The European, Middle Eastern and African Antitrust Review 2018

United Kingdom: Competition and Markets Authority

11 August 2017

Acting chief executive

In April 2017, the CMA reached an important milestone: the conclusion of our first three years as the UK's primary competition and consumer agency.

More than the sum of our parts

The merger of the Office of Fair Trading (OFT) and the Competition Commission, creating the CMA, presented us with opportunities to approach previously separate work (but with the same overall purpose: to make markets work well) in a more joined-up and efficient way. And as a single agency we have become more than the sum of our parts.

One way we demonstrate this is through our continued improvements to merger control. We have developed a smooth end-to-end approach, with more streamlined processes and a degree of staff transition between the phases that prevents duplication and waste.

A second example is how we design, test, implement and monitor remedies arising from our merger and market investigations.

As a single agency, we have ensured better continuity in the handling of remedies throughout their lifetime. We have sought to take advantage of the opportunities presented from being a single agency, responsible for all aspects of the remedy life cycle, by making practical enhancements to the remedies process and seeking to learn from past experiences. These steps are already delivering benefits, though there is considerable scope for further development of this programme.

We can learn from each stage to inform the next, applying the lessons learned by monitoring existing remedies to the design of new ones. This helps to ensure that new remedies reflect a clearer understanding of how consumers actually behave, which will better address the problems we are trying to solve or prevent.

And we are taking advantage of the opportunities to look again at existing remedies, making sure they remain appropriate today, so that we don't impose unnecessary burdens on businesses.

We are better joined up between the different parts of our toolkit; for example, carrying out a consumer law review as part of a market study into care homes, and launching a competition enforcement investigation based on information we gleaned from a merger investigation.

We are also working more effectively with the sector regulators across our toolkit, building on the enhanced concurrency arrangements that were put into place when the CMA was created.

We know there is more to do based on our experiences to date. This is why, for example, we are making improvements to how we conduct market investigations based directly on feedback from those outside the CMA who have been involved in these complex and important projects.

Measuring the difference we have made

For a new organisation, the first three years mark an important strategic milestone. A further reason why it particularly matters to us is that for the first time the evaluation of our impact on consumers is based solely on CMA work, rather than also that of our predecessors.

We have a target, set for us by government and measured over a rolling three-year period, to deliver £10 of direct consumer benefit for every £1 we spend. It is the toughest target of its type in the world and a useful one as it touches on value for money for the taxpayers who fund us.

It is measured over a three-year period, and so previous calculations included the work of our predecessor organisations. Now, it's all down to the CMA.

In our first three years we have carried out work that we expect will deliver over £3 billion of direct financial benefit to consumers.

The calculation actually underestimates the full impact of our work. It does not take account of indirect effects, for example, of how our enforcement cases, and the way we reinforce these to businesses in relevant sectors through our compliance activities, deter others from engaging in anticompetitive and unfair trading practices which harm consumers.

The benefit of that deterrence to consumers is very real; it is just frustratingly difficult to accurately quantify.

It also does not take into account the role our merger control activities play in ensuring anticompetitive mergers do not take place, as advisers inform boards of the likely regulatory risks.

The extent to which we have exceeded this target is in large part due to several major projects we have brought to successful conclusion in the past year. Through these and other projects, we have ensured that millions of households and businesses across the UK are not only protected from illegal anticompetitive and unfair practices, but also benefit from better competition across a range of key markets.

Making major markets work better

I highlighted above that the extent to which we have exceeded our 10:1 impact target is in large part due to several major projects we have brought to successful conclusion in the past year, primarily our market investigations into the £10 billion energy sector and the £35 billion retail banking sector.

These market investigations - two of the biggest ever undertaken by a UK competition authority - into two of the biggest sectors of the UK economy were very ambitious projects for a fledgling agency to carry out. Along with our legal services market study, they cover a combined turnover of over £80 billion.

But they are markets at the heart of people's lives - and are thus exactly where we need to be working.

The wide-ranging and innovative remedies we set out (and in the case of the market investigations, implemented) will, over time, transform these markets of vital importance to millions of households and businesses, as well as to the UK economy. Alongside measures to drive forward competition and innovation, we did not shy away from stepping in to protect consumers, imposing the price cap for the 4 million pre-payment customers in the energy market.

It is important not to overlook regulatory appeals, which is an important part of our role, but one which is often overlooked by mainstream commentators. The decisions being challenged in such appeals often concern significant sums of money for the regulated companies, influence billions of pounds of investment each year, are key to the UK's outstanding record in attracting foreign direct investment, and affect millions of people across the UK.

Protecting consumers by stepping up enforcement

It is now clear that the investments we made over our first two years are paying off through enforcement of greater scale, at greater pace and with greater impact.

In 2016-2017, we issued nine infringement decisions, compared to two in 2015-2016, and imposed £100 million in fines, compared to £46 million in 2015-2016 and £0.7 million in 2014-2015.

Alongside substantial fines, we are using our other powers to ensure individual responsibility for illegal anticompetitive practices. By securing the UK competition regime's first company director disqualification for a competition law breach, we send a powerful signal that such behaviour will not be tolerated.

We cracked down on cartels in the modelling agency sector; the supply of furniture components; the supply of galvanised steel water tanks; and the sale of posters on Amazon Marketplace.

The latter investigation took just over eight months from start to finish - a record for the UK competition regime. What also stands out is that alongside imposing a six-figure fine, it was this case in which we secured the company director disqualification mentioned above.

Enforcing the law against illegal anticompetitive practices online was a recurring feature of our casework in the past year. In the Amazon Marketplace cartel, two traders had colluded not to undercut each other, using automatic repricing software to put their agreement into practice. This is a new development and we will now be on the lookout for businesses using such software to covertly distort markets, particularly in the age of increasingly ‘intelligent', ‘self-learning' technologies and algorithms.

We clamped down on illegal online resale price maintenance, imposing nearly £3 million in fines on two companies working in the commercial catering equipment sector and in the bathroom fittings sector, for preventing retailers from selling their products online at prices of their own choosing.

And in a further case, we have alleged that Ping, one of the world's best-known golf club manufacturers, prevented its authorised retailers from selling Ping golf clubs online, potentially in breach of competition law.

This case was one of the five that remain ongoing, in which we issued Statement of Objections during 2016-2017. Another is an investigation in which we allege that Actavis UK charged excessive and unfair prices to the NHS for hydrocortisone tablets, increasing the price of 10mg tablets by over 12,000% since 2008. In a separate investigation, we allege that Actavis UK and Concordia entered into anticompetitive agreements under which Actavis UK incentivised Concordia not to enter the market with its own competing version of the drug.

Having launched 10 new civil competition enforcement investigations in 2016-2017, compared to eight in 2015-2016 and an average of 6.8 in the preceding five years, we are quietly confident of further good outcomes.

Through our consumer enforcement we are helping, for example, to ensure that people can trust online reviews of products and services; aren't misled on price discounts when buying groceries; and get a fair deal from their cloud storage provider.

With greater enforcement comes a higher risk of litigation, and we currently have three of our decisions facing challenge in the Competition Appeal Tribunal.

We are comfortable with this oversight: the UK has one of the toughest judicial regimes in the world, which ensures that our legal analysis and our procedural approach must meet the highest standards. We have a good track record of success in defending our decisions and I am optimistic that we can maintain that.

Refining how we investigate mergers

Having embedded an efficient, effective and targeted process, we have sought to further improve how we protect consumers from any harmful effects of mergers.

Our more targeted approach means that, despite considering over 600 transactions a year, we formally investigate only around 60, versus the 100-120 annually during the OFT years. We are also continuing to make good use of our increased powers to accept undertakings in lieu of a Phase 2 reference, to minimise both burden on business and cost to the taxpayer of these in-depth reviews. And we have reduced the average duration of Phase 1 investigations to 34 working days, compared to around 40 in the final years of the OFT.

We do all this while continuing to ensure that mergers which might lead to worse consumer outcomes through higher prices, lower quality or reduced innovation are mitigated, prevented or remedied.

In 2016-2017, at Phase 2 we cleared just one out of eight cases without requiring remedies, compared to eight out of 12 in the previous year, and fully prohibited one merger (ICE's completed acquisition of Trayport), requiring the CMA's first full divestment - a decision we successfully defended in court. We continue to review cases across all sectors of the economy, intervening where necessary to protect UK consumers and publishing well-reasoned and consistent decisions to give as much predictability to firms and their advisers as possible.

A trusted adviser

We remain a strong voice for competition across the UK and overseas, advising and challenging policymakers domestically and supporting the development of the competition and consumer regimes internationally. Over our first three years, we have sought to influence policymakers on matters ranging from taxis to higher education to the EU digital single market. This includes making formal and public recommendations to government ministers on draft legislation, which was a new power given to us when we were created.

Looking ahead

As we complete the first chapter of the CMA at the end of our first three years, I am satisfied that we have built a strong organisation, fit for the challenges of the future and a great place to work.

Big challenges no doubt lie ahead and wider developments will have a bearing on our role and our work in the coming years, notably the UK's exit from the EU and new government economic strategies.

The implications of Brexit for the competition (including enforcement, mergers and markets) and consumer protection regimes, and for the CMA, will depend on the outcome of the exit negotiations and the terms of the future relationship with the EU. It does, however, appear likely that exit from the EU will bring the CMA a bigger role still, further expanding our existing position as a leading global competition authority.

We continue to face the challenge of a rapidly evolving economy, in which online and digital transactions represent a large and growing part as well as underpinning most other commercial activities. Alongside bringing opportunities for consumers, technological development presents some risks and raises some important questions of policy and law. ‘Challenger' businesses, innovative business models and new technologies have the potential to disrupt markets, both online and offline, often (but not always) to the benefit of consumers. We will remain active in the digital sphere and in emerging sectors to ensure that consumer are protected and that markets work well.

The long-term investments we have made in our people, our processes and our systems are really starting to pay off. To support our commitment to continuous improvement, we will invest further in the future, including in our in-house expertise in online and emerging markets, to ensure we understand new markets and practices and keep up to date with their rapid evolution.

While there remains a significant journey towards fully achieving our organisational mission, embedding a ‘competition culture' across all UK businesses and securing the full benefits of being a single, integrated competition body, I believe that what we have achieved for consumers, businesses and the UK economy shows we are on the right track.

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