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Andreas Stephan - government reforms to competition regime focus on price fixing

13:59 22 March 2012

Andreas Stephan from the UEA’s Centre for Competition Policy (CCP),

Andreas Stephan from the UEA’s Centre for Competition Policy (CCP),

Archant

Competition policy is very important to a successful economy. It ensures a level playing field for businesses, protects consumers and encourages competing firms to innovate new products and drive down prices in the market.

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The Government has announced reforms to the UK’s competition regime under the ambitious title ‘A Competition Regime for Growth’.

The changes announced by the Business Minister, Norman Lamb, include merging the Office of Fair Trading and Competition Commission into a single authority called the Competition and Markets Authority (CMA), and making it easier to send businessmen who fix prices to gaol.

The merging of the two authorities is part of the Prime Minister’s ‘bonfire of the quangos’, designed to cull the number of costly quasi-governmental bodies set up under New Labour.

Unfortunately, the merger will be quite costly itself and is only likely to result in modest savings. In fact the government review found the Office of Fair Trading and Competition Commission worked so well in relation to merger review, that they are essentially retaining the same structure and procedure, but within the new authority. The idea is to have a “single, strong voice for competition”, but significant resources and time will have to be spent promoting the existence of the new authority.

The Office of Fair Trading, in particular, is well known among UK businesses (for the right and occasionally the wrong reasons) and around the world.

The reforms do also make changes to procedure and time limits in order to make merger review and other areas of competition more streamlined. However, as the Government’s review acknowledged, the competition regime operates pretty well in most areas. The changes are really only fine tuning.

The most significant reform is to the criminal cartel offence. This allows for the imprisonment of up to five years of businessmen who agree with competitors to fix prices, carve up markets, rig tender bids or restrict output.

At present, prosecutors must demonstrate that an individual dishonestly agreed to these practices. This was designed to limit the offence to only the most serious cartel conduct and send out a message about the objectionable nature of such practices. Unfortunately, the legal test for dishonesty (taken from the law of theft) is ambiguous and does not lend itself very well to price fixing cases. In fact it set the bar so high, that in the nine years the offence has been in force, only one (failed) case has been brought to trial.

The reform will widen the offence so that only an intention to engage in cartel practices will be required, but cartel agreements entered into openly will be excluded from the offence.

Some lawyers are already warning about miscarriages of justice, but this seems absurd given the lack of cases brought to trial. Moreover, it is naive to think that businesses in the UK might simply stumble into price fixing arrangements. Conspiring with competitors to artificially raise prices charged to their customers is plain wrong and everyone in the business community knows it.

Such practices cause very significant harm to the UK economy, and to consumers who are currently enduring the biggest squeeze on household incomes in a generation.

Dr Andreas Stephan, Senior Lecturer in Law, University of East Anglia.

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