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Understanding Antitrust Laws

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Last editedApr 20212 min read

As a business, it’s important to have a solid understanding of antitrust laws and how they work. Antitrust laws are essential for keeping the market open and maintaining the competitive nature of business. Consumers deserve choice, and businesses deserve the opportunity to succeed; antitrust laws aim to ensure both are possible.

What is an antitrust law?

Antitrust laws are implemented as a way to control and limit the market power of any individual organisation. They’re a way to avoid monopolies from developing as well as breaking up organisations that have already monopolised their field, with the goal of protecting economic competition.

Antitrust meaning

“Trust” in the term “antitrust” refers to a group of firms who have come together to form a monopoly and take full control of pricing in their market, thus creating a “trust” arrangement.

While the global term is antitrust law, UK legislation refers to it as “competition law.”

What do antitrust laws prevent?

Antitrust laws prevent a significant amount of organisational misconduct, including:

Cartel formation: A cartel is formed when two or more businesses agree to not compete with each other.
Price fixing: Price fixing is when a business discusses the prices it will charge with competitors. It is illegal to agree with another business to charge the same prices, offer the same prices or increase price at the same time, and charge identical fees to intermediaries.
Bid rigging: This is when competing businesses discuss bids for a contract tender. Competing businesses can’t agree how much they’ll bid together, or share any information about their bid with each other. Furthermore, they can’t take turns winning contracts. Bid rigging includes a business asking a competitor to bid when the business doesn’t want the contract, or paying competitors not to bid.
Market sharing: This term refers to situations where competing businesses agree to share the market by not approaching each other’s customers and not competing for specific customer groups.

Businesses are not allowed to share any information with competitors that would reduce competition, be it pricing, production info, suppliers, contracts, or otherwise.

In addition to forming cartels, businesses are also breaking antitrust laws if they abuse their dominant position. A business in a dominant position typically has over 40% of the market share.

Abusing a dominant position can involve treating customers differently, forcing customers to buy products (e.g., warranties for appliances), price gouging, or undercutting competitors with predatory pricing.

Antitrust or competition laws are also used to monitor and supervise mergers or acquisitions to ensure they’re not threatening market competition in any way.

Why are antitrust laws important?

Healthy competition in an open market is absolutely essential, as it gives consumers freedom of choice and offers variety in price, quality, and service. It also encourages deeper innovation in every sector, as sellers are encouraged to be inventive in order to stand out from their competition. Businesses need to understand antitrust laws so that they don’t fall victim to predatory competitors.

Any business owner should mitigate the risk of violating antitrust laws by having policies in place and resources available for their staff, so everyone is aware of what is and isn’t allowed. You can access guidance from the Competition and Markets Authority (CMA) on gov.co.uk to learn more about what businesses can do to ensure they’re not at risk of a violation. You can also receive free advice through the Competition Pro Bono Scheme.

What are the consequences of breaking antitrust laws?

In the UK, a business can be fined up to 10% of its turnover and sued for damages. Anyone involved in cartel activity can be fined or imprisoned for up to 15 years. Company directors may be banned from taking a similar position for up to 15 years.

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