Co-ops vs Competition law

"'Co-operation among co-ops’ doesn’t fit within the way we construct competition law"

Competition law is a vital part of consumer protection, responsible for strengthening business competition and preventing and reducing anti-competitive activities. As businesses, co-operatives must adhere to this law. But how can they co-operate in this context?

Such legislation seeks to ensure businesses operate in open and competitive markets and promotes healthy competition and fair trading. It aims to prevent practices which have an adverse effect on the competition (such as other businesses losing profit and potentially going out of business because they are not operating on an open playing field). It was put in place to protect the interests of consumers, so they get the best products and prices, and pay a fair price for the right product.

The UK’s first competition law statute was the Monopolies and Restrictive Practices (Inquiry and Control) Act 1948, which put the powers of initiative and action in the hands of a government minister, who could also establish an administrative body to investigate and to report on situations. In 1965, mergers were brought within the scope of the legislation. Competition law is today regulated by the Competition and Markets Authority (CMA, which replaced the Competition Commission and Office of Fair Trading in 2014).

But co-operatives are also bound by the seven principles of co-operation. The 6th principle, co-operation among co-operatives, highlights how co-ops serve their members most effectively and strengthen the co-operative movement by working together through local, national, regional and international structures.

“This principle is a practical expression of the co-operative value of solidarity. It is a principle that differentiates co-operatives from other forms of business enterprise, some of which may share the values of co-operatives without commitment to our values and principles,” say the guidance notes to the Statement on the Co-operative Identity. “Commitment to co-operation among co-operatives is the hallmark of co-operative business enterprise … because it is the clearest expression of our common desire to create a better more sustainable and equitable economic future for all humanity.”

The 6th principle shows the dual nature of co-operatives: They are economic entities trading goods and services, but they are also social entities of members who relate positively to other co-operatives. “They co-operate with other co-operatives to create wealth for the many, not personal wealth for the few through unbridled market competition.”

What does this mean for co-operative businesses? 

“The problem is that there is no allowance in competition law rules for a different sort of market behaviour,” says David Alcock, from social purpose law firm Anthony Collins. “Co-operation among co-operatives doesn’t fit within the way we construct competition law; the law doesn’t take into account different ways of working.”

Let’s take the example of retail co-operatives, where issues of competition law can be most obvious. In the UK, there are 18 retail societies: the Co-operative Group, Central England, Midcounties, Lincolnshire, Southern, East of England, Heart of England, Scotmid, Chelmsford Star, Channel Islands, Radstock, Tamworth, Allendale, Coniston, Clydebank, Grosmont, Hawkshead and Langdale.

Some of their trading areas overlap, and consequently, co-operative food stores, funeral homes and travel branches from one society can find themselves rubbing shoulders with outlets belonging to a completely different business. Sometimes this is because of takeovers, mergers and acquisitions, and sometimes it’s a purely operational decision; regardless of the reason, this can cause confusion for consumers (particularly when branding is shared or they attempt to use the membership card of one organisation in a shop of another) and becomes tricky in the context of principle 6. 

“Two of the assumptions behind competition law are that the consumer has nothing to do with the supplier and needs protection from being exploited and that all businesses are in competition with each other and the best way for consumers to be protected is to keep them that way,” says Mr Alcock. 

Each spring, Co-operatives UK hosts the Co-operative Retail Conference, where leaders, managers and directors gather for a “learning and networking opportunity”. 

At these events, Co-operatives UK issues a clear competition law compliance statement, warning: “UK competition law regulates formal and informal agreements and understandings that may result in the prevention or distortion of competitive markets. Exchanges of confidential business-sensitive information between competitors may constitute such an agreement or understanding, and the possibility of trade bodies becoming a forum to facilitate these exchanges is also well understood by the competition enforcement agencies.”

The statement defines business-sensitive information as including, but not exclusive to, current and future prices, pricing intentions and strategies, customer data and strategies, current and budgeted store/branch performance, product formulations, supply and purchase terms, and advertising and promotional policies and plans.

Black letter law vs co-operative principles

It would be naive to assume off-the-record conversations never happen between operators in different fields, but Mr Alcock believes there is a danger in adopting an overly cautious approach, because whilst there are some clear “no go” areas (discussions about fixing prices, for example) in practice it is less clear what co-ops can or can’t talk about from a specifically co-operative perspective.

Related … Dangerous territory: when collusion takes over from co-operation

Professional advice hasn’t always helped either, as advice from traditional law firms can also err on the side of caution. “Sometimes as a professional advisor it is easier to adopt a ‘safety first’ approach, because until someone tests it, you don’t know if it’s right to be that cautious or not. And no one wants to be the first to test it,” he says.

“There is also the issue of the way that specialisms work. Competition law specialists from large law firms will see the business they are advising as a food retailer and won’t understand the differences that make co-operative retailers unique. That touches on the wider issue of a lack of specialist co-operative knowledge in professional industries – not just in the legal sector. 

“There is also the fact that not all co-ops – or the people within them – know what they can or can’t do within the scope of competition law and, when they do have a view, it’s not always consistent with that of others.”

So for the retail movement, one society’s strategy may result in the opening of a store in the same place as another society. Competitive, yes, but not particularly co-operative.

“The trouble is, there is no legal enforcement to comply with the co-operative values and principles. Co-ops sign up to them, but when it comes to the reality, between the co-op principles and black letter law, black letter law usually wins,” adds Mr Alcock.

Related … How co-operative law helps co-ops grow

Should we adapt competition law to fit co-ops, or adapt co-ops to fit competition law? “Ideally it should be competition law that changes,” he says. “Laws evolve to fit the contemporary situation. It’s unlikely to change quickly, but competition law derives from European law. In the fullness of time in a post-Brexit environment, there may be a look at competition law and changes then discussed in an independent UK.

“However, that conversation would need the will of co-operative retail societies behind it, asking questions around how the legal system should acknowledge co-ops as a distinct business type; what a type of co-operative competition law could look like; how we could have a more balanced competition law in general; and how legislation can actively encourage co-ops working together.”

By virtue of their distinct business model, co-operatives tend to do good things. It seems a shame that at the moment, no allowance is made for that in law.

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