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Lord Kingsland moved Amendment No.153:

The noble Lord said: A number of amendments which are likely to be in front of your Lordships over the next 10 minutes deal with expressions like "a significant extent", "an appreciable extent" and so on.

The purpose behind the amendment for "a significant extent" is this. Since market investigations impose substantial costs on businesses, it is important that they are initiated only if there are sound reasons to believe that there is a significant adverse effect on competition. That is the principle which is commonly found in UK and EC competition law. Indeed, in EC competition law such an effect is an important preliminary requirement before the commission would be prepared to launch an investigation. Therefore the text of the Enterprise Bill ought to be qualified in the same way. I beg to move.

10.30 p.m.

Lord Sainsbury of Turville: Amendment No. 153 would ensure that the OFT and sectoral regulators may make a market investigation reference only where they have a reasonable ground to suspect the existence of substantial or significant adverse effects on competition.

It may be helpful if I begin with some brief remarks about the nature and purpose of market investigations. Most UK markets are broadly competitive and where competition problems exist they can more often than not be addressed by means of the Competition Act 1998. But from time to time the competition authorities become aware of markets in which competition does not appear to be working properly, even though there appears to be no breach of the Competition Act prohibitions.

For example, there are some oligopolistic markets in which, while there may be no anti-competitive agreements and no abuse of dominance, a few established firms account for most of the markets, are cushioned against competition from new entrants and settle for a quiet life rather than competing vigorously among themselves. It is to deal with such markets, characterised not so much by a virtually anti-competitive behaviour as by general uncompetitiveness, that the Government decided to retain the monopoly provisions of the Fair Trading Act when they introduced the Competition Act, so as to preserve the ability to inquire into and take measures to remedy

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market-wide competition problems which cannot be addressed using tools at the competition authority's disposal.

The purpose of Part 4 is to ensure continuing effectiveness of this part of UK competition policy by reforming the monopolies regime in line with the principles which have guided the Part 3 reform of our domestic merger control regime. Clause 126 sets out the test the OFT and certain sectoral regulators must satisfy before making a market investigation reference. They must have a reasonable suspicion that a feature or features of a market are preventing, restricting or distorting competition in the supply or acquisition of specified goods or services. For those purposes a market's features are its structure and the conduct, including both acts and omissions, of participants in it.

The power to make market investigations is not one which we expect the OFT to use, or even to consider using, every day. On average about two references a year are made under the monopolies regime which we are replacing here, and we have every reason to suspect that the number of occasions on which such investigations will be considered appropriate will continue to be fairly small. While we recognise that the new reference test, like its predecessor, could be characterised as setting a fairly low hurdle for the making of a reference, we see no reason why business should be alarmed about being burdened with a significant increase in the number of Competition Commission inquiries as a result of this clause.

There are a number of reasons for this. We are proposing to give the OFT a power and not a duty to make references. Rather than referring or even investigating for itself every market where it considers that the reference test is satisfied, we expect the OFT to exercise its discretion to focus the use of its new powers and resources on those cases where it considers that there are serious competition problems.

Perhaps the best guide to the OFT's exercise of its discretionary power is to be found in its track record under the monopolies regime. Faced with reference criteria which are probably technically satisfied in a great many industrial sectors, the OFT has made an average of about two monopoly references a year, and among its last 12 completed references there has only been one case in which the Competition Commission found no adverse effects.

We have given careful consideration to the suggestions which have been made to us both before and since the introduction of this Bill in another place for an explicit reference to the "significance" or "appreciability" of adverse effects on competition to be included in the reference test. I hope that we have made clear that the only point which divides us from the proponents of such amendments is a question of drafting style and not one of principle References should be made only where the apparent seriousness of competition problems in a market justifies the cost and other burdens of a reference. The OFT for its part has made clear in its draft guidance how, when deciding whether or not to make a reference, it will take account

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of factors such as the magnitude of customer detriment which appears to arise from the potential problems and the proportion of a market affected by them.

In that context we remain unpersuaded that there is anything to be gained by adding words such as "substantially" or "to a significant extent" to Clause 126. We are concerned here with the exercise of discretionary power in relation to complex economic issues. We believe that the best way to explain such matters is not in the language of statutory drafting, but in guidance. We believe that the guidance which the OFT has produced will give business and others a very clear picture of how it will operate its discretion. For these reasons I ask the noble Lord to withdraw the amendment.

Lord Kingsland: Is the Minister saying that in practice it is going to be unnecessary to include an expression like "to a significant extent" because the competition authorities would never undertake a costly investigation unless they had reasonable grounds for believing that the effect would be significant? Is that what the Minister says is the reality and therefore there is no need to have this expression on the face of the Bill?

Lord Sainsbury of Turville: I believe that that is it. Guidance given by the OFT will make it clear that is what it intends to do as regards business.

Lord Kingsland: I am very grateful. In those circumstances I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 154 not moved.]

Lord Kingsland moved Amendment No. 155:

    Page 92, line 32, at end insert—

"( ) In making its decision the OFT shall take into account countervailing benefits to customers or to innovation."

The noble Lord said: I can be very brief on this amendment. The Competition Commission is required to take countervailing benefits to customers into account during its investigation after a reference. The OFT should have a similar duty to prevent unnecessary references being made. In industries characterised by a global market, there can be superficial and/or short-term impacts on market structure or conduct which need to be considered in the context of countervailing benefits. I beg to move.

Lord Sainsbury of Turville: This amendment would require the OFT in all cases to take into account countervailing benefits to customers or to innovation, before making a market investigation reference. We have given the OFT a discretionary power to make market investigation references where it has reasonable grounds to suspect the existence of adverse effects on competition in a particular market or markets.

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It is inherent in the nature of that discretion that in deciding whether or not to make a reference in a given case, the OFT may take account of any matter which it is reasonable for it to take into account. Unlike in the merger provisions where the OFT is under a duty to make a reference in certain circumstances, there is no need for the clause to specify that the OFT must have regard to this or that matter.

The OFT has indicated in its draft guidance on making market investigation references how it will approach customer benefits by saying,

    "In some cases the market features which adversely affect competition may also produce offsetting customer benefits. Such benefits might arise, for example, where customers gain when more of them use the same goods or service (network effects), or where there are substantial economies of scale. Where it is clear that offsetting customer benefits exceed the likely detriment from the adverse effect on competition, the OFT will not make a reference. However, where there is uncertainty the OFT will normally wish to leave the weighing of benefits and detriments to the Competition Commission".

That seems to us to be an eminently sensible approach to take and on that basis it would be sensible for the noble Lord to withdraw this amendment.

Lord Kingsland: I wholly concur with the concluding remarks of the Minister. I shall indeed beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

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