Competition Act 1998
Encyclopedia
The Competition Act 1998 is the current major source of competition policy in the UK along with Enterprise Act 2002
. The act provides an updated framework for identifying and dealing with restrictive business practices and abuse of a dominant market position.
One of the main purposes of this act was to harmonise the UK with EU competition policy, with Chapter I and II of the act mirroring the content of Articles 81 and 82 of the Treaty of Amsterdam. (Formally Articles 85 and 86 of the Treaty of Rome
).
share information, fix prices, tender collectively and share markets out.
Office of Fair Trading
(OFT) is responsible for prosecuting such firms who engage in these activities, and are able to levy fines up to 10% of annual UK turnover for every year in which a violation has taken place up to a maximum of 3 years.
Exemptions from prohibition are available if the firm can demonstrate that these practices are in the interest of the consumer through increasing market efficiencies or advancing technical progress.
predatory pricing
, excessive prices, refusal to supply, vertical restraints
and price discrimination
to maximise profit, gain competitive advantage or otherwise restrict competition.
In investigating alleged breaches of chapter II a two stage process is involved. Firstly it must be identified if the firm actually possesses a dominant market position. This can be done through various concentration indices such as the Herfindahl-Hirchman Index (HHI). Generally if a firm is found to have a market share in excess of 40% then it is considered a threat to competition.
There are no exemptions to chapter II as by its very definition as "abuse" of a market position, one must be guilty of wrongdoing for the chapter to apply.
An example of the effects of the act is that in 2004, public schools
were investigated for fee-fixing by the Office of Fair Trading
, and in 2005 fifty of the leading schools (including Ampleforth
, Eton
, Charterhouse
, Gresham's
, Harrow
, Haileybury, Marlborough
, Rugby
, Shrewsbury
, Stowe
, Wellington
and Winchester
) were ordered to raise £3 million between them to be spent on charities nominated by the pupils of the schools involved in the years 2001-2003, and were banned from further sharing of information on their fees.
Enterprise Act 2002
The Enterprise Act 2002 is an Act of the Parliament of the United Kingdom which made major changes to UK competition law with respect to mergers and also changed the law governing insolvency bankruptcy.-Structure:*Part 1 The Office of Fair Trading...
. The act provides an updated framework for identifying and dealing with restrictive business practices and abuse of a dominant market position.
One of the main purposes of this act was to harmonise the UK with EU competition policy, with Chapter I and II of the act mirroring the content of Articles 81 and 82 of the Treaty of Amsterdam. (Formally Articles 85 and 86 of the Treaty of Rome
Treaty of Rome
The Treaty of Rome, officially the Treaty establishing the European Economic Community, was an international agreement that led to the founding of the European Economic Community on 1 January 1958. It was signed on 25 March 1957 by Belgium, France, Italy, Luxembourg, the Netherlands and West Germany...
).
Chapter I Prohibitions
Deals with restrictive practices engaged by companies operating within the UK that distort, restrict or prevent competition. These are primarily in the form of horizontal agreements (agreements to collude between firms on the same level of the supply chain such as retailers or wholesalers). These agreements could be to limit output, collusivelyCollusion
Collusion is an agreement between two or more persons, sometimes illegal and therefore secretive, to limit open competition by deceiving, misleading, or defrauding others of their legal rights, or to obtain an objective forbidden by law typically by defrauding or gaining an unfair advantage...
share information, fix prices, tender collectively and share markets out.
Office of Fair Trading
Office of Fair Trading
The Office of Fair Trading is a not-for-profit and non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforces both consumer protection and competition law, acting as the UK's economic regulator...
(OFT) is responsible for prosecuting such firms who engage in these activities, and are able to levy fines up to 10% of annual UK turnover for every year in which a violation has taken place up to a maximum of 3 years.
Exemptions from prohibition are available if the firm can demonstrate that these practices are in the interest of the consumer through increasing market efficiencies or advancing technical progress.
Chapter II Prohibitions
Chapter II deals with the abuse of a dominant position by a firm who uses practices such aspredatory pricing
Predatory pricing
In business and economics, predatory pricing is the practice of selling a product or service at a very low price, intending to drive competitors out of the market, or create barriers to entry for potential new competitors. If competitors or potential competitors cannot sustain equal or lower prices...
, excessive prices, refusal to supply, vertical restraints
Vertical restraints
Vertical restraints are competition restrictions in agreements between firms or individuals at different levels of the production and distribution process. Vertical restraints are to be distinguished from so-called “horizontal restraints,” which are found in agreements between horizontal competitors...
and price discrimination
Price discrimination
Price discrimination or price differentiation exists when sales of identical goods or services are transacted at different prices from the same provider...
to maximise profit, gain competitive advantage or otherwise restrict competition.
In investigating alleged breaches of chapter II a two stage process is involved. Firstly it must be identified if the firm actually possesses a dominant market position. This can be done through various concentration indices such as the Herfindahl-Hirchman Index (HHI). Generally if a firm is found to have a market share in excess of 40% then it is considered a threat to competition.
There are no exemptions to chapter II as by its very definition as "abuse" of a market position, one must be guilty of wrongdoing for the chapter to apply.
An example of the effects of the act is that in 2004, public schools
Public School (UK)
A public school, in common British usage, is a school that is neither administered nor financed by the state or from taxpayer contributions, and is instead funded by a combination of endowments, tuition fees and charitable contributions, usually existing as a non profit-making charitable trust...
were investigated for fee-fixing by the Office of Fair Trading
Office of Fair Trading
The Office of Fair Trading is a not-for-profit and non-ministerial government department of the United Kingdom, established by the Fair Trading Act 1973, which enforces both consumer protection and competition law, acting as the UK's economic regulator...
, and in 2005 fifty of the leading schools (including Ampleforth
Ampleforth College
Ampleforth College in North Yorkshire, England, is the largest Roman Catholic co-educational boarding independent school in the United Kingdom. It opened in 1802, as a boys' school, and is run by the Benedictine monks and lay staff of Ampleforth Abbey...
, Eton
Eton College
Eton College, often referred to simply as Eton, is a British independent school for boys aged 13 to 18. It was founded in 1440 by King Henry VI as "The King's College of Our Lady of Eton besides Wyndsor"....
, Charterhouse
Charterhouse School
Charterhouse School, originally The Hospital of King James and Thomas Sutton in Charterhouse, or more simply Charterhouse or House, is an English collegiate independent boarding school situated at Godalming in Surrey.Founded by Thomas Sutton in London in 1611 on the site of the old Carthusian...
, Gresham's
Gresham's School
Gresham’s School is an independent coeducational boarding school in Holt in North Norfolk, England, a member of the HMC.The school was founded in 1555 by Sir John Gresham as a free grammar school for forty boys, following King Henry VIII's dissolution of the Augustinian priory at Beeston Regis...
, Harrow
Harrow School
Harrow School, commonly known simply as "Harrow", is an English independent school for boys situated in the town of Harrow, in north-west London.. The school is of worldwide renown. There is some evidence that there has been a school on the site since 1243 but the Harrow School we know today was...
, Haileybury, Marlborough
Marlborough College
Marlborough College is a British co-educational independent school for day and boarding pupils, located in Marlborough, Wiltshire.Founded in 1843 for the education of the sons of Church of England clergy, the school now accepts both boys and girls of all beliefs. Currently there are just over 800...
, Rugby
Rugby School
Rugby School is a co-educational day and boarding school located in the town of Rugby, Warwickshire, England. It is one of the oldest independent schools in Britain.-History:...
, Shrewsbury
Shrewsbury School
Shrewsbury School is a co-educational independent school for pupils aged 13 to 18, founded by Royal Charter in 1552. The present campus to which the school moved in 1882 is located on the banks of the River Severn in Shrewsbury, Shropshire, England...
, Stowe
Stowe School
Stowe School is an independent school in Stowe, Buckinghamshire. It was founded on 11 May 1923 by J. F. Roxburgh, initially with 99 male pupils. It is a member of the Rugby Group and Headmasters' and Headmistresses' Conference. The school is also a member of the G20 Schools Group...
, Wellington
Wellington College, Berkshire
-Former pupils:Notable former pupils include historian P. J. Marshall, architect Sir Nicholas Grimshaw, impressionist Rory Bremner, Adolphus Cambridge, 1st Marquess of Cambridge, author Sebastian Faulks, language school pioneer John Haycraft, political journalist Robin Oakley, actor Sir Christopher...
and Winchester
Winchester College
Winchester College is an independent school for boys in the British public school tradition, situated in Winchester, Hampshire, the former capital of England. It has existed in its present location for over 600 years and claims the longest unbroken history of any school in England...
) were ordered to raise £3 million between them to be spent on charities nominated by the pupils of the schools involved in the years 2001-2003, and were banned from further sharing of information on their fees.