Fair trading and competition
It is the responsibility of the Office of Fair Trading to ensure consumers are protected from unscrupulous traders who are found to be regularly breaching consumer protection legislation. Under the Fair Trading Act 1996 the Office can request individuals who are regularly breaching such legislation to give an undertaking that they will stop such activity.
Where the individual refuses to give an undertaking or subsequently breaches an undertaking the Office may apply to the High Court for an injunction. If the individual then breaches the injunction they may face an unlimited fine or imprisonment.
The Office is given increased powers under the Fair Trading Act to deal with the anti-competitive practices of individual businesses. The Act does not mention 'monopolies' but there has to be a degree of market power exercised by any business under investigation before they can be adjudged as carrying on an anti-competitive practice which is against the public interest.
Part 2 of the Fair Trading Act deals with the investigation of anti-competitive practices and prices and the procedures provided by the Act for these two different areas are quite similar.
Council of Ministers
If it appears to the Council of Ministers that a person has been or is pursuing a course of conduct which may amount to an anti-competitive practice they may request the Isle of Man Office of Fair Trading to investigate the matter and report back to them. An anti-competitive practice is one which, has or is intended to have or is likely to have the effect of restricting, distorting or preventing competition and examples of conduct which may have anti-competitive effects are illustrated below.
The powers available to the Office and any subsequent 'Commission' include the power to require attendance of persons to give evidence, the production of documents or other information such as estimates and returns.
Office of Fair Trading
Where it appears to the Office that there are reasonable grounds for believing that a person has or is pursuing a course of conduct which is anti-competitive they can (at any time before the Council of Ministers refers the matter to a Commission) accept an undertaking from that person that he will cease such practices. If the undertaking is accepted the Office is then required to review its operation and decide whether the person can be released from the undertaking or whether it should be revised.
If an undertaking is not sought or obtained from the person under investigation then the Office makes its report to the Council of Ministers who then decide if the matter should be referred to a 'Commission'. A Commission can be any Department, Statutory Board or such other person or persons as are appropriate and they enjoy the powers previously mentioned.
The remit of the Commission is to ascertain if the person has engaged in anti-competitive practices and whether the practice operated or might be expected to operate against the public interest.
When the Commission has completed its investigation it has to report back to the Council of Ministers with comments on what action needs to be taken to remedy or prevent the effects of any anti-competitive practices found.
Private or public reports
Where anti-competitive practices are reported and they operate against the public interest the Council of Ministers can request the Office to seek an undertaking from the person concerned which will prevent or remedy the adverse effects of the anti-competitive practice.
Where an undertaking is not obtained or is refused or subsequently breached, the Council of Ministers may make an order (subject to Tynwald approval) within the limits specified in Schedule 2 of the Fair Trading Act.
The reports issued by either the Office or the Commission following their investigation are required to be laid before Tynwald and published.
In the case of a price investigation the Office may carry out an investigation into any price with a view to providing the Council of Ministers with information relating to that price, if it is satisfied that the price is one of major public concern.
The powers of investigation are the same as they are for anti-competitive practices and the investigation leads to a report being submitted to the Council of Ministers and subsequently laid before Tynwald before being published.
However, if the Council of Ministers considers that the report has provided sufficient evidence to show that a person carrying on business in the Island or who is resident in the Island has charged or currently charges an excessive price for any goods or service, they may refer the matter to a Commission as explained above.
The Commission has to investigate and report back to the Council of Ministers on the question of whether any person mentioned in the Office's report has charged an 'excessive price' for any goods or service in the previous 12 months. The Commission must take into account certain matters detailed in the legislation such as cost of production, marketing, profit margins and those of comparable businesses before coming to their decision.
Where the Commission concludes that an excessive price has been charged and it appears to the Council of Ministers that a lower price should be charged they may ask the Office to obtain an undertaking from the person charging the excessive price that he will charge a lower price in future.
If the Office fails to obtain the undertaking from the person or the undertaking is not fulfilled, the Council of Ministers may make an Order which may require the person to charge a fixed price or a price to be determined in accordance with the Order.
The Office is also given additional duties of keeping under review the carrying on of commercial activities in the Island with a view to ascertaining the circumstances relating to practices which may adversely affect the interests of consumers in the Island and to give information and assistance to the Council of Ministers together with recommendations for any action thought appropriate by the Office.
A regular part of our monitoring involves the collection of energy prices on the Island which allows price trends to be compared and a comparative home heating schedule to be compiled. The schedule can be obtained by contacting the Office.
Illustrations of practices that may be considered anti-competitive
The following list is non-exhaustive and is intended to highlight the types of agreement that might be considered anti-competitive. Whether such agreements are anti-competitive is highly dependent on many other circumstances which would have to be determined by the Office or any subsequent Commission and therefore should not be regarded as automatically anti-competitive or prohibited. Businesses considering entering into such agreements may wish to seek legal advice in the first instance.
- Exclusive supply dealing arrangements - A supplier agrees to supply only one customer, usually in a certain geographical area. The customer in turn agrees not to stock or handle products of the suppliers competitors and perhaps not to compete with other customers of his supplier in their exclusive territories.
- Exclusive purchasing contracts - A customer agrees to buy his requirements exclusively from a single supplier. Contracts which do not specify exclusivity but require the customer to buy a specified proportion of his requirements or even a specified quantity in a period may also have anti-competitive effects.
- Long term supply contracts - Long term contracts which do not contain an exclusivity term can have a similar effect if the customer is faced with onerous termination provisions.
- Restrictive terms - These occur in contracts which prevent or restrict the customer from dealing with the suppliers competitors.
- Selective distribution systems - A supplier will deal with only a certain number of distributors or only those which can satisfy criteria he lays down on such matters as stock holding levels or pre- or post-sales service. Selective distribution systems will restrict competition between distributors, but they may enhance the efficiency with which a product is distributed and users needs are met. Whether the restrictions on competition between distributors is significant will depend primarily upon the degree of competition between the suppliers of the product. The market power of the supplier is therefore a crucial factor.
- Tie-ins - A second category of practices which can prevent or restrict competition is the tie-in. A tie-in exists when the supplier of one product or service (the tying item) insists that the customer must buy all or part of his requirements of some other product or service (the tied item) from the supplier or someone nominated by him. It may be convenient to customers to buy several items from one supplier and there may be cost savings from tie-ins. But if the supplier has market power competition may be restricted for the tied item. Sometimes the customer is required as a condition of supply of certain items in the range to buy all (or more of) the items in the range. This is known as 'full line forcing'. This may restrict competition between the supplier and his competitors who offer a more limited number of items.
Restrictions on the supply of parts or other inputs required by competitors - A third category of practice which can prevent or restrict competition can occur if vertically integrated firms refuse to supply items needed by competitors who are not engaged in the complete production process or may supply them only at prices which make it difficult for the competitor to sell the end product at a competitive price.
The above practices may prevent or restrict competition but competition may be said to be distorted if firms are not able to compete in a certain market on the same basis for reasons other than differences in their relative efficiency. Discriminatory treatment of customers may distort competition between those customers and so it is important to look at the overall effect of any practice on a market rather than on the practice itself.
View our Investigations page for full reports.