The role of the Competition Commission
The Competition Commission (CC) is an independent public body which conducts in-depth inquiries into mergers, markets and the regulation of the major regulated industries, ensuring healthy competition between companies in the UK for the benefit of companies, customers and the economy.
All of the CC’s inquiries are undertaken following a reference made by another authority, most often the Office of Fair Trading (OFT) (which refers merger and market inquiries), or one of the sector regulators (which can refer markets within their sectoral jurisdictions or make regulatory references in relation to price controls and other licence modifications) or as a result of an appeal from a decision of one of the sector regulators.
Under the Enterprise Act 2002 (the Enterprise Act), the OFT can review mergers to investigate whether there is a realistic prospect that they will lead to a substantial lessening of competition (SLC), unless it obtains undertakings from the merging parties to address its concerns or the market is of insufficient importance.
In order to qualify for investigation by the OFT, a merger must meet all three of the following criteria:
1. two or more enterprises must cease to be distinct;
2. the merger must not have taken place already, or must have taken place not more than four months ago; and
3. one of the following must be true:
• the business being taken over has a turnover in the UK of at least £70 million; or
• the combined businesses supply (or acquire) at least 25 per cent of a particular product or service in the UK (or in a substantial part of the UK), and the merger results in an increase in the share of supply or consumption.
In exceptional cases where public interest issues are raised, the Secretary of State may also refer mergers to the CC.
Where an inquiry is referred to the CC for in-depth investigation, the CC has wide-ranging powers to remedy any competition concerns, including preventing a merger from going ahead. It can also require a company to sell off part of its business or take other steps to improve competition.
The Enterprise Act enables the OFT (and the sector regulators) to investigate markets and, if they are concerned that there may be competition problems, to refer those markets to the CC for in-depth investigation.
In market investigations the CC has to decide whether any feature or combination of features in a market prevents, restricts or distorts competition, thus constituting an adverse effect on competition (AEC).
If the CC concludes that this is the case, then it must seek to remedy the problems that it identifies either by introducing remedies itself or by recommending action by others.
Reviews of undertakings or orders
Undertakings or orders are the primary means by which remedies are given effect under the Enterprise Act and the Fair Trading Act 1973. The OFT has the statutory duty to keep these undertakings or orders under review and if it considers that due to a change of circum¬stances a set of undertakings or an order should be varied or terminated, then the OFT refers it for consideration by the CC. Responsibility for deciding on variation or termination of undertakings lies with the CC.
In relation to regulatory references, the CC’s role is dictated by the relevant sector-specific legislation. Companies regulated under the gas, electricity, water and sewerage, postal ser¬vices, railways or airports legislation generally have a formal instrument (a licence) setting out the terms of their operation. If a regulated company does not agree to a modification of its licence proposed by the regulator, the regulator must refer the question to the CC. The CC will consider whether any matter referred to in the reference may be expected to operate against the public interest and, if so, whether this could be remedied by modifications to the licence. These references can involve the price control applied to the company.
The CC also has roles under the Financial Services and Markets Act 2000 and the Legal Services Act 2007.
Energy code modifications and Communications Act appeals
The CC has an appeal function following decisions by the Gas and Electricity Markets Authority to modify certain energy codes under the Energy Act 2004 and in relation to price control decisions by Ofcom, following a reference by the Competition Appeal Tribunal (CAT) under the Communications Act 2003.
The CC replaced the Monopolies and Mergers Commission
in 1999, following the Competition Act 1998. The
Enterprise Act 2002 introduced a new regime for
the assessment of mergers and markets in the UK. The
CC’s legal role is
now clearly focused on competition issues, replacing a wider public interest
in the previous regime. The Enterprise Act also gave the CC remedial powers
to direct companies to take certain actions to improve competition; in
the previous regime its role was simply to make recommendations