The UK competition regime: an example of inter-institutional working

Cathryn RossDeputy Director of RemediesCompetition Commission

2 February 2004

Overview

• Introduction

• Structure of UK competition enforcement

• The Competition Act 1998

• The Enterprise Act 2002

• Concurrency

• Regulation and competition

• EU modernisation

• Conclusions

Introduction: Who am I? Why am I here?

Deputy Director of Remedies, CC Overseeing provision of advice on remedies in merger inquiries

and market investigations

Head of Competition Economics, ORR Overseeing competition analysis

Development of regulatory policy relating to competition

Economic Adviser, Oftel Competition analysis under competition law and sectoral

legislation

Competition enforcement in the UK (1)

The Competition Act 1998• Similar to Article 81 (EU) Article 82 (EU)• Ch I: Prohibition on anti-competitive

agreements– Includes cartels, resale price maintenance etc. – Block exemptions possible (eg transport ticketing)– Land and vertical agreement exclusion

• Ch II: Prohibition on abuse of dominance– Includes excessive pricing, predation, discrimination, refusal to deal etc

• Specific legal exclusion• Section 60 obligation

CA98 enforcement: institutional overview

Office of Fair

Trading (OFT)

Concurrent sectoral regulators

Ofcom

Ofgem

ORR Ofwat CAA

Ofreg

Serious Fraud Office

Competition Appeals Tribunal

High Court

House of Lords

Inve

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Competition enforcement in the UK (2)

The Enterprise Act 2002• Amended the CA98 – eg criminalisation of

cartels (SFO involvement in investigation)• Established new merger regime:

– ‘Substantial lessening of competition’ test (‘SLC’): phase 1 inquiry by OFT, possible referral to CC for phase 2

– CC assesses SLC, negotiates and implements remedies– OFT (still) monitors compliance– OFT can review remedies and request that the CC remove or

alter

Merger regime enforcement

Office of Fair Trading

Competition Commission

Sectoral regulators

SLC? Nature of remedies

Competition Appeals TribunalOffice of Fair Trading

Negotiation of remedies

High Court

House of Lords

Pha

se 1

Pha

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Inqu

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App

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Competition enforcement in the UK (3)

The Enterprise Act 2002• Market investigations

– OFT/sectoral regulators can refer markets to CC for investigation– CC looks at whether any feature or combination of features of

the market has an adverse effect on competition (‘AEC’)– CC can implement remedies and/or make recommendations

(can modify licences)

• Vitally important element of UK regime – allows action to be taken to make markets work better even where no breach of law (non-collusive oligopoly)

Market investigation regime

Office of Fair Trading

Competition Commission

Sectoral regulators

AEC? Nature of remedies

Office of Fair Trading

Negotiation of remedies

Pha

se 1

Pha

se 2

Inve

stig

atio

nM

onito

ring

App

eals

Competition Appeals Tribunal

High Court

House of Lords

Other bodies?

Competition enforcement in the UK (4)Summary• Legislative base:

– CA98: agreements and abuse of dominance– EA02: mergers

market investigations

• Institutional base:– Office of Fair Trading– Sectoral regulators (Ofcom, Ofwat, ORR, Ofgem, Ofreg, CAA)– Competition Commission– Competition Appeals Tribunal and courts

Concurrency (1)

• Some sectoral regulators have powers to investigate suspected infringements of the CA98 in their areas. Why?– Regulated industries often complex. Takes advantage of

sectoral knowledge. Can use data gathered for regulatory purposes.

– Complementarity of regulatory powers and CA98 powers. ‘Joined up approach’. Regulators can choose most appropriate tool for the job (strategic decision).

– Shifting regulatory focus towards ‘light touch’ regime?

Concurrency (2)

How does concurrency work?• Only one institution investigates – no joint

investigations

• If OFT becomes aware of possible breach (eg by

complaint) which relates to regulated sector it will

discuss with regulator who is ‘best placed’ to

investigate. And vice versa

• Discussions continue throughout investigation

• ‘Concurrency Working Party’ aids consistency

Concurrency (3)

Issues to think about…• Expertise

• Conflicting concerns/priorities

• Flow of information

• Consistency of decision making

• Importance of good relationship between institutions

There are trade offs!

Concurrency (4)

The merger regime: vertical concurrency?!• Two stage merger inquiries:

– OFT: Phase 1 (brief examination, clearance, undertakings in lieu, or reference)

– CC: Phase 2 (in-depth examination, clearance or adverse finding, remedies)

• Differences in expertise• Objective second look at merger• But need consistency and good relations• IBA appeal…?

Competition and regulation (1)

Competition law • General prohibitions on behaviour with anti-

competitive effect (CA98 and EA02 merger regime);

• Protects existing competitionSectoral regulatory legislation: • General and specific behavioural conditions,

often concerned with effect in regulated sector • Mimics and promotes competition in sector• Move to lighter touch regulation?

Competition and regulation (2)The merger regime• Allows prohibition of mergers generating

substantial lessening of competition (SLC)• Protects existing levels of competition• But mergers which lead to SLC can be allowed

subject to conditions: – Structural (eg divestment)– Behavioural (eg price control, commitment not to act anti-competitively)

• Allows for blend of protection, promotion and mimicking of competition

EC modernisation (1)

Regulation 1/2003 means:• Abolition of notification of agreements

• National Competition Authorities (NCAs) apply EU

competition law in full (including Art.81(3))

• Member states need to cooperate closely, exchanging

information and assisting investigations (ECN)

• European Commission’s powers of investigation are

strengthened and clarified

EC modernisation (2)

Abolition of notifications• UK CA98 allowed notifications in line with then EU

regime

• Now proposes to remove notifications

• Firms responsible for assessing own behaviour

• Competition authorities save resource

• Benefit to business of alignment of regimes

• But greater compliance cost?

EU modernisation (3)

NCAs apply EU competition law in full• Can apply Art. 81(3), individual exemptions.

• Where NCAs apply national competition law to situations

where Arts 81,82 are applicable, they must also apply

Arts 81,82 where there is an effect on ‘trade between

member states ‘ – widely interpreted!

• Vertical exclusion? Specific legal exclusion? S21(2) of

RTPA (insignificant by direction)?

• Exclusions by Secretary of state and for international

obligations will remain

EU modernisation (4)

Closer cooperation between NCAs• Greater information exchange• Institutions to play role in each others’

investigations (UK NCAs will conduct investigations for the European Commission)

• ECN will play a key role– Information exchange to take place via the network– ‘coordindation reflex’– development of joint thinking– Only designated NCAs will participate

EU modernisation (5)

Stronger clearer European Commission powers of investigation

• Eg to search domestic premises, to seal premises

• OFT powers in many ways stronger than Commission

• But when acting to enforce Arts 81, 82 (EU) OFT will

have effectively same powers as the Commission

• Some harmonisation of powers needed (eg site visits

with warrants, sealing premises) - possible information

leakage

EU modernisation (6)

Modernisation allows NCAs to enforce Arts 81, 82 and requires consistent application of Arts 81, 82

But NCAs impose penalties as allowed by domestic regimes

• Current EC maximum penalty – 10% worldwide turnover in

business year preceding breach

• Current UK maximum penalty – 10% of ‘relevant turnover’

up to maximum of 3 years, options for change proposed

• Possibility of forum shopping?

Conclusions: lessons for Poland? (1)

Commitment to competition: • High level political commitment …• …without political micromanagement• NCAs as competition advocates – espousing

the theory, exemplifying best practice• Possibility of a virtuous circle – if the regime

works it gets political support

Conclusions: lessons for Poland? (2)

Benefits of effective inter-institutional working:• creates a whole greater than the sum of its

parts• but to work it needs good working relationships

common thinking and approaches, information sharing

• inter-institutional system is inevitable post-modernisation…provides an opportunity to re-think?

Conclusions: lessons for Poland?(3)

Particular opportunities in broadcasting:• The EU Electronic Communications

Directives…• The new Polish Broadcasting Act….

… Is a combined electronic communications regulator and competition authority the way forward for Poland?