UK Competition Policy

Definition of Competition Policy: Government policies to prevent and reduce the abuse of monopoly power.

Abuse of monopoly power can lead to market failure and be against the public interest. Therefore Governments are concerned to intervene and protect the interests of the consumers.

UK Competition Policy

In the UK, it is mainly enforced by the (Competition and Markets Authority). (CMA), created in 2014 (replacing OFT + Competition Commission). The main functions of the CMA are

1. Merger Control

• Reviews mergers and acquisitions that could reduce competition and be against the public interest.
• The CMA can approve, approve with remedies, or block mergers.
• Examples: Blocked Sainsbury’s–Asda (2019); forced Meta to sell Giphy (2022).

2. Investigating Anti-Competitive Behaviour

• Abuse of dominance (e.g., predatory pricing, refusal to supply)
• Restrictive agreements (e.g., exclusive contracts)
• Anti-competitive coordination between firms
• Can impose fines of up to 10% of global turnover.

3. Detecting and Punishing Cartels/Collusion

• Price-fixing amongst firms selling
• Bid-rigging amongst firm bidding for contracts, e.g. splitting up market taking it in turns to get contract with others bidding very high
• Can impose criminal sanctions and disqualify directors. Uses whistleblower tools, leniency programmes, and dawn raids.

4. Market Studies and Market Investigations

In-depth investigation of entire sectors where competition appears weak.
CMA can:

• Force firms to sell assets
• Change industry rules
• Improve transparency or consumer switching

5. Consumer Protection Enforcement

Although mainly a competition body, the CMA also enforces consumer law by tackling:

• Misleading advertising
• Hidden fees (“drip pricing”)
• Fake online reviews
• Unfair contract terms
  It ensures markets work fairly for consumers as well as businesses.

6. Oversight of Sector Regulators

Works with Ofgem, Ofcom, Ofwat, FCA, etc., and can review or challenge their decisions.

Ojectives of  Competition Policy

1. Promote consumer welfare

• Lower prices
• Higher quality
• Greater choice

2. Efficiency

• Prevent allocative inefficiency (overpricing)
• Prevent productive inefficiency (X-inefficiency from monopoly power)

Collusive Behaviour

• This occurs when firms enter into agreements to fix prices and or output. This enables firms to make higher profits at the expense of consumers.
• Collusive tendering. This occurs when firms enter into agreements to fix the bid at which they will tender for projects. Firms will take it in turns to get the contract and enable a much higher price for the contract.
• Collusive behaviour is illegal and can be investigated by the OFT.

Abuse of Market Power

If a firm has more than 40% of market share, it is considered to have market power. The OFT is more likely to investigate firms with a dominant market position. Though they can also investigate people with less market share. Abuse of Market Power may include:

• Charging Higher prices – a Monopoly is able to set high prices. This is a theoretical diagram of a firm with monopoly power. They can increase prices from Pc to Pm. The OFT may consider this abuse of monopoly power if it leads to excess prices and profits.
• Predatory Pricing – selling below cost with the intention of forcing a rival firm out of business
• Vertical restraints – Firms may use market power to pay lower prices to suppliers (e.g. Supermarkets have been criticised for paying low prices to farmers. Also, firms may limit competition by preventing competitors from being sold in a shop. For example, an ice-cream manufacturer may give a free freezer to a shop – but on the condition, they only sell their ice-cream
• Tie in Sales. E.g. A printer which makes people may its own brand very expensive ink.

Examples of Competition Policy

The merger between HP foods and Heinz accepted by Competition Commission

The report “concluded that the acquisition may not be expected to result in a substantial lessening of competition within the markets for the supply of tomato ketchup, brown sauce, barbecue sauce, tinned baked beans and tinned pasta products in the UK.”(March 2006)

Merger between Hungry House and Just Eat – allowed by CMA (Dec 2017)

• Referral of merger between soft drink manufacturers Refresco and Cott to an in-depth investigation (Dec 2017) The CMA were concerned this merger could increase prices due to increased market share. The Case Study for this merger is here.
• An investigation into the care home sector by CMA found they had two concerns (Summary of report).
  1. The industry required more public sector funding.
  2. Those choosing a care home need greater help in choosing which care home. The vulnerable residents also require protection when staying.

Meta (Facebook) – Giphy (2021–22)

• CMA forced Meta to sell Giphy (a firm specialising in selling gifs used on website, the first time a major global tech firm was ordered to unwind a completed merger.
• The CMA argued that Meta could restrict GIF supply or demand user data from rivals, leading to higher prices and less choice. (link)

Amazon – Deliveroo (2020)

• Initially scrutinised for competition risks, giving Amazon monopoly power in delivery of online order.
• Approved because Deliveroo was failing during Covid (the “failing firm” defence).

Related

• Competition and Markets Authority (External link)