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Competition Law 101

We’ve recently had a painful encounter with competition law.

We were zooming along at 100mph. Compliance checks completed, documents drafted, emails were flying and then… the Competition and Markets Authority (CMA) put the handbrake on our deal.

As both the parties hoping to merge are the two largest players in a small industry sector, they notified the deal to the CMA. After several months of investigation, the competition watchdog expressed competition concerns with the proposed merger. 

The CMA’s decision meant that the parties had to do a U turn and couldn’t go through with the transaction unless they addressed the competition concerns. Ultimately, the parties decided to abandon the transaction and walk away alone.

UK Competition Law
The CMA are the body that are responsible for ensuring that markets are competitive and work well for consumers. They investigate anti-competitive conduct by businesses, conduct market studies and enforce competition law within the UK.

Competition law is a relatively new area of law that makes sure businesses are competing on a level playing field and acting fairly. It is designed to encourage open, dynamic markets and enhance productivity, innovation and value for customers.

Although run-ins with competition law are relatively rare, it’s important to know the UK’s competition provisions and how these may affect your business. All companies trading in the UK market, regardless of their size of location, must comply with UK competition law. Failure to do so can result in large fines, director disqualification and even jail sentences for serious breaches.

Familiarity with the UK’s competition law can also help you to protect your position in the market and assert your rights to compete fairly. Here are the three main pillars of competition law that you should be aware of to benefit your business.

Mergers and Acquisitions
If you’re buying or selling a business, it may have competition law implications. Any merger that substantially lessens competition in any market may be prohibited under competition law, or have certain conditions imposed to remedy the competition concerns.

The CMA will only investigate mergers where the business being taken over has a UK turnover that exceeds £70m, or the merged entity would have a market share greater than 25%.

If your merger meets either of the above conditions, it is advisable that you notify the CMA and receive clearance before proceeding with the merger, although there is no legal obligation to inform the CMA. If you do decide to go ahead with the merger and it is later investigated by the CMA, it may be unscrambled, or they may impose remedies to restore a level playing field.

When investigating mergers, the CMA have a wide range of options. They may clear it unconditionally, block it outright or require certain commitments, such as requiring you to divest part of the business, or committing to act in a certain way so that competition is not distorted in the market.

Abuse of Dominance
If your business is in a dominant position and uses this position to exploit consumers or exclude competitors from the market, the CMA may impose fines for abuse of a dominant position.

A dominant position is usually presumed when a business has more than 50% market share. However, a business may be found to be dominant, irrespective of its market share, if it is able to behave independently of the normal constraints imposed by competition.

Importantly, competition law does not prevent you from holding a dominant position in any market and encourages businesses to improve and innovate to become the best in the market. However, any dominant firm must behave fairly and compete on the merits. 

Examples of conduct that may be regarded as an abuse of a dominant position include:

  • Charging excessively high prices
  • Charging prices so low that they do not cover the cost of the product sold
  • Charging different prices to similar customers without objective justification
  • Refusing to supply a customer without objective justification
  • Limiting production markets or technical development without objective justification
  • Attaching additional obligation to contracts that have no objective justification

Anti-competitive Conduct
If you have an agreement with another business (or businesses) that prevents, restrict or distorts competition, it is illegal under competition law. These agreements are the most serious types of anticompetitive behaviour and can even result in criminal charges.

Any form of agreement that is unfair and harms competition is caught by the competition provisions, regardless of the form of the agreement, the duration of the agreement, the size of the businesses involved, or the markets involved.

The most common forms of anti-competitive conduct that infringes competition law include:

  • Price fixing
  • Bid rigging and discussing tenders
  • Limiting production or supply
  • Dividing up and sharing markets
  • Discriminating between customers
  • Sharing sensitive commercial information
  • Forcing retailers to sell at a certain price

Our experience has proved to us how the CMA are becoming more and more active. As competition law compliance is becoming increasingly important, we understand your business pain points and can offer you solutions and practical advice.

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