Competing on equal terms

VICTORIA JUDGE of Gotelee Solicitors warns that competition laws apply to all businesses, regardless of size

COMPETITION law is something which is frequently overlooked by small or medium sized businesses but is does apply to them.

Lots of firms mistakenly believe that it only applies to “big business”, but there are certain activities which are prohibited regardless of the size of your business.

Breaching competition law can have serious implications for your business, including large fines. Certain serious breaches of competition law may also expose an individual to the risk of criminal prosecution.

All cartels are strictly prohibited. A “cartel” is any organisation or arrangement between at least two competitors that is designed to reduce competition between them and so increase prices or profitability beyond the level that could be achieved competitively. The main examples of cartels are:

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Price fixing: Any understanding or agreement about prices can be price fixing. Even a statement to a competitor like “we intend to increase prices next year” can be unlawful. Price fixing includes setting minimum or target prices, co-ordination of the timing of price increases and agreeing aspects of trading such as discounts, margins, rebates, credit terms, advance payments, minimum prices or list prices.

Bid rigging: This is when companies agree the outcome of a tender or pitch by deciding in advance which company will bid or who will bid the best price or what the tender process should be.

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Market sharing: This involves sharing, say, customers or sales territories between competitors.

Information exchange: Your business must not agree to share confidential or commercially sensitive information with competitors, such as prices, margins, customers or sales information, so be careful what you say to competitors, for example, at networking or trade association events.

Limiting output or sales: Sales or production quotas are often used to control the market position of cartel participants and maintain artificially high prices.

If you become aware that your business is involved in any cartel activity, or you are approached by a competitor to participate, you should take legal advice immediately.

Several other forms of co-operation may breach competition law. To be safe, take legal advice before collaborating with a competitor – for example, by entering into joint purchasing, advertising or sales arrangements or research and development agreements.

These can be prohibited if the objective or effect is to reduce competition. However, they may be permissible if, for example, there are customer benefits that outweigh any anti-competitive effect.

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