it can give notice to any person concerned to provide the relevant documents needed. It can also give notice to the person carrying out the business requiring him to submit the office of fair trading estimates, forecasts, returns and other information needed to carry out the investigation.
Section 177 provides that the Secretary of the state has the duty to publish reports. The secretary of state can exclude certain matters based on his discretion if he considers the publication of the matter would be inappropriate. The authority must have regard to certain considerations provided in Section 244 before disclosure of any information.
Review of decisions under Part 4 of the Enterprise Act
Section 179 deals with the review of the decision under Part 4 of the Enterprises Act. Any person aggravated by the decisions of the office of fair trading, appropriate ministers or secretary of the state in connection with the reference or possible reference may apply to the competition appeal tribunal to review the decisions. The competition appellate tribunals will apply the same principles applied by the court in the application of judicial review.
The Market Investigation Provisions in Practice
The competition commission follows the various procedures while conducting the market investigation provisions in order to balance various demands. The competition commission chooses an appropriate procedure after considering various factors like statutory time limits provided by the competition commission, effective usage of various resources provided by the competition commission and investigations must be fair and thorough. There are various stages of procedures that are in practice like:
- Formation of inquiry groups,
- Providing statutory rules and obligations that have to be compiled with,
- Overreaching procedural issues,
- Managing a large number of parties involved,
- Carrying out the procedures that have been decided before,
- Thorough investigation with the help of all the materials available.
- Providing reports after carrying out an investigation.
Meaning of ‘adverse effect on competition’
To determine whether certain markets or a combination of markets has an adverse effect on competition, the AEC test is followed. There are certain questions considered in the test like:
- The main characteristics of the market,
- Composition of the relevant markets within which competition may be harmed,
- Outcomes of the competitive process,
- The features which are harming the competition in the relevant market.
The market is defined as a collection of goods and services provided in a certain geographical area connected by the process of competition. The competition commission can also conclude the definition of market wider or lesser than what is provided in order to conclude the relevant market and accommodate certain types of markets. There are various determining factors that help to define the relevant market like:
- Participating firms,
- Traded products,
- Participating customers.
These factors help competition commission provide a wide definition of the term market and it also helps to assess the source of power. Market definition is thus a useful tool, but not an end in itself, and identifying the relevant market involves an element of judgment. The boundaries of the market definition do not conclude the outcome of the competition commission’s assessment of a market in any way. The assessment will also take into account the various other constraints from outside the market. The nature of competition in a particular market might require the commission to identify more than one market for the same product so that it can understand different features of the competition. For example, in some industries, certain aspects of competition are determined at a national level, while certain aspects of competition occur at a local level. The competition commission can provide various insights after looking after how competition occurs at various levels.
Theories of harm
Theories of harm is a comprehensive tool used by the competition commission to provide focus and structure to its assessment while figuring out the effects of competition in certain types of markets. The market investigations work like terms of reference already done by the referring body is used to determine various theories of harm. The initial theories are published in the issue statement that is released during the early stages of an investigation. There are five main sources of competitive harm:
- Unilateral market power which also includes market concentration,
- Barriers to entry and expansion,
- Coordinated conduct,
- Vertical relationships,
- Weak customer response.
Performance and prices
The performances and prices is another important provision that is in practice and is followed while conducting the market investigation. The competition commission usually prefers four types of research while figuring out the price performance like pricing patterns,price-cost margins; price comparisons and profitability. The competition commission finds out various factors that cause a fluctuation in prices and it analyses how it affects competition. The pricing patterns may be static or it can be parallel pricing sometimes. The pattern pricing can also be found by figuring out the price concentration studies, that is how price varies with the concentration of markets.
Findings of adverse effects on competition
The competition commission while conducting the assessment will seek to establish whether or not any of the possible features, or any combination of them can be expected to harm competition when measured against a theoretical benchmark. The competition commission has the flexibility to investigate various market features in order to figure out which has an adverse effect on competition. It can investigate both the structural features of the market and the conduct of the market participant. The conduct of market participants includes any failure to act and it can be unintentional sometimes. The five sources of harms are assessed using various procedures and the findings will help the competition commission to figure out whether any aspects of the market which will have an adverse effect on competition.
During the process of identifying and implementing a remedy to an adverse effect, the Competition Commission may have to interfere directly in the structure of established markets or it can address the conduct of firms and their customers. The competition commission has to consider various legal, factual and economic considerations before choosing an appropriate remedy. The competition commission has a wide variety of remedies to be provided in case of a presence of adverse effects. The remedies can be structural, behavioral or it can also provide recommendations when it is necessary.
Evaluation of the system
The competition commission while reaching a remedy, considers both the positive and negative of that judgment on persons who would be affected by it. The CC will also consider the impact of remedies on those businesses subject to them and on other affected parties, such as other businesses like potential entrants, or firms active in upstream or downstream markets. The CC will explain what effects it expects to result from a remedy option and will form a view of their significance.
Orders and Undertakings Under the Fair Trading Act 1973
The fair trading act is a very important statute in New Zealand which encourages effective competition and protects the customers from adverse effects of competition. The courts in New Zealand have a lot of powers to provide orders if it feels any person is acting in contravention of the offenses provided in the acts. The court can provide these orders after the application of the commission. According to Section 42 of the act, the court has the power to order any person to disclose any information necessary. The court can also make orders to protect the interest of any person if it feels that the person would have an adverse effect due to certain arrangements. Section 43 of this act provides the court the power to give other orders like declaring the parts of contracts or sometimes the entire contract as void. The court can also provide orders to certain persons to pay compensation to another person when there is an adverse effect.
The Enterprise Act, 2002 is a very effective piece of legislation that has covered all the aspects of competition and provides protection to the customers. The adverse effects of competition are clearly analyzed using market studies and market investigation. The procedures and guidelines provided by the supplementary documents are very detailed. The amendment made in the year 2013 has covered all the defects in the Enterprises Act, 2002 and one of the major developments was the substitution of CMA authorities instead of competition commission and the office of fair trading. Thus the Enterprises act, 2002 is comprehensive legislation that protects consumer’s interest.
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