The courts are often called upon to sanction treatment for patients whose ability to make...
In 2014, two pharmaceutical companies, Lloyds Pharmacy and Tomms Pharmacy were found to have entered into an illegal market sharing agreement. In their competition over the supply of prescription medicine to care homes, the companies agreed to refrain from selling and marketing to each other’s existing care home customers.
Competition law operates to encourage dynamic, open and competitive markets, in so doing increasing productivity and the drive for innovation, which benefits customers and encourages price reductions. Tomms and Lloyds were found to have breached competition law in their actions, and incurred fines of over £370,000. It was found that the reduced competitive pressure between the two pharmacies may have denied care homes from receiving improved levels of quality and service, which would stem from healthy competition.
A breach of competition law can lead to large fines being imposed on businesses, as well as carrying the possibility of exposing individuals to criminal prosecution. However, a recent report by the Competitive Market Authority (CMA) has found that only 21% of micro and 26% of small businesses had much awareness of the impact of competition law. This lack of knowledge increases the risk of small businesses inadvertently breaching competition law, or failing to recognise a breach by a competitor.
As a result, the CMA has produced guidance and interactive materials, including a quiz and case study materials, mostly focussing on ‘hard core’ anti-competitive agreements which create cartels, in particular price-fixing, bid-rigging and market sharing. The EU Commission has formalised its disregard of situations where parties have a market share below 10%, and stated that agreements which restrict competition by ‘object’, the hard core provisions described below, will always be regarded as appreciably restricting competition, regardless of the size of the parties or whether there are any concrete effects on the market.
- Price Fixing - Only 55% of respondents to the CMA’s survey knew that price fixing was illegal. Price fixing occurs when there is an agreement or understanding between two or more parties about price levels between competitors and as a result prices or profitability exceed the level that would be expected if normal competition conditions existed.
- Bid Rigging - This is the process whereby companies agree the outcome of a tender or pitch process amongst themselves, by either (a) deciding in advance which company will bid; (b) who will bid the best price; or (c) what the tender process should be.
The competitive element is removed from the tender process, resulting in the customer losing free choice and, inevitably, paying higher fees. One of the case studies provided by the CMA describes the bid rigging in the construction industry in 2009. During this period, approximately 100 construction companies were fined a total of £63.6 million for illegal bid-rigging on nearly 200 construction projects, which included works on UK schools and hospitals. In a number of cases the lowest bidder faced no genuine competition at all with all other bids being ‘cover bids’. - Market Sharing - This occurs when there is agreement between businesses to allocate particular customers or sales territories, with the situation with Lloyds and Tomms serving as a notable example.
Other methods of competitor interaction can also breach competition law, such as confidential or commercially sensitive information exchange between competitors, i.e. prices, margins; or agreeing to limit output or sales and in so doing maintain artificially high prices. For more Competition Law case studies, click here.