Competition Act 1998

Economics Department

The Competition Act 1998 came into force on the 1 March 2000. It introduces two main prohibitions:

Chapter I: a prohibition of anti-competitive agreements, based closely on Article 81 of the EC treaty; and

Chapter II: a prohibition of abuse of a dominant position in a market, based closely on Article 82 of the EC Treaty

Key aspects of the new legislation are:

· anti-competitive agreements, cartels and abuses of a dominant position are now unlawful from the outset;

· businesses which infringe the prohibitions are liable to financial penalties of up to 10% of UK turnover for up to 3 years ;

· competitors and customers are entitled to seek damages;

· the Director General of Fair Trading has new powers to step in at the outset to stop anti-competitive behaviour;

· investigators are able to launch 'dawn raids', and to enter premises with reasonable force; and

· the new leniency policy will make it easier for cartels to be exposed

The intention is to create a regulatory framework that is tough on those who seek to impair competition but allows those who do compete fairly the opportunity to thrive.

The prohibition of anti-competitive agreements (chapter I prohibition)

The Act will prohibit agreements which have the object or effect of preventing, restricting or distorting competition in the UK. Since anti-competitive behaviour between companies may occur without a clearly delineated agreement, the prohibition covers not only agreements but also decisions by associations of companies and concerted practices. There is an illustrative list of practices which would infringe the prohibition.

Under the prohibition, the anti-competitive nature of the agreement is to be judged according to its effects or intended effects on competition. This is in contrast to the form-based approach in the current restrictive trade practices legislation which is limited to cover agreements which are registrable because they meet certain specified form-based criteria.

The prohibition of abuse of dominant position (chapter II prohibition)

The second prohibition introduced by the Act is the prohibition of abuse of a dominant position in the UK or part of it, where this affects trade within the UK. Again there is an illustrative list of the kind of conduct which may constitute an abuse, such as limiting production, markets or technical development to the detriment of the consumer. Behaviour which infringes the prohibition will be unlawful and subject to penalties.

The prohibition of abuse of a dominant market position will become the principal tool for dealing with anti-competitive conduct by monopolists. The monopoly provisions of the Fair Trading Act will, however, continue to have some value, albeit in strictly limited circumstances, in the future. The complex monopoly powers of the Fair Trading Act fill a gap between the two prohibitions. They allow investigation of markets where there is parallel behaviour by companies but no actual agreement. The scale monopoly powers provide structural remedies but would only be used where there has been a prior finding of abuse and the DGFT believes that there is a real prospect of further abuses by the same firm. This policy does not apply to the regulated utility sectors. The Utilities Green Paper, "A Fair Deal for Consumers", makes clear that full use of the scale monopoly provisions is to be retained for these sectors.

Monopoly Provisions of the Fair Trading Act 1973

The prohibition of abuse of a dominant market position in the Competition Act 1998 is intended to be the principal weapon against anti-competitive behaviour by monopolists. However, the complex and scale monopoly provisions of the Fair Trading Act 1973 (FTA) will continue to be used, albeit in limited circumstances. It is not intended that the prohibitions in the Competition Act and the FTA monopoly provisions should be used in parallel to investigate the same matters.

A scale monopoly exists where one firm has at least 25% of a market. A complex monopoly exists where two or more firms together account for at least 25% of a market and engage in similar conduct. The FTA enables the DGFT, the Utility Regulators and the Secretary of State to refer possible monopoly situations to the Competition Commission for them to investigate and, if they find a monopoly situation to exist, to decide whether it operates against the public interest. The Competition Commission makes their report to the SoS. If the Competition Commission find that a monopolist does act against the public interest it is for the SoS to decide what remedies, if any, to impose. Remedies may take the form of behavioural remedies (eg stopping particular practices) or structural remedies (eg divesting specific parts of a business).

The complex monopoly powers of the Fair Trading Act fill a gap between the two prohibitions. For example, they allow investigation of markets where there is parallel behaviour by companies but no actual agreement.

The policy is that use of the scale monopoly powers should be limited to situations where a prior infringement of the prohibitions in the Competition Act has already been proven and where the DGFT believes there is a real prospect of further abuse by the same company. The structural remedies available under the scale monopoly powers may be the only effective means of preventing further abuse. This policy does not apply to the regulated utility sectors. The Government's Response (July 1998) to the Utilities Review Green Paper made clear that full use of the scale monopoly provisions is to be retained for these sectors

The Competition Commission

The Competition Commission is an independent public body established by the Competition Act 1998 ("the Act"). The Commission replaced the Monopolies and Mergers Commission ("MMC") on 1 April 1999.

The Commission has two distinct functions. On its reporting side, the Commission has taken on the former MMC role of carrying out inquiries into matters referred to it by the other UK competition authorities concerning monopolies, mergers and the economic regulation of utility companies. Secondly, the newly established Appeal Tribunals hear appeals against decisions of the Director General of Fair Trading and the Regulators of utilities in respect of infringements of the prohibitions contained in the Act concerning anti-competitive agreements and abuse of a dominant position.

The Commission consists of members and staff, headed by a Chairman, Dr. Derek Morris. A President of the Appeals Tribunal, Sir Christopher Bellamy, is responsible for the Commission's appeal functions. The Chairman and President are also members of the Commission. With the exception of the Chairman and the President, members are part-time. Two members are currently appointed as Deputy Chairmen, Professor Paul Geroski and Mrs. Denise Kingsmill.

Members are appointed by the Secretary of State for Trade and Industry following an open competition. They are appointed for their diversity of background, individual experience and ability, not as representatives of particular organisations, interests or political parties. They are normally appointed for an initial term of three years and are eligible for re-appointment.

The Commission comprises an appeals panel, a reporting panel and specialist panels for electricity, telecommunications, water and newspapers. Members of the appeals panel will hear appeals against prohibition decisions; members of the reporting panel will conduct inquiries into merger, monopoly and regulatory references; and members of the specialist panels for electricity, telecommunications and water will assist in some of the regulatory inquiries. Members can be appointed to all three types of panel. Newspaper panel members deal only with newspaper inquiries.

The Chairman appoints a group of members for individual reporting inquiries. The President appoints members of the appeals panel to Tribunals. The Secretary of State may appoint members for newspaper merger references.

The Competition Commission has a staff of about 90, the most senior of whom is the Secretary to the Competition Commission. The staff include administrators and specialists such as accountants, economists, industrial advisers and lawyers, as well as those engaged in support services. About two-thirds are direct employees, most of the remainder being on loan from government departments.

Source: DTI, Competition Commission