What is the Competition and Markets Authority – and why should you care

Not many people know much about the CMA but it plays a vital role in the UK economy. Discover what it does, how it works, and how it affects your small business here.

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The Competition & Markets Authority (CMA) doesn’t tend to find itself in many front-page headlines – its actions and pronouncements usually relegated to the business section, if they’re reported at all.

The organisation’s low profile is demonstrated by the fact that, when it does garner a bit of mainstream media attention (such as the recent proposals to give it new powers), the headline refers to “the UK’s competition watchdog” rather than its actual name.

However, it’s hugely powerful and plays a central role in shaping the UK’s business environment, able to stop multi million pound mergers and levy fines that can be worth hundreds of millions of pounds.

So, we should probably all know a bit more about the CMA, what it is, what it does, and how it affects small businesses.

This quick guide will cover the following sections:

What is the CMA?

Let’s start with a quick history lesson.

If you’re not particularly familiar with the CMA, then you might know its predecessors.

The CMA was created in October 2013 through the effective merger of the Competition Commission and the Office of Fair Trading.

The name of this second body gives a much better idea of what the CMA actually does – it ensures that UK businesses can compete fairly with each other.

Part of this is making sure that big companies can’t control entire sectors of the economy, and part of it is making sure that consumers aren’t being overcharged for goods and services.

Here’s how the CMA explains its role in 60 seconds:

The easiest way to think of them is as the referee in UK business. They keep a close eye on how businesses are operating and issue fines and other punishments if they see businesses breaking the rules by negotiating price-fixing agreements or forming cartels that reduce the supply of particular goods.

They also carefully monitor mergers and acquisitions (M&A) in order to prevent companies getting so big that they have no real competition, and can control entire sectors of the UK economy. This would obviously be very bad for small businesses, as it’s extremely difficult to compete in a sector where one company has a virtual stranglehold, as opposed to one that’s already divided amongst multiple companies.

And, if necessary, they can stop mergers that would result in companies becoming too powerful – a controversial step that always generates lots of heated debate on both sides of any particular issue.


What does the CMA do?

Really though, the best way to get your head around the CMA is to take a look at the actions it takes, all of which are published on its cases list.

So, some of its recent landmark rulings include:

  • Fining UK drug companies £260m for inflating the price of crucial medication. A CMA investigation found that two companies – Auden McKenzie and Actavis UK – inflated the price of hydrocortisone tablets by more than 10,000% between 2008 and 2016. This meant that the price of one pack of tablets went from 70p in April 2008 to £88 in March 2016, resulting in NHS spending on the tablets rocketing from about £500,000 a year in 2008 to over £80m in 2016. The majority of the fine was centred on the companies that engineered this spectacular price hike, but the CMA also levied smaller fines on companies that were paid to stay out of the hydrocortisone market.

 

  • Forcing funeral directors to publish clear price lists and banning them from paying hospitals, care homes and hospices for referrals. This was a measure that affected an entire industry and came against the backdrop of spiralling prices – with SunLife’s most recent Cost of Dying report finding that the average cost of a UK funeral had increased by 39% over the past decade. After conducting its own investigation, the CMA found that UK consumers were typically paying at least £400 more than they should be, and that this was a conservative estimate of the extra cost. It was also critical of the two largest companies in the sector – Co-Op and Dignity – finding that they typically charged higher fees than the smaller, often family run businesses that comprise the majority of the sector.

 

  • Approving the £6.5bn megamerger between eBay’s classifieds business and Adevinta (owner of Shpock and other online classifieds websites across the globe) BUT only after eBay agreed to sell Gumtree (which it purchased in 2005) and Adevinta agreed to sell Shpock. After its initial investigation, the CMA was concerned that if the merger went through without changes, there would be little real competition in the UK classifieds sector (i.e. people selling their stuff online) as Gumtree and Shpock would have the same owner, and eBay would also acquire a 33.3% voting stake in Adevinta as part of the deal. To overcome this issue and gain approval from the CMA, the two companies agreed to sell their UK classifieds businesses – with Adevinta having already agreed to sell Shpock to RussMedia Equity Partners and eBay yet to agree a sale for Gumtree UK.

 

And this is just the tip of the iceberg – the CMA is also investigating Amazon and Google over fake reviews; looking into US tech company Nvidia’s proposed $40bn purchase of UK chip designer Arm on both competition and national security grounds; and, after a thorough investigation, provisionally cleared the proposed merger between Virgin Media and O2.


How will the CMA’s powers change in the future?

As mentioned above, the CMA (or the UK’s competition watchdog at least) has been in the headlines recently, with the government proposing to give it a raft of new powers so that it will be better able to encourage fair competition and punish offending companies.

Some of the major changes include:

  • Being able to fine companies that have broken consumer law up to 10% of their global turnover
  • Being able to conclude investigations faster
  • New fines for businesses that refuse to give information to enforcers, or give misleading information
  • Company directors can be disqualified for making false declarations to regulators
  • The ability to block “killer” acquisitions, where companies buy rivals in order to stop them launching new products
  • More freedom for small businesses, with mergers between companies whose turnover is less than £10m removed from CMA oversight

Other new measures designed to increase competition and protect consumers include making it automatically illegal to pay someone to write or host a consumer review on sites like Amazon and Google, making subscription-based services clearer and easier to cancel, and safeguarding payments made into prepayment schemes such as Christmas savings clubs.

All of this means that, under this new regime, the CMA will be more powerful than ever and play an even bigger role in shaping the UK economy.


How does the CMA affect small businesses?

Obviously, how much the CMA affects your business varies by sector. Some sectors will be directly impacted – like funeral directors now having to publish clear price lists.

On a much more fundamental level though, one of the big objectives of the CMA is to make sure that the power of big companies is limited – that, despite their massive resources, they can’t simply monopolise certain sectors either through illegal price manipulation or by buying all their rivals.

And this is a massive plus for small businesses – it means that they can be confident they’re operating in a fair (or at least much fairer) business environment. And this means that, if they take the time to develop original products or services that people want to buy, they have a real chance of business success, and they can cash in and sell their business when they want to rather than because they have to.

So, in a way, the CMA is actually crucial to the entrepreneurial dream that powers startups and small businesses, that intoxicating idea of beating the odds and reaping the rewards.

After all, you always need a referee to make sure everyone's playing by the rules.

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