Tag: Competition

There has been much discussion in recent months about financial pressures in the higher education sector and what could be done by stakeholders in the sector – government, regulators and higher education institutions themselves – to address these.

One such proposal is a strategy of “radical collaboration” between institutions, ranging from mergers to federations, or shared services and centrally operated services. Indeed, the Office for Students (OfS) has cited radical collaboration as a likely response to the financial challenges in the sector:

Where necessary, providers will need to prepare for, and deliver in practice, the transformation needed to address the challenges they face. In some cases, this is likely to include looking externally for solutions to secure their financial future, including working with other organisations to reduce costs or identifying potential merger partners or other structural changes.

This notion of radical collaboration goes beyond the traditional practice of academically driven collaboration. Instead, in this context radical collaboration refers to deeper, more extensive and far-reaching strategic collaboration, involving institutions working together to achieve a strategic shared mission and/or efficiencies. This might include, for example, curriculum sharing, or collaborating on a regional basis where institutions collectively decide which is best placed to deliver particular courses or subject areas.

While the notion of “radical collaboration” may present a potentially appealing way of responding to the challenges that the sector is facing, there is, however, a significant tension between the principles of such transformational integration and the principles of competition law. As things currently stand, many forms of greater integration between institutions, particularly in relation to curriculum mapping and sharing the provision of courses, would breach the competition rules.

UK competition law and higher education

Competition laws seek to safeguard free and fair competition between “undertakings” (ie any entity that is engaged in economic activity) for the benefit of consumers, with the aim of creating competitive markets which benefit from the efficient allocation of resources; innovation; lower prices; increased choice; and better-quality products and services for customers.

Competition laws therefore prohibit agreements and understandings between independent “undertakings” that have, as their object or effect, the prevention, restriction or distortion of competition. Some agreements are regarded as being so harmful to competition in their nature that they are prohibited outright, for example, agreements between competitors to fix prices, share markets, limit output, or co-ordinate or rig tenders. These types of agreements are highly likely to attract vigorous enforcement action by the competition authorities, including the imposition of substantial fines. A finding that an organisation has breached competition rules (or even an allegation of a breach) would inevitably lead to negative publicity and reputational harm.

While the higher education sector may not bear all the hallmarks of a traditional, fully competitive market, it does fall within the scope of the UK’s competition law regime. Higher education institutions are “undertakings” for the purposes of competition law because they are engaged in “economic activities”; they provide education and other ancillary services to undergraduate and postgraduate students, create jobs which benefit their local and the national economy, as well as develop new products and services.

Moreover, higher education institutions have to compete to “win” students, competing to a certain extent on price, in the context of international or postgraduate provision, but primarily on non-price factors of competition, such as choice of course/course content; quality of provision; reputation; and the range and quality of ancillary services, such as sports provision, accommodation and other student services. Higher education institutions also compete in “upstream” labour markets to attract and retain talent (ie teaching and research staff).

Collaboration between sector participants can undoubtedly be positive and pro-competitive. Such arrangements may be permitted by competition law if (among other things) the collaboration produces efficiencies which benefit consumers. For example, when properly structured, benchmarking exercises or arrangements between institutions to share facilities can lead to the more efficient allocation of resources. However, collaboration between sector participants which dampens or reduces the levels of competition that would otherwise exist between them, and/or which produces no clear benefits for consumers, risks breaching the competition rules.

A clear understanding of where the line is drawn between collaboration which promotes competition and delivers consumer/student benefits, and collaboration which reduces or distorts competition, is therefore important. If this boundary is not well understood, or the boundary itself is not appropriately drawn, the competition rules could act as a barrier to the very innovation and collaboration which the OfS and the government are relying upon to alleviate some of the pressures facing the sector. Indeed, in an interview last week, vice chancellor of Cardiff University Wendy Larner commented that competition law was preventing the kind of collaboration on course provision that she felt was necessary.

Competition regulation from OFT to CMA

More recent regulatory scrutiny of the sector has focused on consumer law aspects. Nonetheless, the Competition and Markets Authority (CMA) and its predecessor, the Office of Fair Trading (OFT), have reviewed mergers between higher education institutions – for example, the University of Manchester / Victoria Manchester / University of Manchester Institute of Science and Technology merger in 2005. And in 2014, the OFT conducted a call for evidence in order to gain a better understanding of how choice and competition were working in the higher education sector in England in response to policy developments that sought to foster the development of a competitive market.

The OFT’s report, following the call for evidence, noted that the most “serious and prevalent” concerns raised by stakeholders related to the extent to which fears of breaching competition law might hinder beneficial cooperation between institutions. However, the report also noted that despite “many generic references” by stakeholders to the potential (perceived) tensions between collaboration and competition, “there were no substantive examples that would justify, because of their relevance and/or novel nature, the production of specific OFT guidance beyond that already available.”

That said, the report also noted that there was scope for the (then incoming) CMA to highlight that:

• cooperation which delivers countervailing consumer benefits (ie benefits to students) may not pose a problem – examples given included benchmarking data; academic partnerships; sharing facilities; joint procurement activities.
• where cooperation between higher education institutions can promote efficiencies, collaboration should be allowed to take place.

The OFT’s report was published a decade ago at a time when the sector was arguably in a different place. The types of collaborative activities identified by the OFT in its report as being beneficial and delivering benefits to students were very much the more traditional forms of cooperation and certainly some way removed from the radical collaboration concepts being discussed at present.

It also appears to be the case that a lack of concrete examples demonstrating where the competition rules had, in practice, posed a barrier to beneficial collaboration influenced the OFT’s thinking. It is perhaps for this reason that the OFT’s findings were limited to acknowledging that cooperation which results in efficiencies should be allowed to take place and reminding institutions of the possibility of relying on an individual exemption from the competition rules.

An individual exemption involves the institution(s) in question conducting a self-assessment of whether the proposed agreement restricting competition will benefit consumers to an extent that outweighs the harm to competition. In practical terms the notion of relying on a self-assessed individual exemption may not be attractive to many institutions. Four cumulative criteria must be met for the exemption to apply and, if the agreement is challenged, the party relying on the exemption bears the burden of proof for substantiating, with specific evidence, that the exemption criteria are met.

Undertaking the self-assessment process in advance of entering into any agreement around radical collaboration would be a significant, evidence driven compliance exercise involving financial and economic modelling. However, even if institutions (and their advisors) were to conclude that it is likely that the exemption criteria are met, there would always be the risk that the CMA or a court might take a different view of the evidence and would disagree. Institutions may not be prepared to proceed with a high-stakes radical collaboration against this backdrop of uncertainty.

Moreover, the criteria for individual exemption include the requirement that an agreement must improve production or distribution, or promote technical or economic progress, “while allowing consumers a fair share of the resulting benefit.” Consumers in this scenario means students. In other words, to rely on the exemption, any benefits accruing to the participating institutions from the collaboration must be passed on to a sufficient extent to the students. It would have to be demonstrated, with evidence, that the collaboration would result in lower prices, or better choice and quality, for students. It would not be enough for participating institutions to demonstrate that benefits merely accrue to them.

It is also worth remembering that the CMA may offer non-binding views on the application of the competition rules to “novel” questions. The CMA has in fact expressed that it is open to hearing from the sector, perhaps in response to the vice-chancellor of Cardiff University’s critical comments.

While seeking a non-binding view on a proposed form of radical collaboration may sound appealing, it is open to debate whether some of the collaboration proposals which have been mooted are genuinely “novel” in competition terms. For example, an agreement between competing institutions about who will offer certain courses would almost certainly be characterised as market sharing, a serious breach of the competition rules.

What will it take to get things moving

There’s an argument to be made about whether a wider national agenda from government on driving forward radical collaboration in higher education is needed, which takes into account the competition law issues. Similar questions to those facing higher education were recently debated in the competition law community in the context of how the competition rules apply to sustainability agreements – agreements between industry participants which are aimed at preventing, reducing or mitigating the adverse impact that economic activities have on the environment, or assist with the transition towards environmental sustainability. Specifically, a number of organisations had voiced concerns that the fear of inadvertently breaching the competition rules was preventing beneficial sector and industry collaborations aimed at delivering sustainability goals.

In response, a number of competition authorities – including the CMA – proactively published guidance to help organisations apply the competition rules to sustainability agreements and collaborations. The CMA published its Green Agreements Guidance in October 2023 containing a clear statement of intent, along with practical and user-friendly guidance, that competition law should not impede legitimate collaboration between businesses that is necessary for the promotion or protection of environmental sustainability.

The guidance also sets out welcome details of an open-door policy, by which businesses considering entering into an environmental sustainability agreement can approach the CMA for informal guidance on their proposed agreement if there is uncertainty on the application of the guidance. This policy also provides some reassurance that the CMA would not expect to take enforcement action against environmental sustainability agreements that correspond clearly to the principles set out in the guidance.

To date the CMA has published two opinions under its open-door policy. These in turn form the beginnings of a body of decisional practice which will help inform organisations, as well as advisors, on the CMA’s approach to collaboration in this area, aiding self-assessment and informed decision-making.

Given the extensive challenges facing the higher education sector, and the passage of time since the OFT’s call for information in 2014, this might be an opportune moment for the CMA to consider the specific issues facing the sector and to engage with the sector more extensively on how the competition rules apply in the sector.

Taking steps to support a viable, flourishing higher education sector which, among other public goods, boosts economic growth, would undoubtedly be aligned with the government’s growth mission and, in turn, aligned with a key pillar of the CMA’s strategy of driving productive and sustainable growth. To the extent that the competition rules are perceived by institutions as presenting a barrier to collaboration that would deliver benefits to students, and where there are examples which show this, there may now be a case for specific higher education focused guidance, similar to the approach taken to the Green Agreements Guidance. Clear guidance, including worked examples on how the individual exemption should be applied and understood in the context of the higher education sector, could be a positive and welcome step forward.

In a recent speech interim Executive Director for Competition Enforcement at the CMA Juliet Enser noted the work of the CMA in ensuring that its enforcement activities do not have a chilling effect on pro-competitive collaborations between competitors, referring to the sustainability guidance and the CMA’s work on competitor collaborations in the pharmaceutical sector. Enser said “where we are convinced on the evidence that there is a real risk, that absent our providing appropriate comfort, the economy will lose out on beneficial collaboration then we are prepared to act.”

This is a positive statement from the CMA, signalling a proactive willingness to engage. In turn, the higher education sector could seize upon this invitation and commence a dialogue with the CMA, providing examples and evidence of where clarity on the application of the competition rules to the sector is needed, so that stakeholders can work towards pro-competitive collaborations which may ultimately benefit students, the higher education sector and the economy at large.

This article is published in association with Mills & Reeve. Join us on Tuesday 4 March 12.00-1.00pm for Connect more, a free online event exploring the potential for more system-wide collaboration in higher education in England. Find out more and register here.