Introduction to Competition
and OFT Regulation
Daniel Caistor
Rosie Jaffer
OFT
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Overview
● OFT and OPSI have a long and rich history of working together
- Memorandum of Understanding
- Policy development (CUPI market study)
- Support with IFTS complaints
● Purpose of this session is to:
- Provide clarity on OFT’s tools and legal framework,
- Showcase some of our recent publications and thinking in the public
markets area that may be of interest and relevance, and
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Introduction and OFT Tools
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Introduction
● OFT’s mission: making markets work well for consumers through a number of
mechanisms
● Benefits of competition well recognised and chime with current economic and
political climate
● Our dual competition and consumer remit allows us to take a holistic approach to
our work and the wide range of remedies at our disposal allows us to act in a
flexible and proportionate manner.
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Our tools in detail….
● Enforcement interventions including:
- Taking criminal action against those involved in serious unfair commercial
practices or engaged dishonestly in cartel activity.
- Imposing financial penalties and other sanctions on companies under
competition law for involvement in anti-competitive agreements and the
abuse of a dominant position.
● Market tools and analysis, including:
- Actively studying markets that may not be working well for consumers
through market studies, or in response to supercomplaints from
designated bodies.
- Referring a market to the Competition Commission for investigation where
we have reasonable grounds for suspecting that any feature, or a
combination of features, of the market is preventing, restricting or
distorting competition in the UK.
- Monitoring, enforcing and reviewing orders and undertakings put in place
in the context of a market investigation reference.
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Our tools in detail continued…
● Merger control
- Reviewing information relating to merger situations and, where necessary,
referring any relevant mergers to the Competition Commission for further
investigation.
- Monitoring, enforcing and reviewing orders and undertakings put in place
in the context of a merger reference.
● Advocacy, advice and education
- Raising awareness of competition issues and advising policy makers
where wider Government policies affect competition and markets.
- Informing consumers through education and awareness campaigns.
- Carrying out business education and encouraging business compliance.
- UK and international policy work, using our influence to promote the
economic interests of UK consumers.
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How we work
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OFT integrated into the policy cycle
Can competition explain
the underlying reason for
need to intervene?
Can consumer detriment
be explained by
behavioural economics?
RATIONALE
Are there
wider
lessons to be
learned?
FEEDBACK
OBJECTIVES
EVALUATION
APPRAISAL
IMPLEMENTATION
Need to monitor and
evaluate the impact of any
changes to the market
MONITORING
What is the
desired market
response?
How will the
market
respond?
What is the
competition
assessment?
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Theory of Harm & OFT Prioritisation
principles
Theories of harm/consumer detriment
- Many analytical methods informed by economic research and literature
e.g. behavioural economics
Impact
Significance
Risk
Resources
Balance of four factors:
● Impact: Direct and indirect impact on consumer welfare and the
economy
● Strategic Significance: Fit with strategic objectives, innovation,
precedent setting, capacity building, whether OFT best placed to act,
balance of portfolio
● Risk: Likelihood of successful outcome, risk if we do not act
● Resources: People and monetary resources used, efficiency savings
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Competition law framework
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Key aspects of competition law
● TFEU Article 101 / CA 98 Chapter I prohibition – agreements between
undertakings, decisions by associations of undertakings or concerted practices
which have as their object or effect the prevention, restriction or distortion of
competition
● Includes price fixing, controlling production, market sharing, bid rigging,
discriminating between trading parties, etc
● TFEU Article 102 / CA 98 Chapter II prohibition – any conduct on the part of one or
more undertakings which amounts to the abuse of a dominant position. Nonexhaustive list in s.18(2) CA98
● TFEU if does or may affect trade between Member States – loosely interpreted.
● TFEU Article 106 / CA98 Schedule 3(4) – prohibitions do not apply to undertaking
entrusted with SGEI or having character of revenue producing monopoly insofar
as the prohibition would obstruct the performance of the assigned tasks.
-
strictly applied. Must be least restrictive measure necessary
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Key terms - undertaking
● “undertaking” – entity engaged in economic activity, regardless of its
legal status and way in which it is financed (Case C-41/90 Hofner and
Elser v Macrotron)
- Relevant activity is offering goods and services on a given market (eg
Case C-205/03 FENIN)
● An entity may be an “undertaking” in respect of some activities but not
others
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Key terms - abuse
● “abuse”
Article 102 (and s.18 CA98) lists some abuses
● discrimination – can be by price, directly or indirectly imposing unfair purchase or selling
prices, or other unfair trading conditions which place a competitor at a disadvantage eg
discriminatory licensing terms
● limiting production – eg not updating and developing an essential facility
● tying or bundling products - eg Microsoft tying Windows media player with Windows OS
● predatory pricing – eg France telecom for dropping broadband internet prices below
production costs “no interest in applying such prices except to eliminate competitors”
Categories not closed
● Refusal to supply – licensing of indispensable input (origin in Cases C-241&242/91 RTE/Magill,
applied in Case C-418/01 IMS healthcare)
● abuse of regulatory procedures – July 2010 AstraZeneca – misrepresentations to patent
authorities to extend protection and selective deregistration to restrict generic market entry
from parallel imports – led to European Commission sector inquiry
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Useful resources
● OFT guidance
- OFT 401 & 402 – Agreements and concerted practices, Abuse of a
dominant position
- OFT 403 & 415 – Market definition, Assessment of market power
- OFT 421 – SGEI exclusion
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Recent relevant publications
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Creating new markets from public
information
PROVIDING PUBLIC SERVICES
OPENING UP MARKETS
● In 2006, OFT conducted Commercial Use of Public Information Market
Study
● Competition in this sector could benefit the economy by around £1bn by
improving access to unrefined public sector information
● A number of positive changes have already occurred in the sector
● OFT involvement in CUPI on-going
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Choice in public services markets
PROVIDING PUBLIC SERVICES
OPENING UP MARKETS
● Risks
- rent seeking behaviour/cream skimming
- cross subsidisation
- and ultimately creation of market power
● OFT publication ‘Choice and Competition in Public Services, identified
conditions for success:
- relatively free entry and exit, particularly ‘effective failure’ while ensuring
certainty of supply
- diversity of supply to facilitate consumer choice
- effective funding incentives including managerial autonomy to allow
innovation
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Choice in public service markets – level
playing field
ONCE MARKET OPENED UP
NEED TO ENSURE LEVEL
PLAYING FIELD
● Need to ensure competitive neutrality otherwise
- risk of incumbency advantage and
- increased risk of major system failure
● OFT publication ‘Competition in mixed markets’ identified main barriers
to competitive neutrality:
- differences in regulation, taxation and pension treatment between
different providers
- incumbency advantages enjoyed by existing firms
- lack of clarity in the application of competition law
● Challenge is to identify ‘subtle’ public restrictions
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Activating consumers key to competition
NUDGING CONSUMERS
BOLSTER USER CHOICE
RISK OF CONSUMERS NOT
BUDGING INSTANTLY
● Ensure consumers play an active role in markets
● Key factors for user choice (demand side)
- Awareness of choice
- Assessment of information
- Capability to act
● Consumers may not act instantly but important to recognise supply side
response to anticipated consumer demand
● Choice-tools can help facilitate consumer choice and improve supplyside performance
● Even where consumers able to make a choice, demand rationing may still
be necessary
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Links
● Government in Markets:
http://www.oft.gov.uk/shared_oft/business_leaflets/general/OFT1113.pdf
● Choice & Competition in Public Service Markets:
http://www.oft.gov.uk/shared_oft/business_leaflets/general/oft1214case.
pdf
● Competition in mixed markets: Competitive Neutrality
http://www.oft.gov.uk/shared_oft/economic_research/oft1242.pdf
● Product Standards Report
http://www.oft.gov.uk/shared_oft/economic_research/oft1030.pdf
● Choice-tools
http://www.oft.gov.uk/shared_oft/reports/consumer_protection/oft1321.p
df
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