Think that competition law only applies to big businesses? Think again. The Office of Fair Trading (OFT) has released new guidance to help businesses comply with competition law – and spot when larger companies are being anti-competitive.
What is competition law?
Competition between businesses is essential to drive innovation and keep prices low enough to ensure customer demand, all of which drives our economy. Competition law is the set of rules that competition must work within in order to remain fair and effective. It is meant to prevent any inappropriate business activity that threatens competition. What is anti-competitive behaviour? Essentially, it is the sharing of commercially sensitive information with their competitors. In its quick guide to company law, How Your Business Can Achieve Compliance, the OFT defines three types of anti-competitive behaviour:
Cartels These are the most serious types of anti-competitive agreements, where two or more businesses agree not to compete with each other in order to: fix prices engage in bid-rigging limit production share customers or markets. Abuse of dominant position Anti-competitive conduct by a company that dominates the market includes: selling at lower than cost price offering different prices or terms to similar customers without objective justification refusing to supply an existing or long-standing customer without objective justification.
Examples of other anti-competitive behaviour include agreements that: involve joint selling or purchasing with competitors involve a retailer agreeing with its supplier not to sell below a particular retail price, or have a long exclusivity period (over five years). How does it affect small businesses? While small businesses are less likely to be implicated in competition law than their larger counterparts, risks do still exist. The good news for small businesses is that agreements for companies with low market shares are generally excluded from competition law scrutiny, plus companies with low turnover are exempt from fines. However, they are NOT exempt from scrutiny or fines for price-fixing. And it is also worth bearing in mind that market dominance does not have to be national or even international, but can apply to local markets.
Competition law can be useful to small businesses operating in the wider market. For example, if you believe that a larger competitor or a supplier is acting in an anti-competitive way (i.e. a competitor fixing prices to stop smaller businesses from entering the market or a dominant supplier refusing you reasonable terms), the risk of being investigated for competition offences can often be enough to change their behaviour. If you suspect a competitor or supplier is infringing competition law, you can report them to the OFT Enquiry Line on 08457 22 44 99.
What are the penalties? Penalties include fines of up to 10% of turnover, director disqualification orders and imprisonment for up to five years for individuals involved in cartels. How to avoid anti-competitive behaviour The OFT recommends a four-step risk assessment approach to creating a culture of competition law compliance in your business. Download their suggested process here. They have also produced a more in-depth document explaining the level of competition law understanding expected from directors and the steps they should take to prevent it. Download Company Directors and Competition Law.