Market Studies and Investigations

It is good to see companies meeting the needs of their customers and so growing in size. It is also good to see mergers and takeovers which lead to increased efficiency, greater innovation and improved service to customers. And if companies become so large that they begin to dominate their market, their behaviour can in principle be controlled by the use of Article 102 (Chapter 2 in the UK).

Article 102/Chapter 2 is not, however, ideal legislation. It is necessary for the competition authority to identify misbehaviour amounting to 'abuse' which can lead to the levying of fines. Companies and their executives inevitably fight such accusations very hard indeed, and the courts require competition authorities to have strong and compelling evidence. This in turn leads to such inquiries ending inconclusively and/or taking a very long time indeed: 4+ year inquiries are not uncommon. It is also often the case that markets do not work well for reasons which are to do with the history or structure of the market, rather than misbehaviour by individual companies. In the UK, therefore (though not in most other countries) it is possible for competition authorities to investigate whole markets and remedy any problems, without targeting any individual company:

High profile market references to the CC have included:

The CC is required to decide whether there is an Adverse Effect on Competition ('AEC') arising out of an identifiable feature or features of the market. The Commission follows a fairly standard process for all market investigations, which need to be completed within two years of the date of the reference by the OFT:

  1. The CC identifies possible theories of harm - i.e. features which may be causing an AEC. It then identifies what evidence would be needed to demonstrate (in the case of each theory) that harm would indeed be likely to result from that feature. This helps to focus the inquiry because the CC can look for particular evidence, rather than ask every question that comes to mind. Then, if the evidence is found, remedial action can be taken - or, if the evidence is not found, the market can be cleared.

  2. The CC then issues an issues statement which summarises the possible theories of harm and other issues that it intends to consider during the inquiry. The statement doubles as an invitation to third parties (any interested companies, organisations or individuals other than those under investigation) to comment on the market and submit evidence to the CC. The main parties to the inquiry (the main players in the market) and third parties may also comment on the issues statement if they wish - especially if they think that the CC may have missed a possible theory of harm, or identified any issues which are in practice not likely to be relevant.

  3. The CC seeks submissions from the main parties. It also requests the submission - from any person - of any evidence and information which it thinks might be helpful.

  4. The CC then analyses all the submissions and evidence and sends a number of working papers to the main parties. These papers summarise the CC's thinking on key issues, so that the main parties can if necessary challenge the thinking before the CC's views become too firm.

  5. The CC also publishes its Emerging Thinking so that all interested parties - including the media - can get involved in the debates.
  6. The CC in due course issues its Provisional Findings - a lengthy and detailed document which summarises the evidence and analysis which has persuaded the Commission to reach a provisional view that there is, or is not, likely to be an AEC. If there is no AEC then that is the end of the matter, although the CC will in due course a publish a more polished Final Report

  7. But if there is an AEC then the inquiry in principle proceeds along two parallel tracks:
    • The main parties are entitled try to persuade the CC to change its mind either by submitting crucial new evidence or by persuading the CC that its analysis was misguided.
    • The inquiry simultaneously enters its remedies phase as the CC and the parties discuss how the AEC might be remedied.

  8. The inquiry is formally concluded by the publication of the CC's Final Report which confirms (or otherwise) the existence of an AEC and summarises the remedy or remedies which the CC intends to impose on the participants in the market.

  9. It is then usually necessary to discuss and finalise a detailed remedies package. This can take some time but, if agreement cannot be reached, the CC will impose a detailed remedy by issuing a formal Order, which has the force of law.