The Law Report

Posted 24th February 2012

Written by Malcolm Jones

Last week's news that Jennyfield News has closed in anticipation of the effect of the new supermarket, before Tesco even arrives in the area, is an extreme example of the effect of competition on small businesses.

Competition can be fair or unfair.

Big supermarkets are often accused of acting unfairly.  The most recent Competition Commission enquiry found that in the main they provide ‘value, choice, innovation and convenience’ but their buyer power can result in ‘the transfer of excessive risk or unexpected costs to their suppliers’.  The government published ‘The Grocery Adjudicators Bill’ last year to address this but it awaits Parliamentary time before proceeding.

Competition law can be the stone in a small business’ sling.  There are two basic rules.  Businesses must not conspire together to reduce competition.  A major player must not unilaterally abuse market power to harm competitors and consumers.  This can include selling at less than cost to put a competitor out of business or a refusal to supply.  A disgruntled and determined small firm can bring a court case if it is affected or report the situation to the competition authorities and hope they will decapitate the Philistine for them.

These rules are more to protect the process of competition than to protect competitors.  The idea is that competition itself keeps firms efficient and means consumers will get a good deal – at least if they can and do compare what is on offer.  It tends to be assumed that if firms become complacent new competitors will come from somewhere to provide a better service.

Even if we agree with the Competition Commission that the big four supermarkets do behave properly their size alone gives them advantages that small firms can’t compete with.  If there aren’t any competitors though there isn’t any competition.  Reducing prices to drive out competitors is clearly anti-competitive if done deliberately.  Why is it any different if that is the inevitable effect not now but later?

The position of the banks (too big to fail) shows the difficulties.  A bank may seem inefficient to an entrepreneur but that doesn’t mean they can start a competing bank.  Just how many people have enough money to start a new bank?

At least David got to see Goliath.  Today it seems a supermarket can destroy a business in Harrogate without knowing it exists or even trading in the in the same post code area.

For more information contact Malcolm Jones on 01423 789 059 or malcolm@newtons.co.uk

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