2. An Introduction to Competition Law Flashcards
What are the benefits of competitive markets?
- Lower Prices
- More Choice
- More Innovation
What is competition law?
It is an area of law that seeks to promote competition in markets and prevent or limit monopoly power. It therefore places important limits on the free market by ensuring a level playing field.
5 reasons why competition law and regulation are important.
- Promoting Competition: They prevent monopolistic practices and foster healthy competition in the market. Competition encourages businesses to innovate, offer better products and services, and keep prices competitive, ultimately benefiting consumers.
- Consumer Protection: Competition regulations safeguard consumers from exploitation by ensuring fair prices, quality products, and diverse choices. Without regulation, monopolies or cartels could dictate prices, limit choices, and offer subpar products or services.
- Market Efficiency: Competition regulations promote market efficiency by preventing anti-competitive behaviors such as price-fixing, bid-rigging, and market allocation. Efficient markets allocate resources effectively, leading to optimal production and distribution of goods and services.
- Innovation and Economic Growth: Competition fosters innovation as firms strive to differentiate themselves and gain a competitive edge. Regulations that support competition stimulate economic growth by encouraging entrepreneurship, investment, and technological advancement.
5.Level Playing Field: Competition laws ensure a level playing field for businesses, irrespective of their size or market dominance. This prevents larger firms from unfairly leveraging their market power to suppress competition, thereby fostering a more inclusive business environment.
False assumption on competition law
Free markets usually provide the best outcome and government should only control markets where there is market failure (i.e. the free market fails to deliver).
So why is monopoly bad?
results in:
- Higher prices
- Less being sold
- No incentive to innovate / improve
Monopoly power arises where consumers have few alternatives to the product or service available.
Where this happens, it is generally more profitable to sell less at a higher price. This is because you are making more profit on each unit sold.
3 DOMINANT FIRMS
INTEL - 80% of computer chip market
Microsoft - 76% of desktop operating market
Google - 93% of search engine market
Examples of exclusionary abuse
Limiting Production (e.g. a Port refusing to upgrade its capacity).
Tying (e.g. restricting consumer choice by tying one product to the sale of another).
Predatory Pricing (dropping price so that competitor cannot cover their costs).
Rebates (used to lock customers into just buying from you).
Refusal to Supply (e.g. refusing to sell a vital product to a company that competes with your subsidiary).
case of construction firms and CMA
March 2023 - CMA fined 10 construction firms a total of nearly £60 million for illegally colluding to rig bids for demolition and asbestos removal contracts involving both public and private sector projects.
- the CMA has also secured the disqualification of 3 directors of firms involved in the unlawful conduct.
A ‘bid-rigging’ cartel
Instead of submitting competitive sealed bids:
The businesses decide who the ‘winner’ will be.
They take turns at winning or pay each other
The authority pays a monopoly price
A Market Sharing Cartel
Firms A, B, and C happen to be in different regions of England. They agree to:
Focus on selling within Refuse customers outside their region.
Consumers in all three regions pay higher prices.
Law on Cartels
Cartels are agreements to fix prices, restrict output, share markets, and rig bids in public tenders.
It is deliberately wide because cartels can be formed with minimal communication between competitors.
As a general rule, any direct communication between competitors to exchange commercially sensitive information (such as future pricing intentions) is strictly prohibited.
There are exceptions for joint ventures for the research and development of new products and technologies.
Also where the firms can show countervailing efficiencies, but these rarely succeed.
Who enforces competition law?
As a member of the EU, the European Commission dealt with competition law problems with a Community dimension (i.e. that affect trade between member states). The CMA generally dealt with cases that only affected domestic UK markets.
Since 1 January 2021 (the end of the Brexit transition period), the two have separate
Why was the Asda Sainsbury’s merge blocked by competition watchdogs?
Merge - When businesses seek to merge (become one) in order to gain monopoly power
Judged that merge would be too dominant - detrimental to consumers.
What powers of enforcement are there?
Significant investigative powers, including inspection of business and private premises (dawn raids) and covert recording of meetings.
The ability to fine an undertaking (a business) up to 10% of its annual worldwide turnover and pursue criminal convictions in the case of cartels.
Key legislation: Competition Act 1998 (Chapters I and II) for UK and Articles 101 and 102 TFEU for EU.
Merger Law
Enterprise Act 2002 and EU Merger Regulation 139/2004
Applies (in UK) where UK turnover exceeds £70million, or where transaction results in creation of (or increase in), a 25% combined share of sales or purchase in the UK.
In the UK, notification of the merger is voluntary.
Procedure consists of two phases:
Phase I – initial examination by the CMA
Phase II – full investigation by the CMA
