Competition Law: an SME guide

Competition law is one of the areas that SMEs may (understandably) choose to ignore. But the massive penalties for getting it wrong could make our guide an important read.

Competition law is a big and overlooked risk for UK small to medium sized businesses: an independent report commissioned by the Competition and Markets Authority (CMA) found that 77% of companies either had a poor grasp of competition law or hadn’t heard of it at all.

Serious misunderstandings were uncovered: only 55% of businesses knew price-fixing was illegal, and 18% wrongly thought it is acceptable to agree prices with rivals, with a further 27% unsure.

The most common misconception is perhaps the most dangerous: 31% thought it was acceptable for businesses to agree not to sell to the same customers as each other (it isn’t).

For those involved in bids, other misunderstandings abound: 23% thought it was acceptable to discuss prospective bids with competing bidders, with 29% unsure if bid-rigging was illegal (it is).

The consequences can be severe – more than enough to send an average business under. For breaches of competition law, a company can be fined 10% of global turnover. Directors may be disqualified from managing a company for up to 15 years and offenders can be jailed for up to 5 years.

What can you do to avoid falling foul of the ever-stricter regulation?

Competition law UK

The CMA is keen help SMEs stay compliant. Their new suite of materials should help you understand the dos and don’ts of competition law.

The first thing to stress is that competition is an essential part of business, and those that think they are being unfairly disadvantaged can use the law to level the playing field.

The often dense and technical of competition rules has meant the SMEs are disadvantaged by a lack of resources. However, the CMA’s at-a-glance guide to competition law offers some simple insights.

Contract law

The CMA’s checklist on what to avoid is a great place to start. Their three most damaging behaviours to watch out for are:

  • Dividing up and sharing markets: Agreeing not to go after a competitor’s customers, or deciding which territories each business will ‘take’.
  • Bid-rigging and discussing tenders: Agreeing with other businesses how much you will bid in a tender, and who will have the lowest bid so that they win the contract.
  • Price-fixing: Agreeing with competitors what price you will charge to avoid having to compete with each other.

There are also case studies to match each of these offenses (including how they were punished) and short films to offer clear explanations.

For those who think they know it all already, a short online quiz can show up any gaps in understanding.

As Alex Chisholm, CMA Chief Executive, said: “The potential consequences of breaking the law are very serious. That’s why it’s important that businesses know what to look out for and report this to the CMA to prevent other businesses and consumers from losing out.”

John Allan, Federation of Small Businesses National Chairman, agreed: “Competition law is a crucial part of doing business in the UK and … [we] welcome efforts to help small businesses grasp the law in this area – as the potential fallout of getting it wrong could be severe. Competition policy applies to businesses of all sizes and we encourage our members and all small businesses to make the most of this valuable resource.”

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