to mergers and takeovers)
COMPETITION ACT 1980
(applying to anti-competitive practices)
COMPETITION ACT 1998
(applying to monopolies/market dominance and anti-competitive agreements/restrictive trade agreements)
RESALE PRICES ACTS 1964, 1976
(applying to resale price maintenance)
ENTERPRISE ACT 2002
(applying to mergers/takeovers and anti-competitive agreements)
These laws are currently administered by the OFFICE OF FAIR TRADING and the COMPETITION COMMISSION (formerly the MONOPOLIES AND MERGERS COMMISSION). See also RESTRICTIVE PRACTICES COURT.
In the EUROPEAN UNION, competition law is enshrined in Articles 85 and 86 of the Treaty of Rome (1958) and the 1980 Merger Regulation. These laws are administered by the European Com-mission’s Competition Directorate. See COMPETITION POLICY, COMPETITION POLICY (UK), COMPETITION POLICY (EU), COMPLEX MONOPOLY.
competition methods an element of MARKET CONDUCT that denotes the ways in which firms in a MARKET compete against each other. There are various ways in which firms can compete against each other:
(a) PRICE. Sellers may attempt to secure buyer support by putting their product on offer at a lower price than that of rivals. They must bear in mind, however, that rivals may simply lower their prices also, with the result that all firms finish up with lower profits;
(b) non-price competition, including:
(i) physical PRODUCT DIFFERENTIATION. Sellers may attempt to differentiate technically similar products by altering their quality and design, and by improving their performance. All these efforts are intended to secure buyer allegiance by causing buyers to regard these products as in some way ‘better’ than competitive offerings.
(ii) product differentiation via selling techniques. Competition in selling efforts includes media ADVERTISING, general SALES PROMOTION (free trial offers, money-off coupons), personal sales promotion (representatives) and the creation of distribution outlets. These activities are directed at stimulating demand by emphasizing real and imaginary product attributes relative to competitors.
(iii) New BRAND competition. Given dynamic change (advances in technology, changes in consumer tastes), a firm’s existing products stand to become obsolete. A supplier is thus obliged to introduce new brands or to redesign existing ones to remain competitive;
(c) low-cost production as a means of competition. Although cost-effectiveness is not a direct means of competition, it is an essential way to strengthen the market position of a supplier. The ability to reduce costs opens up the possibility of (unmatched) price cuts or allows firms to devote greater financial resources to differentiation activity. See also MONOPOLISTIC COMPETITION, OLIGOPOLY, MARKETING MIX, PRODUCT-CHARACTERISTICS MODEL, PRODUCT LIFE-CYCLE.
competition policy a policy concerned with promoting the efficient use of economic resources and protecting the interests of consumers. The objective of competition policy is to secure an optimal MARKET PERFORMANCE: specifically, least-cost supply, ‘fair’ prices and profit levels, technological advance and product improvement. Competition policy covers a number of areas, including the monopolization of a market by a single supplier (MARKET DOMINANCE), the creation of monopoly positions by MERGERS and TAKEOVERS, COLLUSION between sellers and ANTI-COMPETITIVE PRACTICES.
Competition policy is implemented mainly through the control of MARKET STRUCTURE and MARKET CONDUCT but also, on occasions, through the direct control of market performance itself (by, for example, the stipulation of maximum levels of profit).
There are two basic approaches to the control of market structure and conduct: the nondiscretionary approach and the discretionary approach. The non-discretionary approach lays down ‘acceptable’ standards of structure and conduct and prohibits outright any transgression of these standards. Typi-cal ingredients of this latter approach include:
(a) the stipulation of maximum permitted market share limits (say, no more than 20% of the market) in order to limit the degree of SELLER CONCENTRATION and prevent the emergence of a monopoly supplier. Thus, for example, under this ruling any proposed merger or takeover that would take the combined group’s market share above the permitted limit would be automatically prohibited;
(b) the outright prohibition of all forms of ‘shared monopoly’ (ANTI-COMPETITIVE AGREEMENT/RESTRICTIVE TRADE AGREEMENTS, CARTELS) involving price fixing, market sharing, etc;
(c) the outright prohibition of specific practices designed to reduce or eliminate competition, for example, EXCLUSIVE DEALING, REFUSAL TO SUPPLY, etc.
Thus, the nondiscretionary approach attempts to preserve conditions of WORKABLE COMPETITION by a direct attack on the possession and exercise of monopoly power as such.
By contrast, the discretionary approach takes a more pragmatic line, recognizing that often high levels of seller concentration and certain agreements between firms may serve to improve economic efficiency rather than impair it. It is the essence of the discretionary approach that each situation be judged on its own merits rather than be automatically condemned. Thus, under the discretionary approach, mergers, restrictive agreements and specific practices of the kind noted above are evaluated in terms of their possible benefits and detriments. If, on balance, they would appear to be detrimental, then, and only then, are they prohibited.
The USA by and large operates the nondiscretionary approach; the UK has a history of preferring the discretionary approach, while the European Union combines elements of both approaches. See COMPETITION POLICY (UK), COMPETITION POLICY (EU), PUBLIC INTEREST, WILLIAMSON TRADE-OFF MODEL, OFFICE OF FAIR TRADING, COMPETITION COMMISSION, RESTRICTIVE PRACTICES COURT, HORIZONTAL INTEGRATION, VERTICAL INTEGRATION, DIVERSIFICATION, CONCENTRATION MEASURES.
competition policy (EU) covers three main areas of application under European Union’s COMPETITION LAWS:
(a) CARTELS. Articles 85(1) and (2) of the Treaty of Rome prohibit cartel agreements and ‘CONCERTED PRACTICES’ (i.e. formal and informal collusion) between firms, involving price-fixing, limitations on production, technical developments and investment, and market sharing, whose effect is to restrict competition and trade within the European Union (EU). Certain other agreements (for example, those providing for joint technical research and specialization of production) may be exempted from the general prohibition contained in Articles 85(1) and (2), provided they do not restrict inter-state competition and trade;
(b) MONOPOLIES/MARKET DOMINANCE. Article 86 of the Treaty of Rome prohibits the abuse of a dominant position in the supply of a particular product if this serves to restrict competition and trade within the EU. What constitutes ‘abusive’ behaviour is similar to the criteria applied in the UK, namely, actions that are unfair or unreasonable towards customers (e.g. PRICE DISCRIMINATION between EU markets), retailers (e.g. REFUSAL TO SUPPLY) and other suppliers (e.g. selective price cuts to eliminate competitors). Firms found guilty by the European Commission of illegal cartelization and the abuse of a dominant position can be fined up to 10% of their annual sales turnover;
(c) MERGERS/TAKEOVERS. The Commission can investigate mergers involving companies with a combined world-wide turnover of over €5 billion (£3.7 bn) if the aggregate EU-wide turnover of the companies concerned is greater than €250 million. Again, the main aim is to prevent mergers likely adversely to affect competition and trade within the
