Understand the legal rules relating to
monopolies, mergers and anti-competitive
practices
LO 3: Understand the legal rules relating to monopolies,
mergers and anti-competitive practices
 3.1 outline monopolies and anti-competitive practice
legislation in the UK
 3.2 explain the role of the Competition Commission
within the context of monopolies and anti-competitive
practices and the UK Office of Fair Trading
 3.3 define dominant positions within the EU common
market
 3.4 consider the application of EU exemptions to
potentially anti-competitive practices
Competition Policy
 Broadly, competition is the cornerstone of any market
economy since it encourages efficiency through
competition between businesses and may lead to lower
prices for the consumer.
 However if unchecked, it may lead to aggressive
competition where stronger firms in the market seek to
take over and dominate the market by pushing out
competitors leading to Monopoly
 Hence laws have to be put in place to regulate competition
and this is being done with the use of legislation and EU
Laws.
Monopoly
In its pure form, it is said to be a single supplier or firm in a
particular market sector.
 For the purposes of regulation, it exist when a single or group of
firms controls 25% or more of a particular market sector known
as Scale monopolies (if connected businesses) or Complex
monopolies (if unconnected businesses)
Some instances include ;
 Where a business has exclusive ownership of scare resources
e.g. Microsoft owning Windows Operating System
 Government granting monopoly rights to a firm e.g. Royal
Mail, postal services since 1654 granted by Oliver Cromwell until
2006 when monopoly rights was lost
 Producers having patent rights over designs or copyrights over
ideas, songs and other writing.
 Merger by two or more businesses
Main Objectives of Competition Legislation in the
UK
 Prohibit agreements which restrict free trade and
competition between businesses, e.g. Cartels
 Ban abusive behaviour by a business dominating the
market in form of abuse of monopolistic position or anticompetitive practises, e.g. predatory pricing
 Supervise the merger and acquisition of large
corporations
Main Legislation Regulating Competition Laws in UK
 The Competition Act 1998; This legislation consolidates
previous legislation and introduces the prohibition of
agreements or practices which distorts competition in the UK.
Broadly, its gives powers to enforcement bodies to fine up to
10% of UK annual turnover or to competitors or consumers
rights to claim damages from Competition Appeal Tribunal
 The Enterprise Act 2002; This legislation builds on the
changes made by CA 1998 and introduces a number of new
measures to strengthen the UK competition laws.
 The Enterprise and Regulatory Reforms Act 2013; this
legislation mainly reforms the regulatory bodies for
enforcement of anti-competitive practices
Competition Act 1998
 Competition Laws in the UK is largely regulated by the
Competitions Act 1998
 The legislation specifically introduces two prohibitions in line
with the Treaty of Rome Articles 81 and 82, now Articles 101
and 102 of the Treaty of Lisbon 2009.
 Chapter 1 prohibition relates to practices which restrict or
distorts competition
 Chapter 2 prohibition relating to abuse by an undertaking of
a dominant position in the UK
Chapter 1 Prohibition on Distorting Competition under
Competition Act 1998
Agreements to which prohibition 1 applies includes,
 Agreeing to fix purchase or selling prices
 Agreeing to limit or control production
 Agreeing to share markets or supply sources,
 Agreeing to apply different trading conditions to
equivalent transactions hence placing some parties at a
competitive disadvantage
Such an agreement should have an ‘appreciable effect’ on
competition (involving parties who control 25% or more of
the market).
Some agreements may be exempted from the prohibition if not
obviously harmful to competition
Chapter 2 prohibition on abuse of dominant
Position (Competition Act 1998)
Abuse of Dominant position here includes;
 Imposing unfair purchase or selling prices
 Limiting production, market or technological development to the
prejudice of consumers
 Applying different trading conditions to equivalent transactions to
the detriment of some parties
Two conditions have to be present for determining whether the chapter
2 prohibitions apply
 Whether an undertaking is dominant (40% control of market
according to OFT and 50% market share according to ECJ)
 If dominant whether it is abusing its dominant position
No exemptions apply for chapter 2 prohibition
The Enterprise Act 2002
 Part 1 of the above legislation abolished the statutory
position of Director General of Fair Trading and
transferred the functions to the Office of Fair Trading
which became a corporate body
 The OFT was responsible for undertaking market
studies of businesses not operating well for consumers
under its Market Policy Initiatives (MPI) Division.
 Most of the functions of the Office of Fair Trading has now
been taken over by the Competition and Markets
Authority as from April 2014
 This changes were made under the Enterprise and
Regulatory Reforms Act 2013
Enterprise Act 2002 Cont..
 Part 2 of the legislation established an independent
Competition Appeal Tribunal which replaces the CC
Appeal Tribunal
 Part 3 reforms the UK merger control framework replacing
the provisions in the Fair Trading Act 1973
 Merger control is no longer the responsibility of the
Secretary of state but the OFT and CC now transferred to
the CMA, which means more independence from politics
 There is now a new ‘competition test’ instead of the old
‘public interest test’ to determine whether the merger
will substantially lessen competition in the UK
Enterprise Act 2002 Cont..
 Under the Enterprise Act 2002, the OFT was responsible for carrying out
initial investigation where two or more entities have merged and
seize to exist as separate entities , now done by the CMA.
 The entity taken over must have a turnover of at least 70m p.a. or the
combined business should have potential to constitute 25% of the
market in the said industry and the merger could increase their share of
the market and substantially lessen competition.
 Case in point could be Office of Fair Trading v IBA Health Ltd (2004)
where two companies involved in supply of Healthcare software had
their merger investigated by OFT and found not to be harmful and on
appeal this was reversed by the CAT and upheld in the Court of Appeal.
 The legislation now makes cartel agreements such as price fixing and
limitation of supply a criminal offence
Regulatory or Enforcement Bodies
 Office of Fair Trading responsible for granting exemptions,
investigate suspected breaches, make decisions enforceable by
the courts and publish advice and information. Its role in anti
competitive practices have been transferred to the Competition
and Market Authority (CMA) as from April 2014
 Specific Watchdog Agencies such as Ofcom, Ofgem and
Ofwat, regulating telecom, electricity and gas and water
industries respectively do share the same powers above for their
specific industries.
 Competition Commission examining cases sent to it from the
OFT, watchdog agencies and the Secretary of State for Business
and taking independent decisions. The body is now called
Competition and Markets Authority as from April 2014
Competition Commission
 The main body that enforces competition legislations in the UK
 It is now known as the Competition and Markets Authority




as from April 2014 taking most of the functions of the OFT as
well relating to anti competition practices
The recent Enterprise and Regulatory Reform Act 2013 which
came into force in 2014, has extended the role of the body further
Cases come to it from other regulatory bodies
They make recommendations and can now take decision in
the form of remedies to deal with issues relating to mergers,
market investigations e. t. c.
They also hear cases on appeal from decisions of the other
regulatory bodies
European Community Competition
Laws
 The main source of competition law is from the Treaty of Rome
1957 as amended and updated by the Treaty of Lisbon 2009
Article 81 of that treaty now Article 101 of Treaty of Lisbon bans
practices which distorts competition between members states of
the EU.
 Such practices shall include, price fixing, restriction in production,
market sharing
Article 82 now Article 102 of Lisbon Treaty prohibits abuse of
monopolistic position by a business in the EU.
 These will include imposing unfair buying and selling prices to
different clients
Enforcement of these Articles are the responsibility of the European
Commission
Role of the European Commission under EU
Competition Laws
 They have the responsibility to investigate and control any mergers




within the EU dimension.
The criteria which would trigger investigation would include the fact
that the both businesses to be merged have an aggregate turnover
in excess of 250 million Euros within the EU or a world turnover in
excess of 5 billion Euro.
Once the commission is notified about such a situation they have to
decide within a month whether to launch a full investigation and
this investigation is to complete within 4 months.
If it is found out that such a merger will significantly affect effective
competition, it will be blocked.
The European Commission can grant Exemptions (individual or
Block) to EU businesses where it deems necessary to allow for
collaboration
Questions
 1) What is competition policy all about
 2) What constitutes monopoly in the English legal
system
 3) What constitutes qualifying merger for investigation
purposes
 4) Explain and give examples of anti-competition
practices
 5) State a and explain the role of a legislation
regulating anti-competitive practices