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Competition Law Toolkit

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II. Overview of Competition Law Practices

Systems of competition law are concerned with practices that are harmful to the process of competition. Competition law covers:

1. Anti-competitive agreements. Agreements that have as their object or effect the restriction of competition are unlawful, e.g., to fix prices, to share markets, or to restrict output—often referred to as horizontal agreements or as cartels—are severely punished; and in some systems of law, can even lead to the imprisonment of the individuals responsible for them. Agreements between firms at different levels of the market—known as vertical agreements—may also be struck down where they could be harmful to competition, e.g. where a supplier instructs its retailers not to resell its goods at less than a certain price; this is often referred to as resale price maintenance. However, as a general proposition, vertical agreements are not harmful to competition.
2. Abusive behavior. Abusive behavior by a monopolist, or by a dominant firm with substantial market power which enables it to behave as if it were a monopolist, can also be condemned by competition law, e.g. where a dominant firm reduces its prices to less than cost in order to drive a competitor out of the market, or to deter a competitor from entering the market so that it can subsequently charge higher prices—a phenomenon known as predatory pricing.
3. Mergers. Many systems of competition law enable a competition authority to investigate mergers between independent firms that could be harmful to the competitive process. Clearly, if one competitor were to acquire its main competitor, the possibility exists that consumers would be deprived of choice and may have to pay higher prices. In many systems of competition law, certain transactions cannot be completed without the approval of the relevant competition authority.
4. Public restrictions of competition. The state is often responsible for restrictions and distortions of competition; for example, as a result of legislative measures, regulations, licensing rules, or the provision of subsidies. Some systems of competition law give a role to competition authorities to scrutinize public restrictions of competition and to play an advocacy role by commenting on, and even recommending the removal of, such restrictions.

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