Competition Act 1998

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Competition Act 1998

a UK Act which consolidated existing COMPETITION LAWS but which also contained new prohibitions, powers of investigation and penalties for infringements of the Act. The Act is designed to bring UK competition law into line with European Union competition law as currently enshrined in Articles 85 and 86 of the Treaty of Rome.

The Act covers two key areas of competition policy: anti-competitive agreements and market dominance.

  1. The Act prohibits outright agreements between firms (ie. COLLUSION) and CONCERTED PRACTICES which prevent, restrict or distort competition within the UK (the Chapter 1 prohibition). This prohibition applies to both formal and informal agreements, whether oral or in writing, and covers agreements which contain provisions to jointly fix prices and terms and conditions of sale; to limit or control production, markets, technical development or investment; and to share markets or supply sources.
  2. The Act prohibits the ‘abuse'of a ‘dominant position’ within the UK. (The Chapter 2 prohibition). The Act specifies dominance as a situation where a supplier “can act independently of its competitors and customers". As a general rule, a dominant position is defined as one where a supplier possesses a market share of 40% or above.

Examples of ‘abuse’ of a dominant position specified in the Act include charging ‘excessive’ prices, imposing restrictive terms and conditions of sale to the prejudice of consumers and limiting production, markets and technical development to the prejudice of consumers.

The Act established a new regulatory authority, the COMPETITION COMMISSION which took over the responsibilities previously undertaken by the Monopolies and Mergers Commission and the Restrictive Practices Court. Under the Act, the OFFICE OF FAIR TRADING (OFT) has the power to refer dominant firm cases and cases of suspected illegal collusion to the Competition Commission for investigation and report.

The Act gives the OFT wide-ranging powers to uncover malpractices. For example, if there are reasonable grounds for suspecting that firms are operating an illegal agreement OFT officials can mount a ‘dawn raid’ -"entering business premises, using reasonable force where necessary, and search for incriminating documents". The Act also introduces stiff new financial penalties. Firms found to have infringed either prohibition may be liable to a financial penalty of up to 10% of their annual turnover in the UK (up to a maximum of 3 years).