Competing Fairly in Business – do you know the rules?
4th November 2016
For family businesses, reputation often comes above all else. A reputation for honesty and integrity can take years to build. However, if your morality and ethics are called into question, this can do irreparable damage which is hard to recover from.
How much does your business and its staff really know when it comes to “competing fairly”?
Do they realise that certain activities can be illegal, such as discussing pricing strategy with a competitor, or agreeing not to target the same customers?
Research shows that the majority of business people are not clued up on the law when it comes to fair competition. Furthermore, when asked, many didn’t know certain behaviours are illegal under UK competition law.
Competition is vital for growth and ensuring customers get a fair deal, at a competitive price.
It encourages businesses to think innovatively, to stay ahead of their rivals and can open up traditional markets to new and dynamic business models. For these reasons, UK competition law exists to protect businesses and consumers from those who attempt to cheat to get ahead.
It’s often businesses, like yours, which are the victims. It could be that your suppliers are colluding to keep prices high and protect their own profits. Or, an established industry player may be abusing its dominance to force you out of the market.
Equally – your business may be the one crossing the line if staff share ideas or information with competitors, especially over your respective prices or how you plan to react to changes in a market. It can be easier to overstep the mark than you may think.
It can be as simple as sending an email, having a meeting or discussion with other businesses which limits the extent to which you’ll compete against each other.
For example - in small communities or markets, it’s not unusual for competitors to know each other socially. They might even be family members with similar businesses who agree to help each other out by sharing a customer base or agreeing not to go below a minimum price if they sell similar products or services.
Where businesses agree to limit the ways in which they will compete against each other, this ultimately cheats their customers who are denied the benefits of genuine competition. It allows businesses to avoid the pressure of natural market forces and can mean customers end up paying artificially high prices. Family businesses in particular should take note of the risks.
Aside from fines, which can be considerable (up to 10% of annual turnover), directors can be disqualified for up to 15 years. Employees and/or directors can be personally fined and can even go to jail if they’ve been involved in serious, ‘cartel’ activity.
The reputational damage to a family business can often be more destructive: many rely on the reputation of their name and the long-standing trust from their customers. Being tarnished as a business deliberately seeking to circumvent the rules can erode trust in an instant.
The Competition and Markets Authority (CMA)is the body responsible for promoting competition in the UK. It also has powers to enforce the law against businesses and individuals who act anti-competitively.
No business is immune to the rules, regardless of size. Competition law doesn’t just concern large corporations with sizeable market shares. Small companies are just as likely to be investigated if they have broken the law.
In addition to being an enforcer, the CMA also promotes a better awareness and understanding of the law to businesses.
To this end, there are a range of short, simple and accessible materials available online. Businesses can use these for staff training or general information purposes. These can be found at www.gov.uk/cma/competing-fairly-in-business
There is a lifeline if you think you’ve been involved in something you shouldn’t have been. The CMA offers a leniency programme – if you come forward and report your involvement first before anyone else does, you may benefit from total immunity from fines or further prosecution.
And if you think you’ve witnessed others acting in a way which might be anti-competitive, you can report this to the CMA. We have details online of how to do this: https://www.gov.uk/guidance/tell-the-cma-about-a-competition-or-market-problem
A better knowledge of the rules can mean your business is better protected. Make sure you’re not the one who’s left in the dark.