Electives: Commercial Part 1 – Competition

Commercial law in practice covers a wide range of matters, all grounded in contract law.

Because almost every transaction involves a contract, the issues a commercial lawyer encounters vary considerably. The LPC Commercial elective focuses on specialist areas that frequently arise in contractual work.

At my provider, these included the sale and supply of goods and services, intellectual property and competition law. Each area is detailed, so this post focuses on competition law.

Competition law aims to prevent anti‑competitive behaviour.

In a free market, competitive pressures, such as pricing, consumer habits and availability of supply, regulate how businesses behave. If a business sets its prices too high, consumers will turn to a cheaper competitor. However, if businesses that should be competing instead work together to neutralise market pressures, the behaviour becomes anti‑competitive.

Likewise, if a business with a very large market share abuses its position, for example, by pricing so low that competitors are forced out, this is also anti‑competitive. Both situations reduce competition and ultimately harm consumers. This is a simplified explanation, but it captures the essence of competition law.

There are two competition law regimes: EU and UK.

Both prohibit anti‑competitive agreements and abuse of dominant market position. The distinction lies in geographical scope. Articles 101 and 102 TFEU apply where conduct affects trade between EU Member States, while the Competition Act 1998 applies where trade within the UK is affected.

You will need to refer to the legislation in the exam, so instead of repeating the law, here are some practical points to guide your analysis.

In the exam, you will likely be given a scenario and asked to analyse whether competition law issues arise. A systematic approach is essential. As a minimum, consider the following:

• Is the conduct governed by EU or UK law?
• Is the issue an anti‑competitive agreement or an abuse of dominance?
• If an agreement, is it horizontal or vertical?
• Is it covered by a block exemption?
• What is the relevant market?
• Does de minimis apply?
• Is competition affected?

The order depends on the question. For example, you must define the market early if assessing dominance, but you may leave it until later if analysing an agreement.

Some of these concepts are complex and supported by extensive case law. Reading the cases will help you understand them properly, but the key principles are summarised below.

Vertical and Horizontal Agreements

Vertical and horizontal describe the parties’ positions in the market.

Horizontal agreements are between competitors at the same level. Vertical agreements are between businesses at different levels, such as manufacturers and distributors or wholesalers and retailers. Vertical agreements are generally less likely to harm competition because the parties are not direct competitors.

As a result, vertical agreements without “hardcore” restrictions (listed in the Vertical Agreements Block Exemption (VABE)) may benefit from the exemption and fall outside competition law.

Identifying whether an agreement is vertical or horizontal tells you whether VABE applies.

Distribution agreements, a favourite in the elective, are vertical and may fall under VABE, but they often contain hardcore restrictions. There is extensive case law on distribution agreements and competition law. A distribution agreement should immediately prompt you to consider VABE.

The ‘De Minimis’ Rule

De minimis applies to agreements with minimal effect on competition.

If the parties have a small market share (EU) or low turnover (UK), the agreement may fall outside competition law unless it contains hardcore restrictions. Whether de minimis applies depends on the defined market. Markets can be narrow or wide depending on your analysis, so explain both possibilities in the exam.

Market Definition

Market definition is central to assessing dominance.

The size of the market determines whether a business has a large share, and the size depends on how the market is defined. The market for 15mm nails is small; the market for items capable of hanging a picture is much larger.

Start by identifying the initial product or service. Then determine the parameters of the market. There are three types of market:

• Product market
• Geographic market
• Temporal market

The product market includes products that are viable substitutes.

Substitution is assessed from both demand and supply perspectives. Demand substitution asks whether consumers will switch products if prices change. Supply substitution asks whether suppliers can switch production easily.

Intended use matters: high‑end products are not interchangeable with cheap alternatives. In United Brands, bananas were held to be in a separate market from other fruit due to their unique characteristics.

Geographic markets relate to where consumers will buy the product.

Online shopping can make markets international, but some markets are very small. Airports, for example, often form their own market due to restricted consumer movement.

Student accommodation markets are typically limited to the area surrounding the university. In many cases, the market is defined by convenience, such as a hospital, campus or office estate.

Temporal markets apply where products are used only at certain times, such as mince pies during the festive season.

Market definition is often difficult. It depends on consumer behaviour, and without survey data, certainty is impossible. In the exam, cover both narrow and wide market definitions and explain the implications. A business may only be dominant in a narrowly defined market, meaning its conduct only breaches competition law if the market is defined that way.

Enforcement

Competition law may also involve enforcement.

Both the Office of Fair Trading and the European Commission can investigate and enforce competition law.

Penalties are severe: businesses can be fined up to 10% of worldwide group turnover, face reputational damage and be sued for damages. In the UK, the cartel offence under the Enterprise Act 2006 carries up to five years’ imprisonment and/or an unlimited fine. These penalties are crucial when advising clients and should be mentioned in the exam.

Exam Preparation

To prepare, read widely to understand the underlying concepts.

You will need the legislation; however, relying solely on your textbook risks missing key points. The OFT has excellent guides that explain the principles clearly and point to useful cases. Some are outdated, so cross‑check with your textbook, but they remain helpful. The OFT also has a simple introductory video aimed at laypeople.

Competition law is close to my heart, as it features heavily in my current seat.

It is an interesting and varied area, covering everything from sale agreements to product development. Unlike some practice areas, it is highly law‑based, and everyone keeps legislation, textbooks and case law close at hand.

It may not suit everyone, but because it affects areas from intellectual property to corporate and even property, it is well worth understanding.