The Competition Act 1998

Introduction

The Competition Act 1998 (CA 1998) is the principal legislation governing competition law in the United Kingdom. The Act prohibits anti-competitive agreements and abuses of market power, modelled closely on Articles 101 and 102 of the Treaty on the Functioning of the European Union. The CA 1998 was enacted to bring UK competition law into alignment with EU competition law, creating a consistent framework for enforcement across both regimes. The Competition and Markets Authority (CMA) is the primary enforcement body, exercising concurrent powers with sector regulators in telecommunications, energy, water, and other industries.

Chapter I Prohibition

Section 2 of the CA 1998 prohibits agreements, decisions by associations of undertakings, and concerted practices that have as their object or effect the prevention, restriction, or distortion of competition within the United Kingdom and may affect trade within the UK. The Chapter I prohibition applies to both horizontal agreements between competitors and vertical agreements between parties at different levels of the supply chain.

The prohibition covers a non-exhaustive list of restrictions, including: directly or indirectly fixing purchase or selling prices; limiting or controlling production, markets, technical development, or investment; sharing markets or sources of supply; applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage; and making the conclusion of contracts subject to acceptance of supplementary obligations having no connection with the subject of the contracts. Hardcore restrictions — including price-fixing, market-sharing, bid-rigging, and output restrictions — are treated as the most serious infringements and may attract criminal sanctions as well as civil penalties.

Agreements that infringe the Chapter I prohibition are automatically void and unenforceable under section 2(4). However, the prohibition may be disapplied where the agreement meets the conditions for exemption under section 9. An agreement qualifies for exemption if it contributes to improving production or distribution, or promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and does not impose restrictions that are indispensable to the attainment of those objectives or afford the parties the possibility of eliminating competition in respect of a substantial part of the products in question. Certain categories of agreement benefit from block exemptions issued by the Secretary of State or the CMA.

Chapter II Prohibition

Section 18 of the CA 1998 prohibits conduct by one or more undertakings that amounts to an abuse of a dominant position in a market within the United Kingdom. The prohibition applies only where the undertaking holds a dominant position — a position of economic strength enabling it to behave independently of competitors, customers, and consumers to an appreciable extent. Market share is a significant indicator: a share of 50 per cent or more creates a strong presumption of dominance, while shares below 40 per cent rarely give rise to a finding of dominance.

Abusive conduct may take various forms. Predatory pricing involves setting prices below cost with the intention of eliminating competitors. Margin squeezing occurs when a vertically integrated dominant undertaking supplies an input to downstream competitors at a price that does not allow them to compete profitably. Exclusive dealing and loyalty rebates may foreclose competition by inducing customers to purchase exclusively from the dominant undertaking. Refusal to supply may be abusive where the dominant undertaking controls an essential facility and refuses to grant access on reasonable terms.

The Chapter II prohibition applies only where the abusive conduct may affect trade within the United Kingdom. Unlike Chapter I, there is no exemption regime for Chapter II; conduct that constitutes an abuse of a dominant position is prohibited outright. However, the dominant undertaking may justify its conduct on objective grounds, including efficiency justifications or legitimate commercial reasons.

Enforcement by the CMA

The CMA has extensive enforcement powers under the CA 1998. The CMA may conduct investigations on its own initiative or following complaints, using powers under sections 26 to 28 to require the production of documents and information and to enter and search premises (including domestic premises) with a warrant. The CMA may impose financial penalties of up to 10 per cent of the worldwide turnover of the undertaking for infringement of the Chapter I or Chapter II prohibitions.

The CMA operates a leniency programme under which undertakings that come forward with information about cartel activity may receive total or partial immunity from penalties. The CMA also has power to accept commitments from undertakings under investigation, binding them to take certain action to address the competition concerns without a formal finding of infringement. Commitments are appropriate where the competition concerns are clearly defined and capable of resolution through binding undertakings, but are not suitable for hardcore cartels.

Concurrent Competition Powers

Sector regulators exercise concurrent competition powers under the CA 1998. OFCOM (communications), OFGEM (gas and electricity), OFWAT (water), the Office of Rail and Road, the Civil Aviation Authority, the Payment Systems Regulator, and the Northern Ireland Authority for Utility Regulation may all apply the Chapter I and Chapter II prohibitions within their sectors. The concurrent regime ensures that sector-specific expertise is brought to bear on competition issues, while the CMA retains the power to direct regulators and to take over cases where appropriate.

Private Enforcement

The CA 1998 also provides for private enforcement of competition law. Undertakings and individuals who have suffered loss as a result of an infringement may bring claims for damages in the Competition Appeal Tribunal (CAT) or the High Court. The CAT has jurisdiction to hear standalone claims (where no prior infringement finding has been made) and follow-on claims (based on a prior finding by the CMA or the European Commission). The CAT may award damages on a compensatory basis and has power to make collective proceedings orders for opt-out class actions.

Conclusion

The Competition Act 1998 provides a comprehensive framework for UK competition law, prohibiting anti-competitive agreements and abuses of dominance. The CMA’s enforcement powers and the concurrency arrangements with sector regulators ensure effective public enforcement, while the provisions for private enforcement enable undertakings and consumers to seek redress for competition law infringements.