There are two major UK laws protecting competition:
- the Competition Act 1998
- the Enterprise Act 2002
The Competition Act 1998
The Competition Act 1998 bans anti-competitive agreements between businesses. You must not, for example:
- agree with your competitors to fix prices or terms of trade, eg agreeing minimum prices or price rises
- agree with your competitors to limit production in order to reduce competition
- share out markets or customers with your competitors - eg agreeing with a competitor that you'll bid for one contract and they'll take another
Any agreement that restricts competition is covered. This will be particularly relevant in the case of agreements between businesses with a major presence in the market. But even the smallest business needs to avoid anti-competitive agreements like price fixing and market sharing. As well as formal agreements, the law also applies to other looser forms of cooperation between businesses.
The Competition Act also forbids the abuse of a dominant position in a market. This will be relevant to businesses that have market power, often reflected in a significant market share.
The Enterprise Act 2002
Under the Enterprise Act 2002, it is also a criminal offence for individuals to engage in certain types of activity that create business cartels. These are where businesses agree not to compete against each other to reduce the competitive pressure they are under.
Consequences of breaching the law
These laws give the Competition and Markets Authority (CMA) powers to investigate and take action. Consequences can include large fines for businesses, disqualification of directors and even prison time or fines for people who have been involved in cartel conduct. Customers and competitors may also be able to sue you or your business.
The benefits of competition
Anti-competitive behaviour is harmful not only to consumers but also to businesses that compete fairly or which are themselves customers of certain goods or services. All businesses, therefore, have an interest in reporting anti-competitive behaviour, even when they are not themselves involved.
The CMA has produced a range of videos on competing fairly in business, including this one on why competition is good for business: