As an aspiring commercial solicitor attempting case studies at assessment centres for vacation schemes and training contracts, you are not expected to know competition law in nearly as much depth as a qualified competition lawyer would be (of course!). However, given that M&As are a common theme of these case studies, and that M&A necessarily involves the merger between two companies or the acquisition of one company by another, you will need to have a base-level understanding of how competition law operates in the jurisdiction of England & Wales: common competition-related problems you might spot in case studies, and corresponding solutions.
At a Glance: Competition Law in England & Wales
Competition is also known as “antitrust” in United States, so if you see these terms being used interchangeably, that’s why. Competition law aims to promote fair competition and prevent anti-competitive practices. In layman’s terms, it’s the government’s way of preventing cartels, monopolies, overly dominant market positions or similar outcomes: it is a delicate balance between free-market capitalism (i.e. allowing companies to set their own prices and trusting that companies will be guided by what the market is willing to buy) on the one hand, and protection of the consumers’ meaningful access to a healthy variety of products at a healthy variety of price points.
Example of a Monopoly
To use an extreme example, imagine a BullyTech, the only company in the world that has the ability to produce laptops. This will:
Give this company unfettered power to determine prices - customers could be forced to buy at extortionate prices and they have no other choice; and
Stifle innovation, as new market entrants (i.e. small startup companies) who wish to compete will not be able to meaningfully do so - BullyTech has way too many resources: financial, human, brand awareness etc for any other company to be able to stand a chance of gaining much market share.
Examples of What’s Prohibited
Some obvious practices prohibited by competition law include:
Price fixing: involves agreements between competitors to set prices at a certain level, eliminating competition on price.
Bid rigging: occurs when competitors conspire to influence the outcome of a bidding process, often by agreeing on who will win a bid and at what price.
Market division: involves agreements between competitors to divide markets among themselves, such as by geographic area or customer type, to avoid competing with each other
Key Regulations & Regulators
United Kingdom
The key statutes governing competition law in the UK are the Competition Act 1998 and the Enterprise Act 2002. These laws prohibit anti-competitive agreements, such as cartels, and the abuse of a dominant market position, which may include practices like predatory pricing or refusal to supply.
The Competition and Markets Authority (CMA) is the primary body responsible for enforcing competition law in the UK. It investigates and takes action against businesses that engage in anti-competitive behavior. The CMA has the power to impose significant fines and can also enforce remedies to restore competition.
European Union (and Brexit)
In addition to national laws, competition litigation in England and Wales has been influenced by European Union regulations, although this has changed post-Brexit. The Consumer Rights Act 2015 introduced reforms that expanded the jurisdiction of the Competition Appeal Tribunal (CAT), allowing for more streamlined processes in competition litigation, including collective actions.
By now, you should see how competition law is obviously relevant to M&A case studies: a key reason behind why buyers want to purchase target companies is to consolidate their market position, especially through horizontal integration (see this article for more on this). Competition law and the CMA are there to ensure that such consolidation is allowed, but not to a harmful degree.
Common Competition Problems & Corresponding Solutions
1. Substantial Lessening of Competition (SLC)
Problem Overview:
A merger or acquisition may lead to a substantial lessening of competition in the market if it results in a dominant market position or reduces the number of competitors significantly. The Competition and Markets Authority (CMA) in the UK assesses whether a transaction may lead to SLC.
Suggested Solutions:
Undertakings in Lieu: Propose behavioural or structural undertakings to address competition concerns. This might include getting rid of (i.e. “divesting”) certain assets or businesses to maintain market competition.
Market Analysis: Conduct a detailed market analysis to demonstrate that the merger will not harm competition, perhaps by showing that new entrants can easily enter the market or that the merger will lead to efficiencies benefiting consumers.
2. High Market Share and Dominance
Problem Overview:
If a merger results in a company holding a significant market share, it may be deemed to have a dominant position, raising concerns about potential abuse of dominance.
Suggested Solutions:
Commitments to Fair Practices: Offer commitments to maintain fair pricing and supply practices to alleviate concerns about potential abuse of market power.
Third-Party Access: Ensure that competitors have access to essential facilities or inputs, preventing the merged entity from leveraging its dominance to exclude competitors.
3. Barriers to Entry
Problem Overview:
A merger might create or strengthen barriers to entry, preventing new competitors from entering the market and thus reducing competition.
Suggested Solutions:
Facilitating Entry: Propose measures to facilitate market entry, such as licensing technology or providing access to distribution networks.
Regulatory Engagement: Work with regulators to identify and reduce regulatory barriers that may hinder new entrants.
4. Coordinated Effects
Problem Overview:
A merger may increase the likelihood of coordinated behaviour among remaining competitors, such as price-fixing or market-sharing agreements.
Suggested Solutions:
Monitoring Mechanisms: Implement monitoring mechanisms to detect and prevent anti-competitive coordination among competitors.
Transparency Initiatives: Increase transparency in pricing and market practices to reduce the risk of tacit collusion.
5. Vertical Concerns
Problem Overview:
Vertical mergers, where companies at different stages of the supply chain merge, can raise concerns about foreclosure or preferential treatment.
Suggested Solutions:
Non-Discrimination Clauses: Include clauses that ensure non-discriminatory access to essential inputs or distribution channels for competitors.
Firewalls: Establish firewalls to prevent the sharing of sensitive information between merged entities that could harm competition.