7.4a - Political and Legal (Scope and Effects of Competition Law) Flashcards
Who is protected by legislation and regulation?
Those with weaker bargaining power
What are the main roles of business legislation?
To ensure:
- Competition is fair
- Employees are treated fairly
- Firms pay attention to the impact of their actions on the environment
- Customers receive a fair deal
What is the aim of competition policy?
To make sure that businesses can fairly enter a market and compete against other firms
What are the results of competition policy?
- Wider consumer choice
- Technological innovation
- Price competition
- No anti-competitive behaviour
Why do businesses need to be aware of competition policy?
- Ensure it does not breach competition law
- To protect its position where competition law is breached by a competitor
What are the three main types of anti-competitive activity that UK/EU competition law prohibit?
- Anti-competitive agreements
- Abuse of dominant market position
- Merger control
Anti-competitive agreements definition
Agreements which prevent or restrict competition
What is classified as an anti-competitive agreement?
- Agreeing prices with competitors
- Restrict production to raise prices
- Cutting prices below costs
What is a dominant market share considered to be?
50%
Examples of abusing dominant market positions:
- Imposing unfair trading terms (e.g. you can only buy from us)
- Excessive, predatory or discriminatory pricing
- Tying
Tying definition
Demanding that customers must buy a second type of product in order to buy the popular product that they want
What are the penalties for being caught abusing a dominant position?
- Fine of up to 10% of annual turnover
- Criminal prosecution
- Disqualification
- Civil action
When is a merger prevented?
When the joint market share of the two companies together would be greater than 25%
Advantages of competition law:
- Allows a business to compete on an even playing field
- Ensures consumers are treated fairly
Disadvantages of competition law:
- Cannot charge the lowest price possible
- Increases costs
- Has restrictions on how the business can behave
- Punishments if caught
