Are you a small business and do you understand competition law?

25 Feb Are you a small business and do you understand competition law?

On 18 November 2015, the Competition and Markets Authority (CMA) published a report setting out the results of a research exercise on the understanding and attitudes of small businesses towards competition law. The outcome of the research e ectively indicates that SMEs have a low level of knowledge and understanding of competition law. It also identi ed that compliance training within SMEs is rare and awareness of sanctions is low. However, SMEs have an intuitive understanding that some behaviours are wrong and are keen to protect their businesses’ reputation.The research was conducted through face-to-face interviews with individuals working in SMEs and also through workshops. I thought it would be interesting to share with you what the research found:

• During the course of discussions about regulations and compliance, competition law was not mentioned spontaneously by respondents. When it was mentioned to the individuals there was a clear lack of awareness.

• There were misconceptions around what competition
law involved, with confusion about other areas of
regulation (such as anti-bribery and consumer law). It appeared that most SMEs are not very clear on what competition law means.

• There were indications that respondents tend to overestimate their knowledge of and the frequency of their discussions about competition law.

• There appeared to be a shared understanding that some practices are “unfair” or “wrong” or “immoral” (such as price- xing and market- sharing). Businesses understand the importance of preserving customers’ choice and allowing customers to access the cheapest price.

• Reputation of the business and ethical factors were closely linked
as integrity was felt to contribute signi cantly to building a strong reputation (personal reputation was of particular concern for business owners). It was recognised that sanctions have an important impact on business reputation.

• Although respondents’ rst reaction was that their industry was competitive, on further explanation of competition law, many revealed that they had actually experienced or witnessed examples of anti-competitive behaviour and most thought that anti-competitive behaviour was happening amongst their competitors or suppliers.

• Most respondents recognised that price- xing is both immoral and illegal, causing clear harm to consumers. Respondents cited examples of being approached by competitors to x prices.

• Respondents found it harder to identify the harm resulting from market-sharing, without being provided with clear examples. Although most respondents felt that market-sharing seemed immoral, the impact was not so obvious as for price- xing.

• For most respondents, the impact of bid-rigging was clear and most understood that it was illegal. Respondents in certain sectors provided quite a few examples of price xing in the bid rigging process, especially in the context of reverse auctions. It was also mentioned frequently that customers play a role in bid rigging, or chose to ignore it.

• Most respondents felt that other anti-competitive practices, such as retail price maintenance, limits on production or supply and, particularly, abuse of dominance, were not relevant to small businesses.

• Many respondents saw nothing wrong with sharing information with competitors where competition was not hostile. Relationships are friendly in some industries, with SMEs helping each other. There was evidence of frequent exchanges of services and information, in relation to prices, suppliers and customers. The limits of how much information can be shared was generally set by the interests of the business. There appeared to be a lack of understanding of what might constitute “sensitive information”. Further, the impact of information sharing on customers was not clear.

Overall, it seemed that businesses assessed the legality of a practice according to its morality. The impact on customers played a major role. Examples were crucial to facilitate understanding of the impact of certain practices.

Some respondents considered that competition law was not relevant to them because of their small size.

It appears that some industries (particularly construction, manufacturing and transport) are more at risk of adopting anti-competitive practices than others. Very small businesses seem to be at particular risk due to very low knowledge of legal requirements and other priorities.

This is all very interesting but how can the CMA assist businesses in increasing knowledge of competition law. SMEs do not just want to know about the risks, but would prefer to know what is and is not allowed.

In response to this research and the fact that businesses need help and guidance on this area of law the CMA has published some materials aimed at assisting SMEs. Here are some of the materials which the CMA has published and how they can help SMEs:

• An “at a glance” guide to competing fairly in business. This is a one page guide that identi es the three most damaging behaviours (dividing up and sharing markets, bid-rigging and discussing tenders, and price- xing), brie y mentions sanctions and explains how to report illegal activity to the CMA.

• An SME compliance checklist. This is a one page document that provides, in visual form a checklist/ owchart of areas of risk for SMEs in relation to dealing with competitors and sharing information.

• A short online quiz on competition law risks for SMEs.

• Video guides on illegal anti-competitive activities. These short animated videos explain the main principles of competition law and how they a ect small businesses.

• Competition law case studies. This includes short summaries of six cases providing examples of illegal price- xing, collective boycotts, market sharing and bid-rigging.

All these documents can be found on www.gov.uk.

(This article should not be treated or relied upon as legal advice and you should seek legal assistance for your own individual circumstances)