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Competition

It is important to identify whether the impact of a proposal is pro– or anti–competitive and to assess whether this impact is significant.

The Office of Fair Trading has a statutory role to advise Ministers and their officials of proposed legislation that may raise competition concerns.

The OFT has developed a competition filter, comprising of the following four questions, to assist officials in determining whether or not their proposals raise competition concerns.

Would the regulatory proposal:

• Directly limit the number or range of suppliers?
• Indirectly limit the number or range of suppliers?
• Limit the ability of suppliers to compete?
• Reduce suppliers' incentives to compete vigorously?

Guidance on how to conduct a Competition Assessment can be found here OFT Competition Assessment Guidance.

Where relevant, the results of the Competition Assessment should be summarised on the Summary: Analysis & Evidence page and set out in the Evidence Base.

Identifying the markets affected

The purpose of this section is to try and understand who, directly or indirectly, will be affected by the proposal. It is important to identify affected markets at an early stage because it will help to improve the policy makers' understanding of the likely effects of the regulations and will also provide a good basis for a useful consultation.

A market is generally considered to consist of a group of similar products in a particular area. Suppliers ‘in the market’ are therefore those which supply any of the products in any of the locations.

• The starting point for identifying the market or markets affected by a regulation is to identify the products that are directly affected.
• Once directly affected products have been identified, consideration should be given to those products that may be indirectly affected because it would be reasonably likely that at least some consumers or suppliers would substitute to them from the directly affected product in response to the new regulation.
• Consideration should also be given to the geographic dimension of affected markets. Markets may be local, regional, national or international.
• When identifying affected markets it is important to consider that there may also be knock–on effects to related markets. It is important that policy makers should consider the supply chain for the product in question and how that could be affected by the regulation.

Subsidies can distort competition between firms undertaking similar activities, particularly when subsidies are large and only available to a selection of the firms that compete with each other. The OFT's subsidy Guidance explains how impacts on competition can be taken into account when a government department or agency undertakes an appraisal of a subsidy, according to the Treasury's Green book or guidance based on the Green book.

It should be noted that almost all UK subsidies are state aid, and therefore need to comply with the European State Aid rules. These rules place legal obligations on Member States which must be adhered to regardless of the application of the OFT guidance.

Further information

Initially, policy makers may find it useful to discuss the potential effect on markets of their proposal with departmental economists.

Comprehensive guidance, which provides more detail on the conceptual framework and discusses practical issues that may arise in defining a market, is available at the OFT website: OFT Market Guidance.

For further details or assistance on competition issues contact the OFT's Regulatory Review Team on (020) 7211 8500 or by email: competition.assessment@oft.gsi.gov.uk.