The Meaning of ‘Complex Monopoly’
| Author | Richard Brent |
| DOI | http://doi.org/10.1111/j.1468-2230.1993.tb01908.x |
| Date | 01 November 1993 |
| Published date | 01 November 1993 |
The Meaning
of
‘Complex Monopoly’
Richard
Brent”
Introduction
The complex monopoly provisions’ of the Fair Trading Act
1973
(FTA) are one
of the principal means under UK legislation of regulating the anti-competitive
behaviour of individual firms. Following a reference by the Director General of
Fair Trading or the Secretary of State for Trade and Industry, a ‘complex
monopolist’ undergoes investigation by the Monopolies and Mergers Commission
(the Commission) with a view to establishing whether the complex monopoly of
which it is a member is operating against the public interest. If the Commission
finds that it is, the Secretary of State has the power to ask the Director General to
obtain undertakings from the individual companies or can make an order to prevent
or remedy the adverse effects. His powers include the ability to impose price
controls or order divestment of a business.
These provisions in the past have been used flexibly, a flexibility which the
Government has recently praised in its consultative document,
Abuse
of
Market
Power.2
They have been used to perform three functions in particular. The first is
to investigate the anti-competitive conduct of professional trade associations such
as the General Council and Register of Osteopaths and the General Medical
Council. The second is to investigate market structures, frequently involving
vertical agreements which produce foreclosure effects, for example the exclusive
purchasing arrangements which have resulted in tied public houses and exclusive
car dealerships. Third, they have been used to investigate oligopolies such as the
beer and carbonated
soft
drinks markets.
Of the three, the last function is probably the most important, if the least
common. It has certainly been seen by the Government as a virtue of the UK
system when contrasted with the competition provisions of the Treaty of Rome. As
the Government’s consultative document noted,3 one of the shortcomings of
Article
86
of the Treaty, which prohibits the abuse of a dominant position by one
or more undertakings, is that the conduct of two or more companies which are not
individually dominant is only covered by the prohibition where they are linked,
either as a result of being members of the same group, or economically (for
example, by a technology licensing agreement). By contrast, under the complex
monopoly provisions, several companies may be investigated, whether or not
linked, provided they are acting in a way which prevents, restricts or distorts
competition. This, presumably, is one of the principal reasons underlying the
Government’s recent decision not to introduce an Article 86-type regime for the
~
*Solicitor, Slaughter and May, London.
1
FTA,
ss
6(l)(d), 7 (l)(c), 7(l)(d), 7(2), 8(2) and (3). The situations described in these sections are
termed ‘complex monopolies’ in accordance with
s
11( 1) FTA. This article concentrates on
ss
6( l)(c),
6(2), 7(l)(c) and 7(2), being the sections under which
all
complex monopoly references have been
made since 1980. See n 9 for the reason why 1980 is taken as the appropriate cut-off date.
2 Abuse
ofMarket
Power
(1992) Cmnd 2100, para 2.9.
3 ibidparas 3.13-3.14; SocietuZtaliuno
Vetro
SpAv Commission [1992]
I1
ECR
1403, [1992]
5
CMLR
302.
0
The Modern Law Review Limited
1993
(MLR
566,
November). Published by Blackwell Publishers,
108
Cowley Road,
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and
238
Main Street, Cambridge, MA
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812
November
19931
me
Meaning
of
‘Complex Monopoly’
control of dominant undertakings, but to retain, instead, the monopoly provisions
of the FTA, including the complex monopoly
provision^.^
However, precisely because these provisions perform so many functions, they
have been interpreted widely and inconsistently by the Commissi~n.~ The
purpose of this article is to demonstrate that these provisions are no longer a
suitable means of regulating the economic behaviour of firms. In the first section,
the historical origins of these provisions are discussed in order to demonstrate that
two of the three functions which they perform are the result of the failure of
legislative reform in the
1950s.
In the next section, the wide interpretation of these
provisions by the Commission is demonstrated, as is the extent of the discretion
which the courts give the Commission to apply them. In the third section, the
divergence in their application from economic theory and the approach of
Community law is discussed, again to highlight just how widely and inconsistently
the complex monopoly provisions have been applied by the Commission. Three
instances in particular are examined. The first is the Commission’s application of
these provisions to regulate market structures which might be regarded as anti-
competitive in themselves. The second is the Commission’s approach to vertical
integration. The third is a comparison of the Commission and the Community’s
approach to the analysis of exclusive supply agreements. In the final section,
proposals for reform are put forward with a view to reducing current uncertainty in
the application of these provisions, and their limiting scope to the control of
oligopolies.
It is sometimes considered that the question of whether or not a complex
monopoly situation exists is simply a jurisdictional test to determine whether a
monopoly investigation should be undertaken, and as such is relatively
unimportant.6 Whilst legally accurate, in practice it may be more difficult to
draw the distinction between the jurisdictional test and the substantive
investigation. This is for two reasons. First, the jurisdictional test necessarily
involves some of the considerations of the substantive inquiry. This is because, in
order to establish jurisdiction, the Commission must establish that the alleged
monopolists conduct their affairs
so
as to prevent, restrict or distort competition,
or in other words, participate in ‘uncompetitive practices.’ This is akin to the
obligation imposed on the Commission, once jurisdiction has been established, to
report on:
whether any steps (by way of uncompetitive practices
or
otherwise) are being taken
. . .
for the purposes
of exploiting the monopoly situation, and if
so,
by what uncompetitive practices
or
in what way.’
If such steps are being taken, the Commission may then be asked to consider
whether they operate against the public interest (section
49,
FTA). The result, as
the
1978
consultative document
A
Review
of
Monopolies and Mergers Policy
noted, is that ‘there is a risk of confusion between the grounds for this finding of a
4
DTI
Press Notice,
14
April 1993.
5 Whish,
Competition
Law
(London, Edinburgh, 3rd ed, 1989) pp 67, 74,98.
See
also
the comment of
the former Chairman of the Commission, Sir Sydney Lipworth, that the complex monopoly test is ‘a
bit artificial’ in
The
Financial
Emes,
30 March 1993.
6
For
the Commission’s view, see
The
Supply
of
Beer
(1989) Cmnd 651, paras 11.6 and 11.25; for the
judiciary’s view,
see
Brown
J’s
remarks
in
R
v
The
Commission and
the
Secretary
of
State
for
Trade
and Industry.
exp
Ecando Systems
Ltd
and
Others
(unreported, 30 September 1991), hereinafter cited
as
Ecando Systems,
that the provision ‘imposes merely a jurisdictional requirement upon the
Commission.’
7 FTA, s48.
0
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1993
813
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