Competition law - five reasons why company directors should stay alert 

13th December 2017

Competition law - five reasons why company directors should stay alert 

Email a Friend

Last financial year, the Competition and Markets Authority (CMA) fined businesses in the UK £100m in total for breaking competition law – compared to £46m the year before and £0.7m the year before that. There’s no question about it: competition law enforcement in the UK is picking up.

So why is this something you should concern yourself with – and what do you need to watch out for?

1. Competition law is there to protect the public – including you

Competition matters – it is one of the most basic principles of a thriving economy. Where businesses try to avoid competing with each other, they undermine that very principle, with real consequences. The founder of modern economics, Adam Smith, spoke of collusion as a ‘conspiracy against the public’. Breaking competition law – for example by price fixing, market sharing or bid-rigging – is essentially a form of theft. The victim could be you as a consumer, forced to pay higher prices for a lower quality service because businesses aren’t truly competing for your purchase. It could be you as a business customer, ripped off by your suppliers who are colluding with each other to keep prices artificially high. It could be you as a taxpayer, funding vital public services forced to pay inflated prices for the products and services they need because those supplying them don’t play by the rules.

2. Your employees may not know where the line is between legal and illegal behaviour

People who are most at risk of breaking competition law include those in roles involving pricing and commercial strategy, such as sales. Research conducted amongst frontline sales professionals a few years back indicated that very few of them were aware of competition law – 77% said they were unfamiliar with it. What’s even more worrying is that, when quizzed about day-to-day behaviours that would likely break competition law, they showed similar levels of ignorance. For example, when faced with the statement ‘It’s ok for competitors to agree prices in order to avoid losing money’, just over half correctly identified this as a problem. The smaller the business they worked for, the lower the awareness.

3. Competition law applies across the board

By way of example, let’s consider two very different sectors where businesses broke competition law: the production of galvanised steel tanks (used for water storage in large buildings such as schools or hospitals, and in fire sprinklers) and the online market for posters and frames featuring the likes of Justin Bieber or One Direction.

Would you say, at first glance, that these two sectors had much in common? Both of these sectors harboured cartels. Between 2011 and 2015, two online sellers used a pricing algorithm to implement an agreement between them not to undercut each other on price. Between 2005 and 2012, four galvanised steel tanks suppliers agreed to divide customers among themselves, fix prices and rig bids for contracts – all with the aim of improving their profit margins by preventing customers from ‘playing’ competitors off against each other. In both instances, the colluding businesses were caught. Cartels can occur in any market.

4. There can be serious repercussions for breaking competition law…

Businesses that break competition law can face severe fines – up to 10% of a company’s worldwide turnover. The level of fines depends on the circumstance of the case – director involvement, for example, means that the fine will be higher. In addition, individuals that are involved in an illegal cartel can also face personal consequences. The director of one of the online sellers mentioned earlier on, Trod Ltd, has since been banned from running a company for five years. In the most extreme cases, cartel members can even go to jail.

5. Informing yourself (or your staff) about competition law doesn’t have to be onerous

Last but not least – a bit of good news. You don’t have to be a competition law expert to understand competition law. And, while there is certainly a considerable lack of awareness around competition law – within small to medium-sized enterprises in particular – there is guidance available to help businesses stay on the straight and narrow. The CMA has published a range of introductory competition law guides – short videos and one-pagers looking at different aspects of competition law in a brief, accessible way. There’s even a quiz to test your own competition law knowledge.

So take a quick read if you haven’t already – it doesn’t take long and it’s worth it to make sure you, your staff and your business are on the safe side when it comes to competition law.

This article was produced by the Competition and Markets Authority. For more information, please contact Susanne Quick.

Join Now

  • Gain access to investors
  • Benefit from our campaigns on key policy issues
  • Receive discounts on best practice guides
  • Connect with other members of the sector at our events
  • Stay ahead of the issues with up-to-date news and information
Join now

Newsround

Newsround is the QCA's monthly newsletter produced for the small and mid-cap community.

Sign up