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Regulation: Competition, Fair Trading and Advertising

This resource is designed specifically for Unit 29 of the Edexcel BTEC National qualification, 'Business and Markets'.

Aim:

The aim of this resource is to enhance your understanding of how regulation influences business activity. By the end, you should be able to:

• Identify the role of the Office of Fair Trading, Competition Commission and Advertising Standards Authority
• Understand the different ways in which business organisations are regulated
• Identify the key legislation that sets competition law
• Analyse the impact of regulation on business and consumers
• Evaluate courses of action open to business in face of regulation

Resources:

• PowerPoint Presentation - Regulation and its Influence on Business Activity [56 KB]

Activity:

In other lessons, we have seen how business is increasingly influenced by the stakeholder model. Firms following this approach find it advantageous to take into account the views and needs of a wide range of groups and organisations. For example, a bar and nightclub business may wish to communicate and consult with local residents over noise and other types of pollution that result from their activities. This may be because the firm is trying to reassure them that they will not be affected by late night noise and disorder.

But what dictates what firms can and cannot do? What's to stop the firm putting up posters across town that openly encourage young people under the age of 18 into the club? What if the company wants to become the only option for a night out by buying out the local competition? How are businesses prevented from carrying out their activities in ways that prevent competition or rip off and mislead consumers? This is the work of the regulators in UK business.

Who are the Regulators?

• Office of Fair Trading (OFT): The OFT can take action against firms and individuals that do not comply with the 1998 or 2002 Acts. For example, any business found to be a member of a cartel(http://www.bized.co.uk/cgi-bin/glossarydb/browse.pl?glostopic=0&glosid=539) can be fined up to 10% of its worldwide turnover. It's also a criminal offence for people to dishonestly take part in the worst examples of cartels. This could result in a jail term of 5 years or an unlimited fine.
• Competition Commission: Used to be called (up to 1999) the Monopolies and Mergers Commission. The Competition Commission conducts in-depth inquiries into mergers, markets and the regulation of the major industries. Usually inquiries are made on the recommendation of the OFT, but they may also be instigated by the Secretary of State for Trade and Industry or industry regulators. In 2005, one of the Competition Commission's investigations involved the proposed sale by P&O of its Portsmouth to Le Havre service to Brittany Ferries.
• The Advertising Standards Authority (ASA): The ASA regulates non-broadcast advertising only, so covers posters, in-store campaigns, sales promotions and direct marketing. Can you define direct marketing?
  
  Examples of their work can be found at the ASA Web site(http://www.asa.org.uk). Go to 'Adjudications' and find the David Lloyd Leisure case. There are some excellent guides to the development of regulation of advertising on the site. Follow the pathway About ASA > Guided Tours > Schools & Colleges to access these.

What Legislation covers UK Competition?

The work of the regulating bodies is covered by the 1998 Competition Act, which rather confusingly came into force in 2000. The Act is based closely on European Community law. It enables the UK regulators to:

• Fine UK firms who are in breach of the law up to 10% of their turnover for up to three years
• Launch 'dawn raids' as part of investigations
• Enter premises using 'reasonable force'
• Make it easier for consumers and competitors to seek damages
• Start an investigation at the request of the DGFT