The Competition Act 1998 is the main source of competition policy in the UK. Chapter I of the act integrates Articles 81 and 82 of the EC Treaty. Chapter I and Article 81 prohibit agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade in the UK or between Member States and which at least intend to prevent, restrict or distort competition (click here for more detail).
Business agreements are assessed in relation to their objective and effect on competition. Measures that are prohibited by the law include price fixing, market sharing, bid rigging and limiting the supply or production of goods or services.
Cartels are the most serious form of anti-competitive agreement in which businesses agree not to compete with each other. Firms in a cartel will agree upon fixed prices, industry output, market shares and conditions of sale. In effect, this reduces competition in the market and has significant impact on small businesses and consumers.
A breach of Chapter I can have disastrous effects on a business. Firstly, any anti-competitive terms are automatically void and unenforceable which could threaten the forcibility of the rest of the agreement.
The Office of Fair Trading is responsible for prosecuting firms who engage in anti-competitive behavior and are able to fine a company 10% of annual UK turnover for every year in which a violation has taken place for up to 3 years. Criminal proceedings can lead to individuals being imprisoned for a maximum of 5 years with unlimited fines. On top of this, customers and competitors can claim for damages for being harmed by the anti-competitive measures. Negative publicity and ruined reputation can also threaten the future survival of a company.
The law recognises that cooperation and agreements between businesses on trade can be beneficial for end consumers and the market altogether. Agreements can encourage investment and the development and production of products that reach the market faster. Therefore, a number of exemptions exist if a firm can demonstrate that the practices were in the interest of the consumer because they, for example, increased market efficiency or advanced technical progress. Article 81(3) provides that an agreement is exempt if it:
“contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:
(a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives
(b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.”
Block exemptions may automatically exempt agreements which fall into its terms from being declared anti-competitive. However, criteria on the type of agreement and the people who were affected must be met.
Alternatively, an agreement can be made exempt on an individual basis. In general, if an agreement is more beneficial to consumers and trade than restrictive on competition, an agreement will be exempt.