Market Investigations in UK Competition Law

Introduction

The UK market investigation regime, established under Part 4 of the Enterprise Act 2002, provides the Competition and Markets Authority (CMA) with a powerful tool for addressing competition problems that affect entire markets rather than individual firms. Unlike merger control or the Competition Act 1998 prohibitions, which address specific transactions or conduct, market investigations enable the CMA to examine the structure and functioning of markets and to impose remedies addressing the root causes of poor competitive outcomes. The regime has been used to investigate sectors including banking, energy, groceries, audit, and pharmaceuticals.

Market Studies and Market Investigation References

The CMA’s market investigation process typically begins with a market study, a preliminary examination of a market to understand its structure and functioning. Market studies are conducted under the CMA’s general powers and may be initiated on the CMA’s own initiative or following complaints from stakeholders. A market study considers whether there are features of a market that prevent, restrict, or distort competition and whether the CMA should use its formal investigation powers to address any identified problems.

If the CMA concludes that there are reasonable grounds for suspecting that features of a market are having an adverse effect on competition, it may make a market investigation reference to a panel of CMA members for in-depth investigation. The decision to make a reference is governed by section 131 of the EA 2002 and is subject to a two-stage test: the CMA must have reasonable grounds to suspect that a feature or combination of features of a market prevents, restricts, or distorts competition, and the CMA must consider that it would be appropriate to use its investigation powers to address the problem.

In certain circumstances, the CMA may accept undertakings in lieu of a market investigation reference from the parties concerned, avoiding the need for a full investigation where the competition concerns can be resolved through binding commitments. Undertakings in lieu must be clear-cut and capable of ready implementation and must address the competition concerns identified in the market study.

The Market Investigation Process

A market investigation is conducted by an independent inquiry group drawn from the CMA’s panel members, supported by CMA staff. The inquiry group gathers evidence from market participants, customers, regulators, and other stakeholders, and publishes a statement of issues setting out the scope of the investigation and the questions to be addressed. The investigation considers three categories of market features that may adversely affect competition: structural features (market concentration, barriers to entry and expansion, vertical integration); conduct features (behaviour of firms in the market, including pricing strategies, advertising, and customer acquisition practices); and customer features (consumer behaviour, search costs, switching barriers, and information asymmetries).

The inquiry group publishes provisional findings, setting out its analysis of whether there is an adverse effect on competition (AEC) and, if so, what remedies would be appropriate. The group considers representations from interested parties and may hold hearings before publishing its final report. The statutory timetable for a market investigation is 18 months, extendable by up to 6 months in exceptional circumstances.

The AEC Test

The substantive test for market investigations is whether there is an adverse effect on competition (AEC). An AEC exists where any feature or combination of features of the market prevents, restricts, or distorts competition in connection with the supply or acquisition of goods or services in the United Kingdom or a substantial part thereof. The AEC test is broader than the SLC test in merger control, encompassing structural problems and customer-side features that may harm competition even in the absence of specific anti-competitive conduct.

Where the inquiry group finds an AEC, it must decide whether to take action to remedy, mitigate, or prevent the AEC or any detrimental effect on customers resulting from the AEC. The group must also decide whether to recommend that others take action. The group must have regard to the need to achieve as comprehensive a solution as is reasonable and practicable to the AEC and any resulting customer detriment.

Remedies

The CMA has extensive remedial powers following a market investigation. The inquiry group may impose remedies including: behavioural remedies (requirements to publish information, restrictions on pricing practices, codes of conduct); structural remedies (divestiture of assets, separation of businesses, removal of barriers to entry); information remedies (requirements to provide consumers with clearer information to enable informed choices); and recommendations to government or regulators to change regulations or exercise regulatory powers.

The CMA must select remedies that are proportionate and effective, having regard to the nature and extent of the AEC and any customer detriment. Structural remedies are generally preferred where the AEC arises from structural features of the market, while behavioural remedies may be more appropriate where the problem relates to conduct or customer behaviour. The CMA monitors compliance with remedies and may vary or revoke them if circumstances change.

Judicial Review

Decisions of the CMA in market investigations are subject to judicial review, but the courts accord the CMA a significant margin of appreciation. In CMA v Flynn Pharma (2020), the Supreme Court considered the standard of review applicable to CMA decisions in market investigations, holding that the court should not substitute its own judgment for that of the CMA but should ensure that the CMA’s conclusions are supported by evidence and that the decision-making process is procedurally fair.

Conclusion

The market investigation regime under Part 4 of the Enterprise Act 2002 provides the CMA with a flexible and powerful tool for addressing competition problems at the market level. The two-stage process of market study and market investigation enables proportionate intervention, while the broad range of available remedies allows the CMA to design solutions that address the specific features of each market. Market investigations have become an increasingly important component of UK competition enforcement, complementing the prohibitions against anti-competitive agreements and abuse of dominance.