Leducate Explains: Antitrust Laws in the UK
Hint - key terms are defined. Just click on the blue words to see their definitions!
This LedEx article aims to explain Antitrust Laws: a brief history, explaining competition law and unfair behaviour, and providing case study examples. This topic is a bit more complex, however knowing about competition law is key to avoiding becoming a victim of anticompetitive practices or even breaking the law ourselves.
Introduction
‘Antitrust’ is an expression you might have often heard in the news before without grasping its meaning entirely. Antitrust refers to a regulation made by the government to reduce or remove the concentration of economic power, and to enhance fair competition between businesses and consumers. Particularly, it is not allowed to create monopolies intended to exclude other participants from the market.
Imagine a game where all players must have equal rights to take part in the contest; therefore, fair rules must be set up beforehand to ensure this. Antitrust laws are like the game’s rulebook.
This topic is important to understand because, as consumers, competition affects us all. It assures lower prices, more choice, and better quality. In addition, businesses have better chances to expand their horizons if markets are more competitive.
A brief history of Antitrust Law
Antitrust law in the United Kingdom has a long history. King Edward the Confessor, who ruled from 1042-1066 AD, took a position against the unfair practice of buying goods before they reached the market and then raising the prices. This was directed to stop written agreements that, as a result, restrained the individual liberty of merchants to enlarge their income. Moving forward, the law went on to help competition to reach an open and healthy market which can improve productivity and value for each customer.
The word Antitrust originated in the early 1900s to indicate the intention of breaking the trust between big companies who made secret agreements behind the backs of other organisations.
The main acts that cover antitrust and competition in the UK are The Competition Act 1998, which is the primary source of law, and the Enterprise Act 2002, which states clearly which consequences may face directors not adopting the right measures to prevent unfair competition within their organisations.
Image: via Adeolu Eletu on Unplash
Unfair behaviour
What kind of behaviour can be marked and, therefore, sanctioned as unfair? More often than you think, business organisations make agreements to discriminate against specific companies or consumers. For instance, some deals try to fix the prices for goods or services, limit production, or impose different prices or conditions on different buyers without an evident reason. These arrangements can be formal or informal and often not written down.
These kinds of agreements are often created by cartels. A cartel is simply a group of market participants who conspire secretly to improve their profits and dominate the market. Instead of competing with each other (as they should, since they are part of the same sector), they decide to work as a team.
As simple as this sounds, cartels are among the most severe types of anticompetitive arrangements. Behind the appearance of fair competition between them, they set their own internal rules. For instance, two or more companies can fix the price of a good instead of competing (price fixing), or they decide to divide the market into two or more portions agreeing not to obstruct the other competitors (market sharing).
Another dishonest behaviour is control output: in this case, competitors agree to limit the amount or type of goods and services available in the market so that there is an excuse to raise the price in the future.
Any informal or even telephone conversation where two competitors decide as such is treated in the same way as a formal contract between them. So often, they are just verbal, and that makes it so hard to unveil.
The Competition and Markets Authority (CMA)
In 1973, the government introduced the Office of Fair Trading (OFT) as a regulator to enforce both consumer protection and competition law. Its role was taken over in 2014 by the Competition and Markets Authority (CMA) which is meant to help businesses and the UK economy by promoting competitive markets and tackling unfair behaviour.
The CMA is mainly responsible for analysing the market, enforcing consumer and competition laws and investigating to prevent unlawful behaviours. We can all benefit from the CMA as you can report to them any issue, including a business cartel, by emailing or calling the organisation.
For example, employees, or former employees of a company, often report illicit activities carried out by their employer for the CMA to take action while remaining anonymous. However, suppose you want to bring your own specific issue to their attention. In that case, you should contact the Consumer advice organisation operating in your area.
Image: via Tadas Sar on Unsplash
Consequences and sanctions
What are the results of such a breach of the law? Businesses that are found to have created unfair agreements or similar can be fined up to 10 per cent of their annual income, which could be a massive number for those companies operating worldwide.
When unlawful behaviour is due to one individual, for example the director of a company, the sanctions are highly severe. These people can be personally prosecuted, sentenced to up to 5 years in prison, and convicted to pay compensatory damages. Moreover, they can be banned from managing a company in the future for up to 15 years. For this reason, they must be fully committed to compliance with competition law, taking the appropriate steps to prevent this from happening, assessing risks and adopting the proper measures when needed.
Case Studies: Microsoft in the 1990s and Google in the 2020s
Even Microsoft, undoubtedly one of the most successful software companies in the world, had to face an action raised by the United States for violating antitrust law.
The government alleged that Microsoft had abused monopoly power on Intel-based personal computers while running operating systems. The central issue was whether Microsoft was allowed to match its mega-famous Internet Explorer web browser software with its Windows operating system. According to the Court, creating such a package was a crucial factor in Microsoft's success in the browser wars of the 1990s, as everyone only used the Internet using Internet Explorer back then.
More recently, Fitbit, the famous fitness products brand, merged with Google after an in-depth investigation of the whole operation and potential misleading agreements between the parties. The European Commission approved the transaction after obtaining pervasive information and feedback from competitors of Google and the smaller company. The acquisition of Fitbit by Google was allowed, providing that “the market for wearables and the nascent digital health space will remain open and competitive”.
Conclusion:
Antitrust laws safeguard fair competition, benefiting both consumers and businesses. By knowing these regulations, you can avoid being a victim of anticompetitive practices or violating them yourself. The Competition and Markets Authority (CMA) enforces these laws, and you can report any suspicious activity. Remember, a competitive market fosters lower prices, greater choice, and better quality for everyone.
Written by Roberto Liggi
Glossary box
Antitrust: rules and regulations that prevent agreements that may restrict competition or create dominance in a given market.
Cartel: a formal agreement between a group of producers of a good or service to control supply or to regulate or manipulate prices.
Control output: companies can control the price that their product sells at, and by restricting production, the price rises.
Fair competition: referring to a ‘free market’ where entities operate on a level playing field, without bad practices such as ‘predatory pricing’, abusing a dominant position in the market, or operating in non-compliance with antitrust and competition laws.
Market sharing: when competitors agree to divide or allocate customers, suppliers or geographic areas among themselves rather than making independent decisions as to where to operate, who to source from and which customers to pursue.
Price fixing: an anticompetitive agreement between participants on the same side in a market to buy or sell a product, service, or commodity only at a fixed price.