What is a cartel?
The term ‘cartel’ is a catch-all that covers any of the following collusive arrangements between businesses:
- Directly or indirectly fixing prices between businesses – where two or more businesses agree to raise the price of their product or service instead of setting their prices independently of each other and competing in the market place. This is known as price fixing.
- Limiting or preventing supply or production between businesses – where two or more businesses agree to limit or prevent the supply or production of a product.
- Dividing up customers or prospective customers between businesses – where two or more businesses agree that they will not poach each other’s customers and/or that business 1 will not compete with business 2 in area A if business 2 agrees to a similar arrangement for the benefit of business 1 in area B. This is known as market sharing.
- In response to a request by a third party to tender for a contract, a secret agreement between businesses that one or more of them will agree not to bid for the contract or one or more of them will put in an artificially high price for the contract to allow another business to win the contract – perhaps for a return of favour on another occasion when another contract is tendered. This is known as bid rigging.
A single meeting can be all it takes to get you in trouble….Certain topics should not be discussed – especially anything that involves you telling others what prices you may charge or quote in the future.
As a customer, you are entitled to tell a supplier what you are being quoted elsewhere. This helps ensure suppliers remain competitive when offering prices to their customers.
Agreeing with a competitor what prices either or both of you will charge is illegal and can lead to serious penalties. This includes agreeing not to sell below a specific price.
It can be illegal for competing businesses to divide up markets, such as geographic areas or particular types of customer, and agree not to go after the same ones.
It can be anti-competitive if a supplier or manufacturer tries to restrict how other businesses sell their products.
It is legal to set a recommended retail price, but illegal to ‘force’ others to sell at this price and to penalise them if they decide to discount below it.
It is illegal for competing businesses to discuss commercially sensitive details of their bids with each other, such as what price they will quote, when responding to a tender.
Competition law puts limits on what a dominant business can do. Dominant businesses must not abuse their power to unfairly squeeze out their rivals.
What is bid-rigging?
Bid-rigging is when suppliers agree to limit competition in the procurement process, thereby denying the customer a fair price. Bid-rigging agreements can take several forms, such as:
- bid rotation – where firms agree to take it in turns to submit the lowest bid
- bid suppression – where one or more firms agree not to bid, or to withdraw their bids
- cover pricing – bidders arrange for one or more of them to submit an artificially high bid, distorting the procurer’s impression of the competitive price
Why public sector procurers should care about bid-rigging
Bid-rigging can cost the taxpayer money and can exclude potentially more efficient competitors from the bidding process.
It may also reduce suppliers’ incentives to improve quality or innovate.
How to spot suspicious bidding patterns
- bids received at the same time or containing similar or unusual wording
- different bids with identical prices
- bids containing less detail than expected
- the likely bidder failing to submit a bid
- the lowest bidder not taking the contract
- bids that drop on the entry of a new or infrequent bidder
- the successful bidder later subcontracting work to a supplier that submitted a higher bid
- expected discounts suddenly vanishing or other last minute changes
- suspiciously high bids without logical cost differences (for example, delivery distances)
- a bidder that betrays discussions with others or has knowledge of previous bids
What can public sector procurers do to reduce the risks of anti-competitive behaviour?
- look for suspicious bidding patterns, and inform suppliers that you will be looking
- consider requiring bidders to sign non-collusion clauses and/or certificates of independent bids
- avoid tender list management that incentivises firms to bid even if they do not want the work
- share experience with other public sector procurers
Bid-rigging can cost the taxpayer money. Stay aware to the possibility that your suppliers are rigging bids and report any suspicious behaviour to the CMA
CARTELS
- price-fixing
- fixing other aspects of a product, such as its specification
- agreements to limit supply or production
- agreements not to compete in each other’s markets,
- ‘pay and delay’:- payments by one company to another in return for promises not to enter a market, and
- bid-rigging, including ‘cover bidding’ where two or more companies secretly agree that at least one of them will submit a bid that us deliberately high or of poor quality during a competitive tender process.
It is also illegal for organisations to consult each other about pay rates, for instance.
It is important to distinguish cartels from tacit collusion (failing to reduce prices because they reckon that this would cause their competitors to reduce their prices, so they would all be worse off.
Anonymised sharing of cost and other information, for instance via a trade association, is generally OK. But cross-company price fixing is not allowed
even the announcement of future prices (or price rises/reductions) can be problematic as they can facilitate price coordination because they reduce each player’s uncertainty about rivals.
Equally, it is generally OK for companies – such as vehicle manufacturers – to cooperate to improve the quality and safety of their products – by introducing standardised autonomous systems, for instance. But the EC have taken strong action against vehicle manufacturers who have done the opposite – agreeing not to improve their products and/or not to compete on quality.
Limited RPM is still allowed , eg in pharmaceuticals, to deter price cutting by lower quality products. It has also been allowed to stop small shops etc. being competed out by large rivals.
Cartel investigations are under Chapter I of the Competition Act 1998 which mirrors Article 101 of (TFEU). Criminal prosecutions are brought under Section 188 of the Enterprise Act 2002.
Exemptions, including Block Exemptions
Agreements are exempt from the Chapter I (cartel) prohibition if they contribute to improving production or distribution, or promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit.
An agreement may be individually recognised as exempt by a competition authority or a court and, in addition, certain agreements are automatically exempt if they meet conditions in a ‘block exemption’ There are currently two block exemptions:- R&D and Specialisation.
Franchising (i.e. exclusivity within the franchised area) is generally often OK where there is a PI.
The R&D exemption: For example, two competitors may agree to carry out R&D together, to ensure that the R&D can benefit from their combined know-how, expertise and/or resources.
The Specialisation exemption : For example, where two competitors work together to produce certain products (goods or services) jointly, so that they can lower their costs, which in turn could lead to lower prices for consumers
Chapter I investigations
CMA offer leniency to the first cartel member to confess. Such whistle-blowing is a powerful weapon because one cartel member can never be sure that other members will remain silent, so the more nervous may quickly confess
eg. such whistle-blowing led to British Airways being fined £121m by cma for fixing long-haul fuel surcharges, followed by a $300m (£148m) fine from the US Department of Justice for colluding over cargo and long-haul surcharges. (The UK fine was subsequently reduced to £58m in part to reflect BA’s cooperation with the inquiry.) BA was brought before the authorities after Virgin Atlantic blew the whistle about the surcharges – a levy added to tickets to cover the rising cost of oil. Virgin escaped penalties. both Virgin and BA may be required to pay damages to customers as a result of class action law suits.
cma in 2009 imposed fines totaling £130m on 103 construction companies for bid-rigging and cover pricing, (Cover pricing involves a company asking a tender bidder what high (‘cover’) price would ensure that they did not win the contract – and then the company bids at this high price.), also the companies were agreeing to taking turns at bidding for contracts, without needing to communicate with each other, it would then make sense for the other companies to put in cover prices so as to leave the field clear for the chosen winner, who need not submit a competitive bid.
Fifpro, which represents professional footballers, went to the European Courts in 2015 accusing FIFA of operating a cartel. The case was settled in 2017 after FIFA agreed to numerous improvements in the way that the large clubs handled their players’ transfers etc.
– pricing intentions do not have to be communicated direct from one party to another. A number of UK supermarkets were brought before the courts after they had sought to co-ordinate increases in their retail cheese prices by telling their cheese suppliers about their intentions. [They did this with the apparently unselfish intention of paying more for the cheese they bought, so that the cheese suppliers could in turn pay more for their milk, so helping hard-pressed dairy farmers.
Much more seriously, the American competition regulator, the Department of Justice, won a $450m settlement from Apple as the company had colluded with several publishers to remove e-books from Amazon’s Kindle store and increase their price (when sold by Apple) . E-book buyers were reimbursed $400m.
The CMA fined a number of UK pharmaceutical companies £50m in early 2016 for entering into ‘pay and delay’ agreements under which GlaxoSmithKline paid smaller companies to delay introducing competition.
a refrigerator supplier was fined over £2m in 2016 for having imposed ‘minimum advertised prices’ on its retailers – otherwise knows as resale price maintenance.
The CMA, in the same year, accused top model agencies of “agreeing a common approach to pricing” and so driving appearance fees up to £500,000 a day
The CMA fined ComparetheMarket £18m in 2020 for preventing insurance companies from offering better deals through rival websites. The CMA had previously targetted price comparison websites whose Most Favoured Customer (MFC) contract clauses had stopped hotels etc. from offering cheaper prices than those advertised through the price comparison sites…… Although price comparison sites facilitate competition between suppliers such as hotels, they severely limit the ability of such suppliers to offer lower prices ( than shown on the comparison sites on which they pay significant commission). This tends to increase prices
Criminal Investigations
There has yet to be a successful contested prosecution in the UK. One problem was that individuals cannot be prosecuted successfully unless it can be shown that the person acted ‘dishonestly’….The Government accordingly announced in 2012 that it will no longer be necessary to prove dishonesty (although it will still be necessary to demonstrate an intention to enter into a price-fixing etc. agreement)
Algorithms
companies are using customer information to develop AI algorithms that set prices for them, leading to different consumers being charged different amounts for the same good or service.
At the same time, others suggest that the use of algorithms can be efficient and pro-competitive, leading to outcomes that benefit consumers through faster adjustments to prevailing market circumstances.
EC Activity
DG Competition does the cartel investigations, some involving the UK.
ec has fined Barclays, RBS, Citigroup, JP Morgan and MUFG (formerly Bank of Tokyo-Mitsubishi) a total of €1.07 billion for taking part in two foreign exchange spot-trading cartels. The commission said that some traders at the banks had “exchanged sensitive information and trading plans, and occasionally coordinated their trading strategies through various online professional chatrooms”. UBS received full immunity for revealing the existence of the cartels, thus avoiding an aggregate fine of about €285 million. One chatroom was called Essex Express ‘n the Jimmy because all the traders but “James” lived in Essex and met on a train to London. Other chatroom names used were: Semi Grumpy Old Men, Three-way Banana Split, Two and a Half Men, and Only Marge. Eleven currencies were involved, including the euro, dollar, pound, Swiss franc and the yen
adp ADP investigations is by (CMA) under Chapter II of the 1998 Competition Act 1998, which closely mirrors what is now Article 102 of the TFEU. EU-wide cases are taken by the EC and some regulators such as Ofgem and the FCA have concurrent powers shared with the CMA.
types of ADP
Limiting production, so increasing prices and profits but disadvantaging customers who cannot easily move elsewhere.
Restriction of supply to distributors – this is in practice often allowed. It is still possible for the manufacturers of certain goods to ‘recommend’ retail prices, and this can get pretty close to price-fixing. And the prices of luxury goods can be kept artificially high by restricting their availability. Very few shops are, for instance, allowed to sell Hermes scarves or Rolex watches. This is because it is felt that a manufacturer should be allowed a measure of control over its brand value.
Excessive pricing – the (ECJ= CJEU) found that this ADP could be identified if prices in the country where the company was dominant, are ‘appreciably’ higher than in countries were is not dominant.
Price discrimination – offering price reductions and volume discounts only to those customers who may be tempted to leave you for a competitor. [But banks, for instance, are not regarded as dominant in their market and so are not prohibited from offering better interest rates to new customers]
Tying – such as tying one product to the sale of another.eg EC fined Microsoft € 497 million for including its Windows Media Player within the Microsoft Windows platform. And illegally forcing PC vendors to bundle its Internet Explorer browser, so shutting out Netscape.
Refusal to supply a facility which is essential for all businesses attempting to compete
eg: docks, bus stations & airports.
– legal action by Epic Games (makers of Fortnite) who object to Apple’s removal of their game from Apple Store
There was a rather nice example in Lithuania when its railway company tore up a few metres of railway line near the Latvian border so as to stop a freight company saving a lot of money by exporting its oil via a Latvian port. An EU court fined it €20 million.
Full line forcing – the retailer is forced to stock the whole of a manufacturer’s range of products, thus leaving little or no room for competitors’ products.
Freezer and fridge exclusivity – Birds Eye Walls were prohibited from loaning freezers to small shops in the UK on condition that they did not use them to sell ice creams made by its competitors, Mars. Similarly the EU required Coca-Cola to allow 20% of its fridge space to stock drinks made by competitors such as Pepsi.
Predation (as in preying on a victim).
-eg. dropping prices of a product so much that smaller competitors cannot cover their costs and fall out of business
– e.g. running new bus services at frequent intervals so as to force a new competitor out of the market.
Significant European Cases
The European Commission announced in November 2010 that they were investigating possible abuse of dominant position by Google’s search engine. A UK company called Foundem filed the complaint, amongst many others, in February 2010,. Foundem claimed that its award-winning site was effectively forced from the market after Google’s search algorithms began to “remove legitimate sites from [its] natural search results, irrespective of relevance”. It also said that Google promotes its own services over those offered by competitors:- “Google is exploiting its dominance of search in ways that stifle innovation, suppress competition, and erode consumer choice”.
Fairsearch Europe also complained v google, that it was abusing its dominant position by providing its Android operating system for free on mobile phones:- an echo of earlier complaints in both Europe and the US that Microsoft had abused its dominant position by bundling Media Player and Internet Explorer with its Windows PC operating systems.
The EC fined Google 2.4bn euros as “the company had abused its power by promoting its own shopping comparison service at the top of search results”……I doubt that Google cared very much. The abuse had, after all, been going on for at least 7 years, and Google’s parent company Alphabet currently had more than $172bn of assets. I doubt, too, that Google were too concerned that Commissioner Margrethe Vestager then encouraged companies that had been hurt by Google’s behaviour to use the EC report to FOC for damages.
Lots of perfectly proper competitive behaviour becomes improper when a company becomes dominant.
Google’s response was interesting…. Google told the commission that it will create a standalone unit for its shopping service and force rivals to bid against that unit (and each other) for ads shown at the top of Google’s search results page. …. But Foundem and many others complained again to the Commission in 2018, arguing that Google’s bidding system was terrible for consumers, as companies’ position in Google’s ranking were now determined by bidders’ ability to pay rather than their popularity or low prices. It was also suggested that many of the comparison advertising sites were in truth merely advertising systems that look like price comparison sites. and that Google encouraged this. The Commission has yet to opine …
– Google won a legal battle in the UK v a small company called Streetmap – a pioneer in online mapping whose service was crushed when Google put its own Google Maps above Streetmap in its search engine results. The Competition Appeal Tribunal ruled that, although Google held a dominant position, it had not committed an abuse.
-ec fined Google €4.3 billion (£3.8bn) in 2018 for abusing its dominant position by requiring Android smartphone manufacturers to pre-install Google’s apps – or else they would not be allowed access to Google Play services.
-ec fined Google a further €1.5bn (£1.3bn) for restricting publishers (until 2016) from displaying rival search ads on their websites, thus using its dominant position
The ec 2019 investigation into how Google and its partner companies gather, process, use and monetise data.
Apple
The Ec opened two antitrust cases against Apple in 2020. One followed a complaint from Spotify and Kobo about Apple’s 30% subscription fee charged in respect of customers who signed up to those services via Apple’s App Store.
The second EU case focused on whether Apple unfairly denies its ‘tap and go’ iPhone functionality to rival payment companies.
Other European Investigations
-ec 2015 investigating Gazprom for abusing its dominant position in Eastern Europe by building artificial barriers which reduced its customers’ ability to resell their gas
-in 2016 professional speed skater Claudia Pechstein persuaded the German courts that, since the German skating organisation controlled the market for speed skating events, its use of arbitration clauses binding athletes to use the International Court of Arbitration for Sport constituted an abuse of a dominant position (The case arose because they had found she had doped. She says it was the result of a congenital blood disorder.) The German court said it found a structural imbalance within the sports court that favored sports governing bodies over athletes, because all court of arbitration for sport members are nominated by international sporting organisations, and not by athletes. The decision is being appealed.
Meta
Article 51 et seq. of Regulation (EU) 2016/679 of the European Parliament and of the Council of 27 April 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data, and repealing Directive 95/46/EC (General Data Protection Regulation), as well as Article 4(3) TEU
must be interpreted as meaning that, subject to compliance with its duty of sincere cooperation with the supervisory authorities, a competition authority of a Member State can find, in the context of the examination of an abuse of a dominant position by an undertaking within the meaning of Article 102 TFEU, that that undertaking’s general terms of use relating to the processing of personal data and the implementation thereof are not consistent with that regulation, where that finding is necessary to establish the existence of such an abuse.
In view of this duty of sincere cooperation, the national competition authority cannot depart from a decision by the competent national supervisory authority or the competent lead supervisory authority concerning those general terms or similar general terms. Where it has doubts as to the scope of such a decision, where those terms or similar terms are, simultaneously, under examination by those authorities, or where, in the absence of an investigation or decision by those authorities, the competition authority takes the view that the terms in question are not consistent with Regulation 2016/679, it must consult and seek the cooperation of those supervisory authorities in order to dispel its doubts or to determine whether it must wait for them to take a decision before starting its own assessment. In the absence of any objection on their part or of any reply within a reasonable time, the national competition authority may continue its own investigation;
2. Article 9(1) of Regulation 2016/679
must be interpreted as meaning that, where the user of an online social network visits websites or apps to which one or more of the categories referred to in that provision relate and, as the case may be, enters information into them when registering or when placing online orders, the processing of personal data by the operator of that online social network, which entails the collection – by means of integrated interfaces, cookies or similar storage technologies – of data from visits to those sites and apps and of the information entered by the user, the linking of all those data with the user’s social network account and the use of those data by that operator, must be regarded as ‘processing of special categories of personal data’ within the meaning of that provision, which is in principle prohibited, subject to the derogations provided for in Article 9(2), where that data processing allows information falling within one of those categories to be revealed, irrespective of whether that information concerns a user of that network or any other natural person;
3. Article 9(2)(e) of Regulation 2016/679
must be interpreted as meaning that, where the user of an online social network visits websites or apps to which one or more of the categories set out in Article 9(1) of that regulation relate, the user does not manifestly make public, within the meaning of the first of those provisions, the data relating to those visits collected by the operator of that online social network via cookies or similar storage technologies;
Where he or she enters information into such websites or apps or where he or she clicks or taps on buttons integrated into those sites and apps, such as the ‘Like’ or ‘Share’ buttons or buttons enabling the user to identify himself or herself on those sites or apps using login credentials linked to his or her social network user account, his or her telephone number or email address, that user manifestly makes public, within the meaning of Article 9(2)(e), the data thus entered or resulting from the clicking or tapping on those buttons only in the circumstance where he or she has explicitly made the choice beforehand, as the case may be on the basis of individual settings selected with full knowledge of the facts, to make the data relating to him or her publicly accessible to an unlimited number of persons;
4. Point (b) of the first subparagraph of Article 6(1) of Regulation 2016/679
must be interpreted as meaning that the processing of personal data by the operator of an online social network, which entails the collection of data of the users of such a network from other services of the group to which that operator belongs or from visits by those users to third-party websites or apps, the linking of those data with the social network account of those users and the use of those data, can be regarded as necessary for the performance of a contract to which the data subjects are party, within the meaning of that provision, only on condition that the processing is objectively indispensable for a purpose that is integral to the contractual obligation intended for those users, such that the main subject matter of the contract cannot be achieved if that processing does not occur;
5. Point (f) of the first subparagraph of Article 6(1) of Regulation 2016/679
must be interpreted as meaning that the processing of personal data by the operator of an online social network, which entails the collection of data of the users of such a network from other services of the group to which that operator belongs or from visits by those users to third-party websites or apps, the linking of those data with the social network account of those users and the use of those data, can be regarded as necessary for the purposes of the legitimate interests pursued by the controller or by a third party, within the meaning of that provision, only on condition that the operator has informed the users from whom the data have been collected of a legitimate interest that is pursued by the data processing, that such processing is carried out only in so far as is strictly necessary for the purposes of that legitimate interest and that it is apparent from a balancing of the opposing interests, having regard to all the relevant circumstances, that the interests or fundamental freedoms and rights of those users do not override that legitimate interest of the controller or of a third party;
6. Point (c) of the first subparagraph of Article 6(1) of Regulation 2016/679
must be interpreted as meaning that the processing of personal data by the operator of an online social network, which entails the collection of data of the users of such a network from other services of the group to which that operator belongs or from visits by those users to third-party websites or apps, the linking of those data with the social network account of those users and the use of those data, is justified, under that provision, where it is actually necessary for compliance with a legal obligation to which the controller is subject, pursuant to a provision of EU law or the law of the Member State concerned, where that legal basis meets an objective of public interest and is proportionate to the legitimate aim pursued and where that processing is carried out only in so far as is strictly necessary;
7. Points (d) and (e) of the first subparagraph of Article 6(1) of Regulation 2016/679
must be interpreted as meaning that the processing of personal data by the operator of an online social network, which entails the collection of data of the users of such a network from other services of the group to which that operator belongs or from visits by those users to third-party websites or apps, the linking of those data with the social network account of those users and the use of those data, cannot, in principle and subject to verification by the referring court, be regarded as necessary in order to protect the vital interests of the data subject or of another natural person, within the meaning of point (d), or for the performance of a task carried out in the public interest or in the exercise of official authority vested in the controller, within the meaning of point (e);
8. Point (a) of the first subparagraph of Article 6(1) and Article 9(2)(a) of Regulation 2016/679
must be interpreted as meaning that the fact that the operator of an online social network holds a dominant position on the market for online social networks does not, as such, preclude the users of such a network from being able validly to consent, within the meaning of Article 4(11) of that regulation, to the processing of their personal data by that operator. This is nevertheless an important factor in determining whether the consent was in fact validly and, in particular, freely given, which it is for that operator to prove.
What is ADP?
Exclusionary or exploitative conduct by a dominant ‘undertaking’ which may harm the policy objectives of EU/UK competition law.
Abusive conduct can consist of either pricing or non-pricing strategies by dominant undertakings and infringes the prohibitions in Article 102 TFEU and/or in the Competition Act 1998, s 18, unless the undertaking presents evidence of objective justification.
Case T- 486/11 Orange Polska v Commission (refusal to supply)
Appeal to the General Court seeking annulment or reduction in fines regarding the Commission’s decision of 22 June 2011 finding an abuse of a dominant position contrary to Article 102 TFEU and imposing a fine of €127.55m on Telekomunikacja Polska (now Orange Polska) for allegedly refusing to supply rival operators with wholesale broadband Internet access between August 2005 and October 2009.
https://www.legislation.gov.uk/
*Section 2 of the UK Competition Act: Agreements etc. preventing, restricting or distorting competition, are prohibited under “the Chapter I prohibition”: [when conduct may constitute a cartel…Gives examples (non-exhaustive]:
(1) Subject to section 3, agreements between undertakings, decisions by associations of undertakings or concerted practices which—
(a)may affect trade within the United Kingdom, and
(b)have as their object or effect the prevention, restriction or distortion of competition within the United Kingdom, are prohibited, unless exempt in accordance with the provisions of this Part.
(2) Subsection (1) applies, in particular, to agreements, decisions or practices which—
(a)directly or indirectly fix purchase or selling prices or any other trading conditions;
(b)limit or control production, markets, technical development or investment;
(c)share markets or sources of supply;
(d)apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(e)make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
(4)Any agreement or decision which is prohibited by subsection (1) is void.
UK : Chapter II prohibition
EU/UK. ON ABUSE OF DOMINANT POSITION
The CMA is empowered to apply two substantive provisions which prohibit conduct by one or more dominant undertakings which amounts to abusive behaviour: Article 82 (EC Treaty ) is equal to the Chapter II prohibition (S.18.1 of chapter II of the uk competition act).
- Article 82 provides that: ‘Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States.’
- The Chapter II prohibition provides that: ‘…any conduct on the part of one or more undertakings which amounts to the abuse of a dominant position in a market is prohibited if it may affect trade within the United Kingdom.’
NOTE:
-The prohibition under both Article 82 and the Chapter II prohibition is on the adp, not the holding of the position.
-the abuse must have at least the possibility of affecting trade within the UK, and
-the dominant position must exist within the UK (though the abuse may take place outside the UK).
under EC law these are excluded from Article 82:
- Conduct which would result in a concentration with a Community dimension and thereby be subject to the EC Merger Regulation5 , or
- Conduct which is carried out by an undertaking entrusted with the operation of services of general economic interest or having the character of a revenue producing monopoly, insofar as the application of Article 82 would obstruct the performance, in law or fact, of the undertaking.
UK: The Act sets out exclusions from the Chapter II prohibition for certain conducts :
• to the extent that the conduct would result in enterprises ceasing to be distinct within the meaning of the merger provisions of the Enterprise Act 2002
• which would result in a concentration with a Community dimension and thereby be subject to the EC Merger Regulation
• which is carried out by an undertaking entrusted with the operation of services of general economic interest or having the character of a revenue-producing monopoly, insofar as the prohibition would obstruct the performance, in law or in fact, of the undertaking
• to the extent to which the conduct is engaged in in order to comply with a legal requirement
• which is necessary to avoid conflict with international obligations and the conduct is the subject of an order by the Secretary of State, or
• which is necessary for compelling reasons of public policy and the conduct is the subject of an order by the Secretary of State.
The CMA may impose a financial penalty of up to 10 per cent of the worldwide turnover of an undertaking for an infringement of the Chapter II prohibition. When setting the amount of any penalty, it must have regard to its Guidance as to the appropriate amount of a penalty (OFT423).
UK: Conduct of minor significance
the Act provides limited immunity (from financial penalties) for conduct of minor significance in relation to infringements of the Chapter II prohibition . This immunity does not apply to infringements of Article 82. Conduct will be considered to be of minor significance if the annual turnover of the undertaking concerned does not exceed £50 million .
The CMA may still investigate conduct of minor significance and can decide to withdraw the immunity from financial penalties if, having investigated the conduct, it considers the conduct is likely to infringe the Chapter II prohibition.
The CTA can hear claims on SMEs under the new FTP
two tests to assessing whether Article 82 or the Chapter II prohibition applies:
• whether an undertaking is dominant, and
• if it is, whether it is abusing that dominant position.
The first test raises two questions which are considered below:
(i) the definition of the market in which the undertaking is alleged to be dominant (the relevant market); and
(ii) whether it is dominant within that market.
In addition, it is necessary to consider in which territory the dominant position is held
Market definition
The relevant market will have two dimensions:
• the relevant goods or services (the product market), and
• the geographic extent of the market (the geographic market).
CMA guideline to Market definition (OFT403) :
to establish which products or geographic areas are in the relevant market, the hypothetical monopolist test is employed.
The product market
The market is determined by taking the product (or service) relevant to the investigation – the focal product – and looking at the closest substitute products, usually those products to which consumers would switch, if the price of the focal product rose. These substitute products are included in the same market as the focal product if customers would switch to them in sufficient volumes in response to the hypothetical situation where the price of the focal product is sustained significantly above competitive levels. The alternative products do not need to be perfect substitutes for the focal product, but alternatives which would fill a similar role to the focal product.
In addition to this substitution by customers (demand-side substitution), the price of the focal product can also be constrained by the potential behaviour of suppliers producing other products (supply-side substitution). This might occur where businesses which are not currently supplying the focal product could, at short notice, switch some of their existing facilities to supplying the focal product (or close substitutes) in response to prices of the focal product being sustained significantly above competitive levels. Where such switching would occur within one year and without substantial sunk costs, supply-side substitutes may also be included in the relevant market.
The geographic market
the CMA considers whether, in response to the hypothetical situation where the price of the focal product in that area was being sustained significantly above competitive levels, customers would switch a sufficient volume of purchases to the same products sold in other areas. If so, these other areas will be included in the relevant geographic market. Supply side substitution might also occur whereby suppliers in other areas would quickly (for example, within one year), and without substantial investment, supply the candidate market in response to the higher prices there. The geographic market may be national (i.e. the United Kingdom), smaller than the United Kingdom (e.g. local or regional), wider than the United Kingdom (e.g. part of Europe, including the United Kingdom) or even worldwide.
the European Court has considered that the Belgium-Luxembourg sugar market was a substantial part of the common market even though it constituted just nine per cent of Community sugar production and five per cent of the sugar consumption
market power
An undertaking will not be dominant unless it has substantial market power. Market power arises where an undertaking does not face sufficiently strong competitive pressure. Both suppliers and buyers can have market power. However, for clarity, market power will in this guideline refer to supplier market power. Where buyer market power is the issue, the term buyer power is employed to differentiate such market power from supplier market power. Market power and buyer power are not absolute but are matters of degree; the degree of power will depend on the circumstances of each case.
Market power is to sustain prices above competitive levels, or to restrict output, or quality, below competitive levels, or weakening existing competition, or raising entry barriers or slowing innovation.
In assessing whether an undertaking is dominant, the CMA considers whether its independence is limited, for instance, by existing competition, or by potential competition. or by the influence of powerful buyers, or by regulation.
market share
The European Court has stated that dominance can be presumed if an undertaking has a market share persistently above 50 pc. The cma says 40 pc, although dominance could be established below that figure if there are other relevant factors (such as the weak position of competitors in that market, or high entry barriers – to potential competition)
Intellectual property rights (IPRs)
cma considers that ownership of an IPR does not necessarily create a dominant position. but depends upon the extent to which there are substitutes for the product, process or work to which the IPR relates.
if the way an IPR is exercised goes beyond its legitimate exploitation, for example, if it is used to leverage market power from one market to another or to prevent the development of a new market, then it could be abuse of dominance.
Collective dominance
A dominant position may be held collectively when two or more legally independent undertakings are linked in such a way that they adopt a common policy on the market. The European Court confirmed the principle of collective dominance in the Italian Flat Glass case: ‘There is nothing, in principle, to prevent two or more independent economic entities from being, on a specific market, united by such economic links that, by virtue of that fact, together they hold a dominant position. For example, the nature of the market may be that undertakings might adopt the same pricing policy on the market without ever explicitly agreeing on price.