Cartels in UK (agreeing not to compete)
There are many different types of illegal anti competitive activity. As a business owner you must avoid them all.
Two of the most serious and punishable examples of business practices that break competition law include:
- Making agreements not to compete with other businesses (often called ‘cartels’).
- Monopolization (abusing dominance of a market position).
The definition of a cartel is a situation where two or more businesses agree not to compete with each other. As a rule, the anti competitive agreements will involve certain kinds of unethical practices.
Note: You can report anti competitive behaviour to the Competition and Markets Authority (CMA) in the United Kingdom.
Rules about Cartels
The rules on cartels do not only relate to large businesses and corporations. In fact, cartel regulations also apply to organisations and companies of any size. The most common types of cartels include:
- Bid rigging
- Market sharing
- Price fixing
- Sharing information
All these types of agreements are illegal – no matter whether they are verbal or made in writing. In fact, planning such an agreement – even as an informal conversation with another business – would be breaking the law. The so-called ‘gentlemen’s agreement’ would be illegal even if it does not get carried out.
Note: There are legal ways of working with other businesses that do not breach competition law. You may need to get legal advice or contact the Competition Pro Bono Scheme for further information on managing any risks.
Bidding for contracts is a major activity for certain types of businesses. But, discussing your bid for a contract tender with any of your competitors would be an illegal activity. Common types of bid rigging include:
- Agreeing not to bid against other businesses or agreeing to withdraw your bid.
- Agreeing to take turns with competitors to win tenders or contracts.
- Making an agreement with your competitors on how much you propose to bid for a contract. The same rule would apply to sharing details or information about your bids.
- Making payments to other businesses to stop them bidding or paying them after you win the tender.
- Schemes that involve ‘cover bids’ or ‘complementary bids’. Complementary bidding is the practice of asking other businesses to make a bid even though they do not want to win the contract.
Sharing Commercially Sensitive Information
You must not share information with other businesses in an attempt to reduce the competition. So, for example you cannot share information about:
- Markets you sell to (or plan on selling to)
- Your suppliers, customers, or any contractors
Note: Similar rules on agreeing not to compete with another business also apply to sharing information through a third party, such as a trade association.
Businesses should set out their pricing structures on an individual bases. Thus, discussing the prices that you will charge with any of your competitors would be illegal. So, to avoid anti-competitive activity, you should::
- Not agree on offering discounts with your competitors or increasing your prices at the same time.
- Not charge the same fees to any intermediaries (e.g. retailers who sell your products).
- Not make an agreement with your competitors to charge the same prices to customers.
Sharing Markets or Customers
UK competition law does not allow you to share markets or share customers with another business as part of an agreement. Thus, you would be in breach of competition laws:
- By agreeing not to approach the customers of each other’s business.
- By agreeing not to compete with other businesses for the same customers (e.g. in a specific location).
Abusing a Dominant Position
Your business may be guilty of abusing dominance of its position in the market if:
- It has more than a 40 percent of the market share.
- Normal competitive restraints do not affect it.
The abuse of a dominant position may also apply if you conduct unfair practices to other businesses or to your customers. Typical examples include:
- Charging low prices that fail to cover the costs in an attempt to drive out the competitors.
- Forcing customers to buy products that they do not want (e.g. making them take warranties on electrical products).
- Treating ‘similar’ customers ‘differently’ (e.g. offering different price structures or trading terms to similar types of customers).
Other Anti Competitive Practices to Avoid
Knowing how to avoid and report anti competitive activity is vital for business performance and innovation. You must take steps to avoid all other activities that fall foul of competition laws, such as:
- Buying or selling as a joint agreement with your competitors.
- Making agreements with your competitors to reduce production of an item to try and raise its market value.
- Placing restrictions on the price that businesses can sell your product.
- Agreeing with competitors not to sell goods or services to certain customers or not to deal with certain suppliers.
- Setting up long-term exclusive contracts with any of your customers or your suppliers
ALSO IN THIS SECTION
Managing Risk | Identifying some risks of anti-competitive behaviour and policies to reduce them.
Fake Reviews UK Law | Check out the legal consequences of writing false online reviews for websites.