What is an anti-competitive agreement?
An anti-competitive agreement is an agreement whereby two or more companies operating as competitors in the same market make an agreement to do something together, for example to fix prices or limit production which has the result of reducing the competition on that particular market. The best example of an anti-competitive agreement is between a group of companies who fix prices and limit production amongst other things. This is generally called a cartel and carries with it the toughest of penalties.
Why do we need markets to be competitive?
If companies are competing against each other in the same market then they will challenge each other to gain a competitive advantage by doing such things as lowering their price or improving the quality of the product. This in turn means that we, the consumer, will be able to buy high quality products at low prices.
If the companies do not compete and agree together to fix prices or limit production it means that the consumer or end user of the product will not have the best choice of product at the best price available to them.
UK Law and EU Law
Under UK law we see two sets of laws working together simultaneously. If an agreement made by a UK company affects trade solely within the UK then this will be governed by Section 1 of the Competition Act 1998 (Amended by the Enterprise Act 2002) whereas if an agreement made by a UK company extends beyond the UK to involve other European Union Member States then that will be governed by Article 81 of the EC Treaty.
The EU law in this case has been adopted into the UK law so both systems require the same requirements to be established.
What needs to be established for an agreement to be anti-competitive?
The following needs to be established:
That there was an agreement, arrangement or concerted business practice
Which appreciably prevents, restricts or distorts competition, and which
Affects trade in the UK or EU respectively.
Which Agreements are seen as Anti-Competitive?
In order to establish whether an agreement is ant-competitive the object and effect of the agreement need to be examined rather than whether the agreement was in fact written down or not. Whether something has the object of restricting competition means if it was intended to restrict competition and whether something has the effect of restricting completion means if it has in fact restricted competition.
The following types of arrangement are generally prohibited under Chapter 1 and Article 81:
Agreements which fix prices (both purchase and selling prices)
Agreements which fix trading conditions, for example discounts
Agreements which limit or control production, markets, technical development or investment. Setting quotas is probably the best example of this.
Agreements which share sources of supply
Agreements which place other parties at a disadvantage. An example of this is placing different terms on different parties for the same kind of agreements.
For more information on:
- What happens if a company is found to have breached Chapter 1 or Article 81?
- Is it just the Company who will liable?
- Are there any exemptions to the rule in Chapter 1 or Article 81
- Block Exemptions
- I own a small company; do I need to be aware of these provisions?