The Competition Act 1998 governs anti-competitive behaviour from a legislation standpoint, and can be used in both CMA prosecutions and Competition Lawyers legal claims.
The principles of this vital piece of legislation are that organisations must not:
Prevent, restrict, or distort competition!
This is most easily achieved through Price Fixing and Price Cartels
Price Fixing is exactly that you expect it is - fixing prices higher than they should be to increase profitability, when organisations should be fairly competing on price.
Price Cartels - where organisations set prices together, usually to maximise their profitability. For example, all competitors setting the same or similar prices at a higher rate so all those involved reap higher profit margins at the expense of the consumer - which is anti-competitive behaviour.
This type of anti-competitive behaviour can easily occur in an oligopoly market where a small number of organisations dominate the market. A classic example of this is the grocery market that is typically dominated by a few big household names: Tesco; Asda, Sainsbury's; Morrison's, etc.
Supermarkets in the past have been found guilty of price fixing - one of those most famous examples here in the UK was the price fixing of milk, which involved the big names above, and resulted in millions of pounds in fines.
Output limitation
The simple rules of Supply and Demand usually mean that prices are lower where goods and services are easily obtainable, and higher when they are not. It's the reason diamonds are so expensive - they are very rare!
But intentionally reducing output by lowering the quantity of a good or service to then increase prices is anti-competitive behaviour which only leads to bigger profits for the business and higher prices for the consumer.
Reduce innovation
This is a growing problem.
Organisations may find new ways of producing products or offering a service that could reduce the cost to the consumer. But if it's at the expense of their profits, it can immediately become undesirable.
If an organisation (or organisations) intentionally reduce innovation to maintain higher profit margins, they can be in breach of the law. A famous example of innovation costing business is that of Dyson and the bagless vacuum cleaner. When Mr Dyson first approached big name vacuum cleaner firms, they rejected his bagless vacuum idea for one some reason - it would mean they would lose money on selling bags to consumers! Whilst we're not saying this was a breach of consumer law, the principle is reflective of how innovation can actually cost businesses money, and therefore be undesirable.
At the time, the market for disposable bags was worth literally millions of pounds, and big name vacuum cleaner manufactures were simply not prepared to lose that source of revenue.
Luckily, Mr Dyson went it alone and has since established himself as a market leader in vacuum cleaning technology - and bags are a thing of the past!
Price fixing with innovation
In contrast to the above, some innovations can mean that consumers enjoy additional benefits of a product or a service. Those additional benefits can come at a cost for sensible and justifiable reasons, which is why you typically pay more for "better" goods and services.
But innovation that can be used across an industry can leave organisations colluding together and price fixing off the back of innovation; which is again a breach of the law.
Abuse of market position and market dominance
Generally speaking, if one organisation has a market share of over 40%, the CMA will likely be looking in to it. It has to be carefully assessed for mergers as well with the combined market share being closely monitored.
An organisation with market dominance could easily abuse their position through:
- Excessive pricing through being the biggest supplier, or by reducing and refusing supply to drive their prices up.
- Price discrimination - selling the same goods or service for different prices to different buyers, which can be achieved through differing pricing structures by location, or perhaps by type of consumer.
- Predatory pricing - also known as undercutting, whereby an organisation can gain significant advantage by pushing competitors out of the market through extremely low pricing for the long term gain of overall market dominance.
Information Sharing
This can actually lead to organisations falling in to a cartel without even realising. What can seem like an innocent information sharing exercise can actually undermine competitiveness in the market, leading to an un-level playing field for other organisations to compete in.
Sharing commercially sensitive information, such as profit margins or supplier information, can lead to anti-competitive behaviour. Information sharing itself is the way in which price fixing can be achieved, either by itself, or through innovation reduction or price fixing off the back of innovation.
The Repercussions!
Victims can claim compensation for financial loses and interest as a result of anti-competitive behaviour - and this is exactly what we help people do.
The CMA can fine organisations 10% of their annual turnover for every year they're found to have been in breach of the law, up to a maximum of three years. Fines can, and have in the past, reached to the billions of pounds.
