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Guide to Competition Law: Part I

Competition law is rooted in both domestic and EU legislation. In the UK, competition is monitored by the CMA (Competition and Markets Authority), a non-ministerial government department set up by the Enterprise and Regulatory Reform Act 2013. Across EU nations, the EC (European Commission), founded in 1958, controls any business behaviour that restricts a fair single market.

Post-Brexit transition period - December 31st 2020, to be exact - the EU rules no longer apply here. However, the common goal still stands: to protect consumers and businesses from unfair and artificial distortion of product markets, typically by large well established companies. The CMA and EC look at two core anti-competitive practices: collusion and abuse of dominance.

Just think about David and Goliath. Abuse of dominance would be Goliath using his super strength to beat up David far more than necessary. Collusion would be a type of David-Goliath truce where the parties agree to stop fighting and survive comfortably - to no one’s real benefit or enjoyment.

CMA: Investigatory Powers

A CMA investigation can be launched whenever there are “reasonable grounds for suspecting” anti-competitive behaviour (S25 Competition Act 1998). And the standard of evidence isn’t very strict.

Therefore, a whistleblower, an affected Third-party, a suspicious press release, or even an investigative news piece about activities such as bid-rigging, excessive discounts and rebates, collusive price increases and sharing customer data can kick start an investigation.

The CMA doesn’t act alone, either. It can partner with other regulating bodies, those with specialist sector knowledge, to help its research. Some types of investigation include:

  • Market Investigation - a maximum 18-month survey into a particular industry i.e. energy markets which looks to see if it has any AEC (adverse effects on competition)

  • Behavioural Investigation - specific civil investigations into collusion and abusive behaviour of a dominant company i.e. a company with 50% market share in a relevant product market

  • Merger Assessment - a potentially two-phase investigation of any merger where the acquired company’s UK revenue exceeds £70 million, or if one company has 25% market share and the deal will increase it

Focussing on behavioural investigations, for now, the consequences of Chapter I and Chapter II breaches (below) can be harsh. Businesses can face a 10% fine on total UK revenue and automatic voiding of the anti-competitive terms. Company directors can be disqualified for up to 15 years. Anyone affected by the infringement can bring a “follow-on” claim to the Competition Appeal Tribunal or the High Court - here, the CMA findings are binding on the court and the results are used as evidence.

Competition Law in Action: Pharmaceuticals

In 2019, the CMA provisionally found a group of pharmaceutical companies - Alliance Pharmaceuticals, Focus, Lexon and Medreich - breached Chapter I CA98. Focus supplied the NHS with prochlorperazine, an anti-nausea and anti-dizziness tablet. The tablets were made by Alliance. Between December 2013 - December 2017, the prices rose by 700% leading to the NHS increasing its allotted spend by £4.8 million. This is despite the fact pack orders went down over the period.

Anti-competitive collusion was suspected. The CMA’s provisional findings showed that Focus used the massive profit increase to pay off Lexon and Medreich not to compete for supply.

Specifically, two agreements were thought to breach Chapter I: (i) the Alliance-Focus deal, which stipulated Alliance would only supply the drug to Focus, and (ii) the Focus-Lexon-Medreich deal, which split a portion of the profits between Lexon and Medreich so they wouldn’t supply prochlorperazine - despite Medreich obtaining a licence to do so in 2014.

The big picture is that due to apparent multi-party collusion the NHS paid out higher prices without ever having the chance to choose another, perhaps cheaper, supplier. The provisional findings were later closed on administrative grounds, but it’s a good example of how the CMA operates in real markets.

Further Reading


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