Competing fairly

The Competition Act 1998 promotes healthy competition by prohibiting certain anti-competitive behaviour, such as agreeing to fix prices or to carve up markets or abusing market power.

You should be aware of the main rules to avoid breaking the law in your business practices or from becoming a victim of anti-competitive practices. This guide explains what you need to know about competition law in the UK.

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The basis of competition law

There are two major UK laws protecting competition – the Competition Act 1998 and the Enterprise Act 2002. These are supported by Articles 101 and 102 of the Treaty on the Functioning of the European Union (TFEU), formerly Articles 81 and 82 of the EC Treaty.

The Competition Act 1998 prohibits anti-competitive agreements between businesses. You must not, for example:

• agree to fix prices or terms of trade, eg agreeing price rises with your competitors
• agree with your competitors to limit production in order to reduce competition
• share out markets or customers with your competitors – eg agreeing with a competitor that you’ll bid for one contract and they’ll take another

Any agreement that appreciably restricts competition is covered. The law mainly applies to agreements between businesses with a significant presence in the market. But even the smallest business needs to avoid anti-competitive agreements like price fixing. As well as formal agreements, the law also applies to other looser forms of cooperation between businesses.

For more information, see the pages in this guide on anti-competitive agreements and cartels.

The Competition Act also prohibits the abuse of a dominant position in a market. This can apply to businesses that have a very large market share. For more information, see the page in this guide on abuse of a dominant position in a market.

Anti-competitive behaviour is harmful not only to consumers but also to businesses that compete fairly or which are themselves customers of certain goods or services. All businesses, therefore, have an interest in reporting anti-competitive behaviour, even when they are not themselves involved.

The competition laws contained in the Competition Act and the TFEU are similar but not identical. The Chapter I and Chapter II prohibitions of the Competition Act 1998 relate to anti-competitive behaviour that affects trade in the UK, whereas Article 101 and Article 102 of TFEU relate to anti-competitive behaviour that affects trade in the European Union.

Under the Enterprise Act 2002, it is also a criminal offence for individuals dishonestly to engage in certain types of cartel conduct.

The law gives the Office of Fair Trading (OFT) extensive powers to investigate and take action. Penalties can include large fines for businesses, disqualification of directors and even imprisonment or fines for individuals who have been involved in dishonest cartel conduct. Customers and competitors may also be able to sue you or your business.

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Anti-competitive agreements

Agreements between businesses that prevent, restrict or distort competition, or are intended to do so, and which affect trade in the UK are prohibited under Chapter I of the Competition Act 1998 (Chapter I) and, where they affect trade between European Union (EU) Member States, Article 101(1) of the Treaty on the Functioning of the EU (Article 101(1)).

Agreements likely to be prohibited include those which:

• fix prices for goods or services
• limit production
• divide markets
• discriminate – eg between prices charged to customers for the same product

Decisions by associations of businesses are also covered by the Chapter I and Article 101(1) prohibitions. Agreements needn’t be formal for the law to apply – a shared understanding or ‘gentleman’s agreement’ may be sufficient. ‘Concerted practices’ are also covered – this describes forms of cooperation between businesses that fall short of an agreement or decision.

Price fixing

Competition law prohibits almost any attempt by competitors to fix prices – for example, it will generally be illegal to:

• agree prices with your competitors – eg you can’t agree to work from a shared minimum price list
• share markets or limit production to raise prices – eg if two contracts are put out to tender, you can’t agree that you’ll bid for one and let your competitor bid for the other
• agree with your competitors what purchase price you will offer your suppliers

If you supply goods for resale, for example to a wholesaler, distributor or shop, it will also generally be illegal for you to agree a minimum price at which those goods may be resold.

The law doesn’t just cover formal agreements. It can also apply to other activities such as gentleman’s agreements and even informal discussions where confidential commercially sensitive information is exchanged. For example, you shouldn’t discuss your pricing plans with your competitors.

Some agreements are not prohibited by competition legislation – eg non-cartel agreements between businesses with insignificant market shares. There are also some exemptions to the law. There are very few occasions, however, where a price-fixing or market-sharing agreement would be allowed.

Download guidance on agreements, concerted practices and exceptions for anti-competition law [opens in a new window].

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Cartels

A ‘cartel’ generally refers to:

• directly or indirectly fixing prices between two or more competing businesses
• limiting or preventing supply or production between competing businesses
• dividing up customers or prospective customers between competing businesses (also known as ‘market sharing’) – ie where two or more businesses agree not to poach each other’s customers or compete against each other in certain sales territories
• in response to a request by a third party to tender for a contract, an agreement between businesses as to whether or not to bid and/or as to the terms on which they will bid, eg an agreement that one or more of them will not bid or that one will put in an artificially high price so another business can win the contract

Cartels are illegal under both civil and criminal law. They are prohibited under Chapter I of the Competition Act 1998 and Article 101(1) of the Treaty on the Functioning of the European Union. Where an individual does so dishonestly, it will also be a criminal offence under the Enterprise Act 2002 to engage in cartel activity.

If your business is found to be a member of a cartel, it could be fined up to 10 per cent of its turnover. In some cases, individuals within your business could receive an unlimited fine or a prison sentence of up to five years. Company directors may be disqualified from acting as a director for up to 15 years.

Third parties – including competitors, customers and consumer groups – can also bring damages claims against the business.

However, if a business ends its involvement in a cartel and informs the Office of Fair Trading (OFT), it may be granted immunity or a reduction in the financial penalty under Chapter I and Article 101(1). Its employees may also qualify for immunity from prosecution and from director disqualification. See the pages in this guide on reporting cartels to the Office of Fair Trading and the Office of Fair Trading Leniency Programme and Informant Reward Programme.

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Abuse of a dominant position in a market

A business may have a dominant position in a market if it can behave independently of competitive pressures, such as rival businesses, in that market. Chapter II of the Competition Act 1998 and Article 102 of the Treaty on the Functioning of the European Union prohibits abusing this dominant position. A business could be seen to be doing this if it:

• limits production
• charges excessively high prices
• refuses to supply an existing long-standing customer without good reason
• charges different prices to different customers where there is no difference in what is being supplied
• makes a contract conditional on factors that have nothing to do with the subject of the contract

In general, the Office of Fair Trading (OFT) decides if a business is abusing its position by considering the likely effect of their conduct, rather than the specific form of the conduct. Abusive conduct on the competitive process may adversely affect consumers directly (eg through pricing) or indirectly (eg by reducing the availability of competitors in the market).

The OFT may impose a financial penalty of up to 10 per cent of the worldwide turnover of an undertaking for an infringement of Article 102 and/or the Chapter II prohibition.

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How to report businesses that breach competition law

The Office of Fair Trading (OFT) relies on complaints to help them promote healthy competition and protect the interests of consumers and businesses. If you suspect a competitor, supplier, customer or any other business is infringing the law, you should contact the OFT Enquiry Line on Tel 08457 22 44 99 or email them at enquiries@oft.gsi.gov.uk.

There are a number of signs that a business you deal with may be breaking competition law. These include:

• a supplier prevents you from selling their products at a discount
• a long-standing supplier decides, without giving a reason, to stop supplying you
• you receive quotes from various suppliers that are unusually similar
• you enter a market and a major competitor responds by charging extremely low prices that you suspect would not cover costs

If a business appears to be behaving in any of these ways, it does not necessarily mean it has breached the law. In some cases the behaviour may be a legitimate response to strong competition.

You should contact the OFT for advice before making a formal complaint. You will usually be asked to submit your complaint in writing, giving as much information as possible, so the OFT can carry out an initial assessment.

In certain circumstances, once the OFT has taken a case forward, it will provide you with a formal opportunity to comment on its provisional findings before the end of the investigation.

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Reporting cartels to the Office of Fair Trading

A cartel is an agreement (whether written, oral or both) between competing businesses that does one or more of the following:

• fixes prices
• rigs bids (tenders)
• establishes output restriction or quotas
• shares or divides markets

For more information, see the page in this guide on cartels.

Cartels seriously damage other businesses and the economy and consumers end up paying deliberately inflated prices. One of the priorities of the Office of Fair Trading (OFT) is to act against cartels.

Cartels are illegal under both civil and criminal law. To report cartel activity, you can call the OFT Cartel Hotline on Tel 0800 085 1664 or email them at cartelshotline@oft.gsi.gov.uk.

You may already have information that would be useful to the OFT. This should be reported to the OFT Cartels Hotline. You should also contact the OFT for advice before trying to obtain any further evidence of cartel activity. The OFT will be able to tell you if they would like you to take any further action and, if so, how to reduce any risks you may face. They can also advise you of the sorts of information that may be relevant to any investigation.

The OFT will take steps to ensure that the information you provide is safeguarded and handled with a view to protecting your identity from disclosure.

Cartels are generally conducted in secret and they can be hard to detect and prove, which is why the OFT may offer financial rewards for information which helps in the detection, investigation and fining of businesses that have been involved in cartel conduct and/or the prosecution of individuals.

It also offers leniency to businesses reporting cartels that they are themselves involved in. For more details, see the page in this guide on the Office of Fair Trading Leniency Programme and Informant Reward Programme.

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The Office of Fair Trading Leniency Programme and Informant Reward Programme

The Office of Fair Trading (OFT) offers lenient treatment to businesses and individuals who report their involvement in cartel activity. Businesses who have been found guilty of cartel activity but who collaborate with the OFT may have their financial penalty reduced or avoid a penalty altogether.

To qualify for leniency, applicants must admit their involvement in unlawful cartel activity, co-operate fully with the OFT’s investigation and – unless otherwise directed by the OFT – stop their involvement in the cartel immediately. Where a business is the first to report a cartel, it may qualify for immunity from fines and its current or former employees who cooperate with the OFT’s investigation may qualify for immunity from prosecution for the cartel offence. Immunity is more likely to be available if the cartel is one which the OFT is not already investigating.

Individuals who come forward with information about their involvement in a criminal cartel offence may also be granted immunity from prosecution in the form of a ‘no-action letter’ issued by the OFT.

You can find information on reporting your involvement in a cartel on the OFT website- Opens in a new window.

Financial rewards

The OFT grants rewards at its discretion and can reject offers of information without explanation. Even where the OFT accepts that information provides the basis for further investigation, a financial reward is not guaranteed.

Where a reward is available, its size will depend on:

• the information’s value, in terms of what the OFT has achieved from it
• the amount of harm to the economy and consumers the information has helped to disclose/end
• the effort invested in gathering the information
• any personal risk involved

The OFT aims to pay a ‘fair and representative’ reward for information, but it won’t bargain or pay up-front.

The OFT operates entirely within the law when working with informants. As long as you act in accordance with the OFT’s instructions, you should not face any civil or criminal liability. You may take legal advice at any point – eg about employment law if you are planning to give information in relation to your employer or employee – but this must be self-funded.

Information from an informant will generally only be used as intelligence, in which case your identity will be protected. There may be rare cases in which the OFT would seek your agreement to give evidence as a witness, in which case we would discuss this with you. Employers cannot dismiss or victimise an employee for whistleblowing – reporting wrongdoing in the workplace. Find whistleblowing guidelines on the Public Concern at Work website- Opens in a new window.

The OFT is unlikely to consider paying a reward to anyone who has himself or herself engaged in cartel activity. Individuals who have engaged in cartel activity have the opportunity to apply immunity from prosecution by reporting the matter to the OFT and would not also qualify for a financial reward.

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Private litigation in competition cases

Competition law promotes, among other things, innovation, consumer choice and lower prices for consumers and other customers.

Consumers, other customers and competitors who suffer loss from breaches of competition law may seek compensation for this by:

• bringing claims for relief in the courts against the business(es) who committed the breach
• pursuing other means of dispute resolution such as settlement or arbitration

Download guidance on private litigation in competition cases [opens in a new window].

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