Supermarkets Code of Conduct and the Enterprise Act 2002 - Case Study Example

Business Regulation xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Instructor xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date Regulation is a means of achieving defined goals by the use of rules aimed at shaping conduct or controlling behavior is businesses. This therefore means that, they entail objectives which are the reason behind intervening in the market places (Baldwin, Cave & Lodge, 2012). This is the reason why there are regulations which govern the market play field in the UK. For instance where there are inadequate competitions, where suppliers, collate and dominate the market or even make arrangements which reduce competition and customer choice, regulations intervene to bring sanity in the market (Pryor, 2002). Regulations also intervene where there are fraudulent, deception and oppressive marketing practices or in other words where businesses take advantage of consumers in ways that are illegal or even unfair (Pryor, 2002). This therefore entails that National Consumer Council lays its main concern in the issues related to consumers which is the broad social policy objective. This being the case, there is a need to regulations which protect the health and safety of workers which may other wise cost the consumers (Baldwin, Cave & Lodge, 2012). In the years 2002 and 2003, there are super markets that were charged for price fixing of some products in the market. In this case, there were regulation that were brought in the scene in regard to this act, which had relation with the Competition Act 2002, the Supermarkets code of conduct and the Enterprise Act 2002 Office of Fair Trading (OFT) was involved in investigations that were carried to out to unearth the saga behind the retail pricing of daily products by the supermarkets and daily products. After investigations, it was clear that there was a breach of the Competition Act 1998 by colluding, through exchanging vital and very confidential information to fix the prices of daily products. This collaboration succeeded for supermarkets exchanged retail prices directly with each other through the daily processor, through hub and spoke information exchanges (Stewart, 2004) It is worth noting that, the UK Competition Act 1998 prohibits anti competitive agreements between businesses that prevent, restrict or distort competition in the UK. (Pryor, 2002).. This includes price fixing or limit production. However, the most serious of the anti competitive agreement is a cartel, where businesses come into a consensus not to compete with each other. The office of Fair Trade states that, competition encourages businesses to give better produce to customers, while anti competitive agreements increases price and this harms the customer’s choice (Curran & Hollander, 2001) This therefore calls for an intervention so as to stop businesses from colluding so as to have choice for customers and to the businesses, competitive prices. Competition policy is never for businesses that collaborates especially where the market is oligopolistic or in other words food sector (Pryor, 2002). Having too much economic power in a few firms like it is the case of supermarkets exaggerates their actions on the market. This therefore means that even if three or four of them are to make an agreement, the impact is going to be severe and felt by many customers (Cadot & Grether, 2000). Government’s regulation regulations revolved around principles which qualify them to fall in the class of being good regulation. (Baldwin, Cave & Lodge, 2012). One, they have to be transparent which means that they must be open, simple and user friendly. Secondly the have to have accountability which is to the authorities users and to the entire public, then they should focus on the problem so as to minimize side effects (Cadot & Grether, 2000). They should also be consistent which means that they have to be predictable and finally they should be proportional in that, they should fit the remedy to the risk, and only regulate when needed to do so. Regulation which poses these principles are good regulations (Stevens, 2010) The OFT intervention into the supermarkets daily sector was because the collaboration impact was felt immediately by the end consumers and also to enhance a wider and social economic sustainability in UK (The Cooperation Incubator, 2010). The supermarkets and dairies went against the competition law just because they exchanged sensitive information in 2002 and 2003. It was observed that, the beginning of the whole scenario was encouraged by British farmers instilling pressure on them to get better prices (Lang, 2003) Buyer’s power has been an issue of great concern to UK legislators. They have displayed a lot of concern is addressing the issue of abuse of power by large supermarkets operating in UK. Under the Enterprise Act 2002, the supermarkets were guilty of criminal offence for they dishonesty agreed with the diaries to fix prices for their own good, not thinking of the consumer take on their objective. (Pryor, 2002).. Moreover, one of the most fascinating issues about competition law is an attempt to control information about the competitors through the trading partner. In accordance to the Enterprise Act, any company found guilty of engaging in cartel activities, may result to five years imprisonment of the culprits or an unlimited fine. Super markets are therefore obliged to ensuring that they handle their businesses in manner which will not alarm investigation or even incapacitate the buying power of the consumers. Consequently, the Office of Fair Trade has even set steps that they use to check whether there has been breach of competition law in UK businesses. They include, a consideration of whether there was a breach of law, getting to know the nature of breach and whether there a financial penalty imposed, whether the company in question has benefited from the leniency, the responsibility of those in authority towards the breach of the competition law and finally they must have regard to any aggravating or mitigating factors (Cadot & Grether, 2000). The supermarkets have serious regards towards implementing compliance policy and also encouraging a culture of compliance. This is emphasized in the notion that, the OFT and regulators do not expect that supermarket management have certain experience in competition law but they expect ten to know that price fixing, market sharing and bid rigging agreements are breach of the law (Pryor, 2002). Apart from this sanctions, OFT have slowly shifted to holding the management of the business responsible for any violation of the competition law. This is due to the fact that, they play a very vital role in the establishment and marinating an effective competition law compliance culture in their businesses. Maintaining an effective compliance culture in the supermarkets will ensure that they are immune to potential consequences of infringing competition law (Pryor, 2002). This has therefore caused the supermarkets to form compliance cultures so as to avoid any suctions by the office. Price fixing is prohibited by the competition law for it is illegal to agree prices with the competitors or even share market or limit production to raise prices (Baldwin, Cave & Lodge, 2012). In UK the idea behind implementation of competition law is an obligation of Office of Fair Trade and competition Commission. They have a duty to investigate and repost on whether completion in that market is preventable, restricted or even interfered with and take any action towards preventing any harm (Barling & Rayner,2008) Supermarkets in UK have been subjected to major enquires in the recent past. This enquires are as a result of regulations that are implemented to monitor the way businesses are being done in this field. In 2000, the Competition Commission promulgated the ode of practice, which main aim was to regulate the relationship between the largest supermarkets and the suppliers. However, it was said that the code of ethics was not successful in preventing supermarkets exploitation to some suppliers, and putting may business out (Cadot & Grether, 2000). The supermarkets are obliged to competition for supplies on quality and price which in the long run allows the customers to benefit from value and choice through effective competition (Pryor, 2002). All the super markets are very aware of that, anticompetitive behavior is discouraged and a breach of the law under Chapter I and II of the competition Act 1998. They therefore avoid any action that can trigger authorities’ interventions for they may face financial penalties of up to 10% of their UK turnover. As noted earlier non compliance with the act can result to penalties OFT has power to investigate potential cartels or collusive activities and may impose 10% of the company’s world turnover. In UK this program is incentivized where by fined may be removed or reduced incase of a whistle blower (Pryor, 2002). However, supermarkets are left with no choice than to comply with law. This is attributed to the fact that, bad publicity which might result from OFT investigation will have detrimental impacts which may harm business of the entire supermarket. Cartels are a prohibited anticompetitive activity. They only increase prices by removing or even doing away with competition and therefore affected the customers buying power (Cadot & Grether, 2000). The reason why they are discouraged is that they allow businesses achieve great profits for less efforts and this is achieved by fleecing customers and the economy as a whole (Pryor, 2002). In accordance to regulations in the UK, it is noteworthy that, the right to food and forms of market regulations such as competition laws are all directed at ensuring that, the human rights are protected. This being the case, the governments must aim at protection of competitive process that will ensure fare allocation of resources, subsidized prices and most importantly customer choice. This therefore entails that, the end results of the policy is to the sole interest of consumers. This there is a conclusion that, all this pressures forces inefficient supermarkets to merge so as to cut costs, or even exit the market and this leaves the field entirely for the efficient ones and this may lead to dominance (Baldwin, Cave & Lodge, 2012). When supermarkets were indulging in price fixing and cartels, it was all about competition. Competition and product options or substitutions are said to lessen the market power especially in the supermarkets. They are all influenced by the price of commodities (Pryor, 2002). Effective competition therefore demands high profits margins between prices and costs so as demand can be stimulated especially when there is economic down turn or recession and a move of the opposite when the economy is working well. For UK to realize this, the regulators have to ensure that there is enough number of players in the market depending with the dynamism of the food industry (Pryor, 2002). This in other words means that, there is need to have moderate market concentration and oligopolistic market structure that are said to be loose. This will on the other hand reduce or even entirely reduce bankruptcy. This can be achieved through mergers (Smith, 2004). In connection to the completion law, supermarkets are not supposed to discuss prices or even pricing information with their competitors (Smith, 2004). They should also not seek any information from all their suppliers about other supermarkets pricing policies or make close any allies with supplier to know their offer to other supermarkets. Incase this happens; it is a breach of competition law and is punishable by the law (Pryor, 2002). Consequently, supplier are not supposed to disclose any information to retailers or supermarkets and if it happens, supermarkets are supposed to terminate their contract immediately. Under section 188 of the Enterprise Act 2002, it is a criminal offence for one to engage in dishonest cartels. Supermarkets therefore need to avoid any links with cartels as this was the case in 2002-2003 price fixing on dairy products. This may even result to imprisonment of up to 5 years (Smith, 2004). The competition act was designed to hold companies accountable and therefore compliance is never an option. Activities that are covered in this offence include price fixing, market sharing, limiting or preventing supply or even production. The authorities therefore regulate all this activities in the businesses of which they are obliged to compliance (Baldwin, Cave & Lodge, 2012). Supermarkets are nowadays controlling their own membership and even their behavior. This in other words means that, they are exerting self regulation into their operations so as to be at purr with the authorities and avoid any contrevousies (Pryor, 2002). Moreover, this act of regulation gives the a better chance to have easy access to whatever is needed to set standards and most importantly have better avenues to changing industrial conditions in a very flexible manner for their action are informal and have trust of the regulated group at a subsidized cost. In other words, self regulation requires businesses to adopt and implement policies which are directed to some form self restraints on its conduct towards its operations (Smith, 2004). Supermarkets for instance have adopted a course of conduct with and aim of getting to a competitive advantage. This therefore confirms the notion that, regulations are the most persuasive form of government interventions in the market operations for the good working of the economies (Smith, 2004). This is due to the fact that unregulated markets can suffer monopolies or other issues which are not favorable to the customers, issues which the government can curb by only implementing certain regulations. Regulating rights and competition and natural monopolies is one of the ways which are accorded much emphasis when it comes to economic activity growth and consumer protection. Supermarkets are working hard towards having their operations mostly pricing to be very accountable (Burt & Sparks, 2003) This on the other hand increases the confidence that customer has to the firm for many of them are implemented in the favor of them. Moreover, with self regulation the supermarkets have a better position to deal with any breach of the code of practices in their field more amicably. Managers in these supermarkets are better positioned to innovate and implement controls and also control and work towards a notion that they are expected to favor the society when they have a chance to govern their own regulation rather than giving themselves to rules (Lee, 2011) The reason why these firms have emphasized of these self regulations is because they are very aware of that, they can punish the discipline the regulators more than under governmental regulation for they can be rewarded for their strict system of risk management and discipline (Lee, 2011) Moreover, the burden of proof which is associated with meta-regulations instilled by firms is lower and violations are dealt with disciplinary actions than it would be as a result of prosecutions (Baldwin, Cave & Lodge, 2012). It is also worth noting that the government lays down standards which the supermarkets must in turn satisfy and then develop risk management systems and rules to secure, review and monitor compliance (Smith, 2004). The firms have ways and procedures to deal with non compliance. In this case also, it is noteworthy that regulators are the inspect businesses to see that they successful self regulate themselves and can even impose sanctions for non compliance (Pryor, 2002). A business which is not regulated or even a scheme that cannot get business done to meet the standards set may offer a false quality signal to consumers and this may push the entire firm out of business (Andrew & Simon, 2006) This in other words entails that en effective self regulation plays a very vital role in allowing supermarkets to commit to providing products and services of particular` quality (Smith, 2004). It therefore enhances competition. However, caution is observed when self regulating the firms for it can result to anti competitive behaviors and cultures. Conclusively, in a market with no regulations, doing business is hard. In UK, the authorities foster regulations that govern the way businesses are carried out. It is a matter of fact that, if competition is not regulated, then firms will result to price wars or even domination which will only benefit their businesses only with the expense of consumers (Baldwin, Cave & Lodge, 2012). It is therefore important to have regulations in any market field. Fighting anti competitive p[practices and promoting open markets is the key issue when it comes to regulations. For instance UK competition law which is enforced by Office of Fair Trading (OFT) aims at making markets well for all consumers. Firms therefore have to adhere to all the regulations which are implemented for they benefit their business as well as protect consumers from being exploited. In connection to all the regulation, there are provisions of issues that are allowed in the performance of any business in a competitive field. Section 9 gives a leeway of an allowance of an agreement which must contribute to the production or distribution of goods or in other words improve on economic progress, allows customers a fair share of the benefits; impose undertaking related relations which are indispensable to the achievement of their objectives (The Cooperation Incubator,2010). This is the only agreement that is allowed by the regulation. Any other agreement is a breach of the law and can result to sanctions for it may be directed to instilling anti competitive culture. Bibliography Andrew Alexander and Simon Phillips, 2006 '"Fair play for the small man": perspectives on the contribution of the independent shopkeeper, 1930-c.1945,' Business History, vol.48, pp. 69-89. Baldwin, R., Cave M., & Lodge, M., 2012. Understanding Regulation. 2nd Edition Oxford: Oxford University Press. Pp. 15 – 164 Burt, S.L. and L. Sparks (2003) ‘Power and competition in the UK grocery market’, British Journal of Management, 14 (3), 237–254. Barling, Lang,& Rayner,2008 ‘Sustainable Food Systems in Europe: Policies, Realities and Futures’, Journal of Hunger & Environmental Nutrition, Vol 3, Iss 2&3, Pp. 145-168. Curran & Hollander 2001 ‘The Greening of the Grey: National Competition Policy and the Environment’, Australian Journal of Public Administration, 60 (3), Pp. 42-55, September Cadot, O., J.-M. Grether (2000). "Trade and Competition Policy. Where Do We Stand?" Journaof World Trade 34(3): 1-20. Lang, T.,2003 ‘Supermarket Power! Current tensions between competition policy and food policy’, Agri-food Network Seminar, pp. 13 Lee, R., 2011. Regulation and Localism Environmental Law and Management 23(4) pp. 166 170. Pryor, F. L. (2002) Quantitative notes on the extent of governmental regulations in various OECD nations, International Journal of Industrial Organization, 20: 693-714. Smith, H. (2004) “Supermarket Choice and Supermarket Competition in Market Equilibrium” Review of Economic Studies, 71, 235-263. Stewart, T. (2004). "Is Flexibility Needed When Designing Competition Law for Small Open Economies? A View from the Caribbean." Journal of World Trade 38(4): 725-750 Stevens, C.,2010 ‘Linking Sustainable Consumption and Production: The government role’, Natural Resources Forum Special Issue: Sustainable consumption and production, Vol 34, Iss 1, Pp. 16-23, The Cooperation Incubator,2010 ‘Corporate Responsibility, Voluntary Agreements and Competition Law. A ‘How-to’ Guide’, pp. 33 Read More