Competition Act 1998

Chapter I:

Deals with restrictive practices engaged by companies operating within the UK that distort, restrict or prevent
competition. These are primarily in the form of horizontal agreements (agreements to collude between firms on
the same level of the supply chain such as retailers or wholesalers). These agreements could be to limit output,
collusively share information, fix prices, tender collectively and share markets out.

Office of Fair Trading (OFT) is responsible for prosecuting such firms who engage in these activities, and are
able to levy fines up to 10% of annual UK turnover for every year in which a violation has taken place up to a
maximum of 3 years.

Exemptions from prohibition are available if the firm can demonstrate that these practices are in the interest of
the consumer through increasing market efficiencies or advancing technical progress.

Chapter II:

Chapter II deals with the abuse of a dominant position by a firm who uses practices such as predatory pricing,
excessive prices, refusal to supply, vertical restraints and price discrimination to maximise profit, gain
competitive advantage or otherwise restrict competition.

In investigating alleged breaches of chapter II a two stage process is involved. Firstly it must be identified if the
firm actually possesses a dominant market position. This can be done through various concentration indices
such as the Herfindahl-Hirchman Index (HHI). Generally if a firm is found to have a market share in excess of
40% then it is considered a threat to competition.

There are no exemptions to chapter II as by its very definition as "abuse" of a market position, one must be
guilty of wrongdoing for the chapter to apply.

An example of the effects of the act is that in 2004, public schools were investigated for fee-fixing by the Office
of Fair Trading, and in 2005 fifty of the leading schools (including Ampleforth, Eton, Charterhouse, Gresham's,
Harrow, Haileybury, Marlborough, Rugby, Shrewsbury, Stowe, Wellington and Winchester) were ordered to
raise £3 million between them to be spent on charities nominated by the pupils of the schools involved in the
years 2001-2003, and were banned from further sharing of information on their fees.

Enterprise Act 2002

The Act had six major competition policy objectives; Make all competition decisions through independent
bodies, root out forms of anti-competitive behaviour, create a strong deterrent effect, to redress injured parties in
distortions of competition and raise the profile of competition policy in the UK.

The act made the Office of Fair Trading formally independent from government, and gave it additional powers.
It is now possible for searches to be carried out under warrant from this act of business premises involved with
potentially prohibitable mergers. The act also established the Commission Appeals Tribunal (CAT) for
companies to appeal against decisions by the Competition Commission. The role of the Director General of Fair
Trading (DGFT) was also abolished and his powers given to the OFT, this was seen as an attempt to
depersonalize the competition investigation process. The Minister of Trade and Industry in the past played a
large role in competition policy, having final say over whether a particular merger was in the public interest.
Under the new Act his role was significantly diminished in order to de-politicize competition regulation which
had been accused of being inconsistent in the past. He now only has powers to intervene if the proposed merger
will affect the media to the detriment of the public, national security or if one of the firms is a government
contractor.
On the deterrence side of the act, jail terms of a maximum of five years for directors was introduced in order to
increase deterrence for forming cartels. The competition commission also had its scope widened to cover
investigations of whole industries, not just specific firm, for example the supermarket industry.

Article 81 – Treaty of Rome

Article 81 EC prohibits agreements and concerted practices which prevent, restrict or distort competition,
insofar as they may affect trade between Member States, unless justified by improvements in production or
distribution in accordance with Article 81

Article 82 – Treaty of Rome

Article 82 EC prohibits the abuse of a dominant position insofar as it may affect trade between Member States

Difference between OFT and Competition Commission

The Office of Fair Trading (OFT) is a non-ministerial government department of the United Kingdom,
established by the Fair Trading Act 1973, which enforces both consumer protection and competition law, acting
as the UK's economic regulator. The OFT's goal is to make markets work well for consumers, ensuring vigorous
competition between fair-dealing businesses and prohibiting unfair practices such as rogue trading, scams and
cartels. Its role was modified and its powers changed with the Enterprise Act 2002.

The Competition Commission is a non-departmental public body responsible for investigating mergers, markets
and other inquiries related to regulated industries under competition law in the United Kingdom. It is a
competition regulator under the Department for Business, Innovation and Skills (formerly the Department for
Business, Enterprise and Regulatory Reform).

The Competition Commission replaced the Monopolies and Mergers Commission on 1 April 1999. It was
created by the Competition Act of 1998, although the majority of its powers are governed by the Enterprise Act
2002.

The Enterprise Act 2002 gave the Competition Commission wider powers and greater independence than the
MMC had previously, so that it now makes decisions on inquiries rather than giving recommendations to
Government and is also responsible for taking appropriate actions and measures (known as remedies) following
inquiries which have identified competition problems.

The Government can still intervene on mergers that involve a specified public interest criterion such as media
plurality, national security and financial stability