Competition Commission (CC) a regulatory body established by the COMPETITION ACT 1998 that was originally set up in 1948 as the Monopolies Commission (1948–65), then the Monopolies and Mergers Commission (1965–98) and that is responsible for the implementation of UK COMPETITION POLICY. The basic task of the Commission is to investigate and report on cases of MONOPOLY/MARKET DOMINANCE, MERGER/TAKEOVER and ANTI-COMPETITIVE PRACTICES referred to it by the OFFICE OF FAIR TRADING (OFT) to determine whether or not they unduly remove or restrict competition, thus producing harmful economic effects (i.e. economic results that operate against the ‘public interest’). The Commission is also required by the OFT to investigate cases of ‘illegal’ collusion between suppliers, i.e. cases where the OFT has good reason to suspect that an ANTICOMPETITIVE AGREEMENT/RESTRICTIVE TRADE AGREEMENT prohibited by the Competition Act 1998 is continuing to be operated ‘in secret’. (This task was formerly undertaken by the RESTRICTIVE PRACTICES COURT.)
Under UK COMPETITION LAW, monopoly/market dominance is defined as a situation where at least 40% of a reference good or service is supplied by one firm or a number of suppliers who restrict competition between themselves (CONCERTED PRACTICE or COMPLEX MONOPOLY situation). Mergers and takeovers fall within the scope of the legislation where the market share of the combined business exceeds 25% of the reference good or service or where the value of assets being merged or taken over exceeds £70 million. Anti-competitive practices are those that distort, restrict or eliminate competition in a market.
Cases referred to the Competition Commission are evaluated nowadays primarily in terms of whether or not the actions of suppliers (MARKET CONDUCT) or changes in the structure of the market (MARKET STRUCTURE) are detrimental to the potency of competition in the market and hence prejudicial to the interests of consumers and other suppliers (the so-called ‘public interest’ criterion found in earlier legislation). In cases of monopoly/market dominance, the Commission scrutinizes the actions of dominant firms for evidence of the ‘abuse’ of market power and invariably condemns predatory pricing policies that result in excessive profits. Practices such as EXCLUSIVE DEALING, AGGREGATED REBATES, TIE-IN SALES and FULL-LINE FORCING, whose main effect is to restrict competition, have been invariably condemned by the Commission, especially when used by a dominant firm to erect BARRIERS TO ENTRY and to undermine the market positions of smaller rivals. A merger or takeover involving the leading firms who already possess large market shares is likely to be considered detrimental. (See MARKET CONCENTRATION.)
In all cases, the Commission has powers only of recommendation. It can recommend, for example, price cuts to remove monopoly profits, the discontinuance of offending practices and the prohibition of anti-competitive mergers, but it is up to the Office of Fair Trading to implement the recommendations, or not, as it sees fit.
competition law a body of legislation providing for the control of monopolies/market dominance, mergers and takeovers, anti-competitive agreements/restrictive trade agreements and anti-competitive practices. UK legislation aimed at controlling ‘abusive’ MARKET CONDUCT by monopolistic firms and firms acting in COLLUSION was first introduced in 1948 (The Monopolies and Restrictive Practices (Inquiry and Control) Act), while powers to control undesirable changes in MARKET STRUCTURE were added in 1965 (The Monopolies and Mergers Act). Other notable legislation concerning the control of collusion were the Restrictive Trade Practice Acts of 1956, 1968 and 1976.
Current competition law in the UK is contained in a number of Acts:
FAIR TRADING ACT 1973
(applying 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