Starting your own business is incredibly exciting and will present you with plenty of new opportunities and challenges to overcome. But one challenge that doesn’t excite some business owners is the idea of competition.
Let’s face it: no matter what your business does, who you’re selling to, or where you’re operating from in the world, the chances are you’ll have competition. Generally speaking, competition is good for business, the consumer and the marketplace. Why? Because it forces companies to innovate and deliver bigger, better and more efficient goods or services – for less.
When companies do better, everybody benefits, and that’s one of the key foundations of the UK’s thriving business sector.
That being said, there are instances where companies are so frightened of the prospect of competition or failure, they strike some form of agreement not to compete with one another. Although that might sound like a great idea to some company owners, the vast majority of this type of anti-competitive behavior is actually illegal in the UK.
To help you understand why anti-competitive activity is illegal, as well as the legal repercussions if you’re found to be in breach of those laws in the UK, we’ve compiled a comprehensive guide explaining everything you need to know about anti-competition law.
What is anti-competitive activity?
Before delving into the law itself and the penalties you could face for non-compliance, it’s worth looking into what anti-competitive activity actually is.
The UK Government identifies most anti-competitive business activity as being under one of two categories:
- Price fixing, bid rigging or any other ways of agreeing not to compete
- Abuse of a dominant market position
When you agree not to compete with one or more businesses in certain ways, this is often referred to as a ‘cartel.’ The businesses involved in a cartel could be any size, including just one shareholder or director, and UK Government rules on cartels cover all of the following:
Price fixing is a practice in which two or more companies strike an agreement not to sell goods or services below a certain price or rate.
Bid rigging is a practice that sees two or more companies or parties collude to choose the winner of a bidding process for work or a contract, often from a pool of uncompetitive bids.
Sharing markets or customers
Market sharing is when two or more companies that would ordinarily compete, strike an agreement to divide customers or allocate a predefined market share, group of suppliers or geographic area (as opposed to making independent decisions concerning where they should operate, who to source from and which customers they would like to actively pursue).
Sharing commercially sensitive information
Sharing any sort of commercial information that could reduce competition between your company and its competitors is also illegal in most instances.
We’ll explore each of these activities in-depth in just a minute – but first, you should note that an agreement to conduct any of the above activities does not need to be in writing for it to count as being illegal. Any informal conversation or so-called ‘gentleman’s agreement’ with another business could also be in breach of anti-competition law, even if that agreement is never carried out.
What counts as price fixing?
You’re not allowed to discuss the prices you currently or are planning to charge your customers or clients with any of your competitors. According to the UK Government, your business will likely be in breach of anti-competition law if you discuss any of the following information about pricing with other companies operating in your industry sector:
- Plans or an agreement to charge the same prices to your customers as another company
- Plans or an agreement to offer discounts or increase your prices at the same time as another company
- Plans or an agreement to charge the same fees to intermediaries as another company (such as retailers selling your products)
What counts as bid rigging?
You’re not allowed to discuss any bids for a contract tender you have issued or are taking part in with your competitors. According to the UK Government, your business will likely be in breach of anti-competition law if you discuss any of the following information about bids or contract tenders with other companies operating in your sector:
- Plans or any agreements about your bid
- Plans or any agreement to take turns with another company to win contracts
- Approaching other businesses to bid when they do not actually want the contract (this practice is referred to as a ‘cover bid’)
- Paying or approaching other businesses about paying them not to make a bid or when your business wins a contract tender
- Plans or agreements with other companies not to bid or to withdraw their bid
What counts as market sharing?
You’re not allowed to discuss or agree with other businesses to share markets or customers. This includes, among other activities, dividing customers, allocating a predefined market share, dividing suppliers or splitting a defined geographic area with your competitors.
According to the UK Government, your business will likely be in breach if you discuss any of the following information about market sharing with other companies operating in your industry space:
- Plans or an agreement not to approach each other’s customers
- Plans or an agreement not to compete with them for customers
What counts as information sharing?
You’re not allowed to discuss or agree with other businesses to share information that might reduce competition between your companies.
In line with UK law, your business will likely be in breach if you discuss information about any of the following topics with other companies operating in your sector:
- Your prices
- Your production processes
- Your suppliers
- Your customers
- Your contractors
- The markets that your company is selling (or planning to sell) to
You should note that the above parameters include sharing information with another company via a third party, for example through a trade association or some sort of industry body.
How do I know if my company is abusing a dominant position?
In addition to the activities we’ve already covered above, your company is also likely to be in breach of anti-competitive law in the UK if you are considered to be abusing a dominant market position.
For reference, your business is considered to command a dominant position over a particular market if it claims a market share of 40% or more, and it is not affected by normal competitive restraints. So, how could your company be in breach of such an enviable position?
Examples outlined by the UK Government in terms of a potential breach include activities that are considered unfair to your customers or to other businesses, including:
- Treating various customers differently (such as offering different prices or terms to customers at will)
- Charging prices so low that they don’t actually cover your costs, with the intention to drive away competitors
- Making customers purchase products they don’t actually want (such as pushing them to take out a product warranty)
Are there any other types of anti-competitive activities my company is not allowed to do?
There are a few other rules covered by UK law that would be considered in breach of anti-competitive law.
These include laws against:
- Joint purchase or sales agreements with your competitors
- Any agreement with another company to reduce or temporarily halt production of a product or service with the aim to raise its market value
- Restricting the price at which other businesses are allowed to sell your products or services
- Any agreement with another company to restrict sales to certain customers
- Any agreement with another company to restrict business or avoid certain suppliers
- Some forms of long-term, exclusive contracts with customers or suppliers
What happens if my company gets caught carrying out anti-competitive activity?
If you or your business are found to be involved in any sort of anti-competitive behaviour, it could spell financial ruin for you and your company.
Under UK law, your business can be fined up to 10% of its worldwide turnover. It can also be sued for damages. Meanwhile, you can be personally fined or sent to prison for a period of up to five years if you are found guilty of having been involved in any sort of illegal cartel activity.
Likewise, company directors can be disqualified from being a director for a period of up to 15 years if they are deemed to have been in breach of anti-competition laws.
It’s also important to bear in mind that your business can still be penalised or sued for damages if it is found to be in breach – even if senior managers did not know anything about the illegal activities in question.
How can my business avoid being penalised?
Simply put, any type of anti-competitive activity is illegal – and so if you want to avoid being penalised, you need to avoid these types of activities. As a business owner, it is your responsibility to ensure that your company is not breaking competition law.
That means you need to manage the risks associated with non-compliance, and that management task begins with first identifying whether your business is at risk of non-compliance.
As a point of reference, your company is likely to be more at risk if you or your employees have any sort of contracts with your competitors, or any of your employees regularly move to or from jobs with some of your competitors or other companies operating in your industry sector. Likewise, any partnerships with competitors such as joint buying agreements or long-term exclusive contracts with customers or suppliers could place your business at risk.
And above all else, any business that commands a dominant market position should be aware of the potential risks they face as a large market player.
After identifying existing or potential risks of non-compliance, it’s your responsibility as company owner to set up policies, guidelines and training to make sure that all employees and stakeholders know what anti-competitive activity is, how to avoid it and how to report it.
It’s also worth noting that if you are worried your company currently is or has engaged in the past with any type of anti-competitive activity, the UK Government offers a Competition Pro Bono Scheme you can contact for free and independent advice. Their experts will be able to advise you of your rights, obligations and ways forward.
How do I report anti-competitive activity?
You and your employees should report anti-competitive activity wherever appropriate, and the way in which you are expected to report this illicit activity depends upon a few factors.
If you believe the rights of you or your business are being infringed upon by a cartel, you should contact the Competition Markets Authority (CMA) cartels hotline. In some cases, you may receive a financial reward in exchange for information provided that leads to an investigation. Likewise, you may be treated with a degree of leniency if you report a cartel you have been involved with in the past.
Any other type of anti-competitive activity should be reported to the CMA via this notification form, which you should then submit to the following email address: firstname.lastname@example.org. Alternatively, you are encouraged to report anti-competitive activity to the relevant industry or regulatory body responsible for your industry space.
The bottom line
At the end of the day, anti-competition law in the UK is extremely serious, and you should not mess around with your future or the future of your company by getting involved in illicit activity. There are certain instances in which you or your business may have taken part in some of these activities without knowing they were illegal – or perhaps you’re hovering about in a grey area that you are unsure about.
When in doubt, or if you are concerned, you should always consult a legal expert for comprehensive and professional advice. If you do not have appropriate legal representation with knowledge about anti-competitive activity, you may wish to contact the government’s free Competition Pro Bono Scheme or your relevant industry or regulatory body for guidance.
Just remember, although it sounds nice to live in a world without business competition, trying to avoid that competition could land your business in hot water. Try to embrace the spirit of competition, learn from other businesses and use those lessons to make your company better.
Are you looking for additional business resources? Check out Quality Company Formation’s Blog.