Policy paper

Competitive markets and anti-competitive activity

Published 21 December 2012

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government

This document explains how competitive markets are important to the economy. It explains what anti-competitive activities are and how government is taking action against them.

Competitive markets ensure that the economy’s resources are used effectively. They encourage enterprise and efficiency, increase choice and improve international competitiveness. Anti-competitive activities can stifle innovation and growth. They can also be very bad for consumers. That’s why they have to be identified and stopped as quickly as possible.

An example of an anti-competitive activity would be when 2 companies agree to charge the same price for a similar product. This protects the companies’ profits but means consumers get less choice.

One of the government’s main objectives is to improve productivity. Confident and knowledgeable consumers make choices that support competition by driving firms to innovate and offer more choice and value.

1. Taking action against anti-competitive practices

The government has set up independent authorities to identify and take enforcement action against anti-competitive practices or structures that may lead to a loss of competition in markets or abuse of market power.

2. Current competition authorities

While the Secretary of State for Business, Innovation and Skills sets the overall policy framework for competition, it is regulated by the UK’s independent competition authorities.

The 3 main bodies which investigate and enforce competition decisions in the UK market are:

• Competition and Markets Authority (CMA)
• Competition Appeal Tribunal (CAT)
• European Commission (Directorate General for Competition)

2.1 Competition and Markets Authority (CMA)

The Competition and Markets Authority (CMA) is the principal competition authority. It took over in April 2014 from its predecessors, the Office of Fair Trading (OFT) and the Competition Commission (CC). This followed a consultation on competition reform.

It enforces competition and seeks to make markets work well for the benefit of consumers. It also investigates mergers, markets and anti-competitive practices by firms. The CMA has powers to conduct investigations into practices that impact on more than one market, such as extended warranties and other secondary point of sale practices. These powers enable the CMA to take a more targeted approach to recurring sources of consumer complaints.

The CMA also has power to stop a proposed merger where there are concerns the merger may be anti-competitive, and to consider with the companies involved whether the merger should be allowed to proceed.

The CMA may also:

• reverse mergers that have already taken place where this is deemed appropriate after investigation
• require parties to appoint an independent third party to monitor, arbitrate, and/or implement remedies
• require parties to publish certain non-price information

2.2 Competition Appeal Tribunal (CAT)

The Competition Appeal Tribunal (CAT):

• is a specialist judicial body which hears and rules on appeals of decisions made by the competition authorities
• has cross-disciplinary expertise in law, economics, business, competition and economic regulatory issues

2.3 European Commission (Directorate General for Competition)

The European Commission (Directorate General for Competition) has:

• exclusive powers to act on certain large mergers with a European dimension
• powers to investigate anti-competitive practices affecting trade between members of the European Community or in some cases the European Economic Area

2.4 Sectoral regulation and ‘concurrency’

There are also a number of sectoral/concurrent regulators. They:

• encourage and help with competition in their sectors
• can refer cases to the CMA, and some have ‘concurrent competition powers’ to choose between their own sectoral powers or the 1998 Competition Act to refer issues to the CMA

The CMA can take Competition Act cases from sectoral regulators where it is better placed, and considers regulatory references and appeals.

These regulators are:

• Ofgem (energy markets)
• Ofwat (water industry)
• Ofcom (communications sector)
• Office of Rail and Road (ORR) railway (services)
• Civil Aviation Authority (CAA) air traffic (services)
• Monitor (NHS Foundation Trusts)
• FCA (Financial Conduct Authority)
• PSR (Payment Systems Regulator)

2.5 The UK Competition Network (UKCN)

The UKCN:

• brings together UK sector regulators and the CMA
• encourages the consistent and effective use of competition powers across all sectors
• promotes strategic dialogue, cooperation on enforcement, best practice and advocacy

2.6 The European Competition Network (ECN)

The ECN:

• brings together the national competition authorities of all the EU member states (including the CMA for the UK)
• creates an effective mechanism to counter companies which engage in cross-border practices restricting competition
• provides a means to ensure European competition rules are applied effectively and consistently
• allows the competition authorities to pool their experience and identify best practices

3. Types of investigation

There are the following types of investigation:

• markets, merger and cartels – the powers come from the Enterprise Act 2002
• antitrust – the powers come from the Competition Act 1998 and mirror The EU Treaty for the Functioning of the EU (TFEU)

CMA market studies and market investigations have the following main features:

3.1 Market studies (Phase 1)

Market studies:

• can be carried out by the CMA or one of the concurrent regulators
• are a high-level, initial assessment of market issues
• have a statutory time limit of 12 months to report, with a requirement that a decision on whether to make a reference to Phase 2 is made within 6 months
• outcomes/remedies include:
  • encouraging firms to take voluntary action
  • encouraging a consumer code of practice
  • making recommendations to the government or regulators, for which BIS coordinates the response
  • investigation or enforcement action against companies or individuals

3.2 Market investigations (Phase 2)

Market investigations (Phase 2):

• are carried out by the CMA after a reference from a Phase 1 study, a sectoral regulator or in certain circumstances from a minister
• are more in-depth consideration of the issues discovered at Phase 1
• have a statutory time limit of 18 months (extendable by 6 months in special circumstances)
• are carried out by an independent panel
• can cover more than one market

3.3 Merger investigations (Phase 1)

A proper framework for control of mergers is important to ensure that competition is not damaged when businesses come together.

Phase 1 investigations are carried out:

• to a 40 working day statutory timetable
• if annual UK turnover of the enterprise being taken over exceeds £70 million; or the merger creates a 25% share or more in a market for goods or services in the UK or a substantial part of it

There is no statutory requirement to pre-notify mergers to the UK competition authorities.

The CMA can either:

• clear the merger
• clear it subject to undertakings
• take it to Phase 2 for further investigation

3.4 Merger investigations (Phase 2)

Phase 2 investigations are carried out:

• if the CMA believes a merger has resulted or may be expected to result in a ‘substantial lessening of competition’
• if the CMA considers actions to address the adverse effects arising from the merger
• if the European Commission investigates where both the aggregate worldwide turnover is over €5 billion and the aggregate community-wide turnover of each of at least 2 of the enterprises concerned is more than €250 million

Mergers are not investigated by the European Commission where more than two-thirds of the community-wide turnover of each enterprise falls within the same member state. Mergers that have their main impact in the UK can be transferred to the CMA for examination.

3.5 Merger cases: Secretary of State intervention

The Secretary of State may issue a public interest intervention notice (PIIN) and decide whether the merger is against certain public interests, and decide on any remedies. The public interests are:

• national security (including public security)
• plurality and other considerations relating to newspapers and other media
• the stability of the UK financial system

The Secretary of State may also intervene on public interest grounds in mergers being considered by the EU. In such cases the EU considers competition and the UK considers the public interest aspects.

For details of mergers investigated by the CMA see Competition and Markets Authority cases.

All CMA reports are published. Companies can also get guidance and informal advice from the CMA on its merger procedures.

3.6 Antitrust and cartels

The CMA is responsible for investigating the main categories of antitrust, namely:

• suspected agreements, decisions and concerted practices between undertakings, which may affect trade within the UK and whose ‘object or effect is to prevent, restrict or distort competition within the UK’
• suspected abuse of a dominant position in a market by one or more undertakings that may affect trade within the UK

The cartel offence is a criminal offence, which is separate from the prohibition on anti-competitive agreements, but the same facts may give rise to parallel civil proceedings under the antitrust rules.

4. Appeals

Appeals against decisions by the CMA can be made to the Competition Appeal Tribunal. Its functions are to:

• hear appeals on the merits on antitrust decisions by the CMA and regulators in the telecommunications, electricity, gas, water, railways and air traffic sectors
• hear actions for damages and other monetary claims
• review decisions made by the Secretary of State or CMA on merger and market references
• hear appeals against certain decisions made by Ofcom and/or the Secretary of State on networking arrangements

5. Changing competition law

The government has reformed the laws that cover competition and anti-competitive activities in business. This includes laws relating to mergers, markets and illegal activities such as price-fixing and cartels.

We’ve also reformed the institutions that police competition and anti-competitive activities, and strengthened their powers.

These laws, institutions and powers are collectively known as the competition regime. Though they operate independently of government, we continue to monitor their performance to ensure they remain a world-leading competition regime, advocating good competition practice both at home and abroad.

6. European Union merger regime

Larger mergers that affect several member states are investigated and regulated by the European Commission. The Commission published a white paper in 2014 considering whether the existing regime should be revised. The UK responded to the white paper in December 2014.

7. Competition complaints

If you believe a company or group of companies are acting anti-competitively, then you may wish to make a complaint to the CMA.

Enquiry Line: 0203 738 6000

Email: [email protected]

There is also a detailed how to complain section.