Broadly, competition is the cornerstone of any
market economy since it encourages efficiency through competition between businesses and may lead to lower prices for the consumer.
However if unchecked, it may lead to aggressive competition where stronger parties in the market seek to take over and dominate the market by pushing out competitors.
Hence the law has to come in to regulate and this has been done with the use of legislation and EC Law.
European Community Competition
The main source of competition law is from the
Treaty of Rome 1957.
Article 81 of that treaty bans practices which distorts competition between members states of the EU.
Such practices shall include, price fixing, restriction in production, market sharing
Article 82 prohibits abuse of monopolistic position by a business in the EU.
These will include imposing unfair buying and selling prices to different clients
Enforcement of these Articles are the responsibility of the European Commission
Role of the European Commission under EU
They have the responsibility to investigate and control any mergers within the EU dimension.
The criteria which would trigger investigation would include the fact that the both businesses to be merged have an aggregate turnover in excess of 250 million Euros within the EU or a world turnover in excess of 5 billion
Once the commission is notified about such a situation they have to decide within a month whether to launch a full investigation and this investigation is to complete within 4 months. If it is found out that such a merger will significantly affect effective competition, it will be blocked.
Main Legislations Regulating Competition Laws in the UK
The Competition Act 1998; This legislation
has introduced a new regime of dealing with anti-competitive practices based on EC
Competition Law contained in Article 81 and
82 of EC Treaty of Rome 1957
The Enterprise Act 2002; This legislation
builds on the changes made by CA 1998 and introduces a number of new measures to strengthen the UK competition laws.
Main Objectives of Competition Legislations in the UK
Prohibit agreements which restrict free trade
and competition between businesses, e.g. Cartels
Ban abusive behaviour by a business
dominating the market in form of abuse of monopolistic position or anti-competitive practises, e.g. predatory pricing
Supervise the merger and acquisition of large
Competition Act 1998
Competition Laws in the UK is largely regulated by the
Competitions Act 1998
The legislation specifically introduces two prohibitions
in line with the Treaty of Rome Articles 81 and 82.
Chapter 1 prohibition relates to Article 81 relating to
practices with restrict or distorts competition
Chapter 2 prohibition relating to Article 82 on abuse
by an undertaking of a dominant position in the UK
Chapter 1 prohibition of the
Agreements to which prohibition 1 applies includes,
to fix purchase or selling prices to limit or control production to share markets or supply sources, to apply different trading conditions to equivalent transactions hence placing some parties at a competitive disadvantage
Such an agreement should have an ‘appreciable effect’ on competition (involving parties who control 25% or more of the market).
Some agreements are exempted from the prohibition and these include;
Exempted Agreements under prohibition 1 of CA1998
Individual Exemption; This could be granted for an individual transaction if applicants can convince the OFT that the agreement contributes to enhancing production or distribution or promote technical or economic progress and does not eliminate competition
Block Exemption; such apply automatically for some categories of agreements and meet the conditions above for individual exemptions
Parallel Exemption; This automatically applies where an agreement is covered