Competition and the public sector

It is clear that the government, both national and local, can, through its actions or inaction, have a significant impact on competition and the conditions for competition in the country. The government has a significant responsibility to remove any barriers to competition that new and smaller businesses may face when they start up and try to grow alongside larger competitors. The government can also be a participant in competitive markets, and it is important in such cases that it avoids distorting competition. In these instances, it is also subject to the fundamental rules of competition law, such as those concerning the prohibition on collusion and the abuse of a dominant market position.

Among the roles of the Competition Authority is to ensure that actions by public authorities do not restrict competition and to advise the government on ways to make competition more effective and to facilitate the entry of new competitors into the market, as set out in paragraph c of Article 8(1). Article of the Competition Act.

• For the purpose of carrying out its role regarding public restrictions on competition, the Competition Authority has the following powers under the Competition Act:
• Financial separation under Article 14 – The Competition Authority may order financial separation where a public undertaking or an undertaking operating in part under a public monopoly or protection, between, on the one hand, the part of the undertaking's activities which benefits from a concession or protection and, on the other hand, the part of its activities which is in free competition with other undertakings.
• Binding decisions on the basis of Article 16. Art. – The Competition Authority may take action against acts of public authorities to the extent that they may have an adverse effect on competition, provided that specific legislation does not contain special rules on the authorisation or obligation for such acts.
• Publication of opinions under Article 18 – If the Competition Authority considers that provisions of Acts and statutory instruments conflict with the objective of this Act and impede free competition in trade, the Authority shall draw the minister's attention to this opinion. Such an opinion shall also be published to the public in an adequate manner, e.g. by means of a press release to the media after it has been presented to the Minister.
• Issue of opinions or recommendations on the basis of paragraph 1(c). subsection 8(1)(c) – For the purpose of ensuring that the actions of public authorities do not restrict competition, the competition authority may issue recommendations to the government, thereby pointing out ways to make competition more effective and to facilitate the market entry of new competitors.

Fundamental principles of competition law apply to public bodies.

It should be borne in mind that other fundamental principles of competition law apply to public bodies in the same way as to other parties, provided that this concerns economic activity falling within the scope of the law. Public bodies that meet these conditions are therefore not exempt from the competition law prohibition on collusion with competitors and the abuse of a dominant market position. In other words, the same competition rules apply to public undertakings as to private companies, unless otherwise provided for in specific legislation.

Breaches of the law can result in fines.

Breach of instructions issued by the Competition Authority pursuant to Article 14 of the Competition Act, or of measures, actions or interim decisions under Article 16, is subject to administrative fines in accordance with Article 37 of the Competition Act. Fines may amount to up to 10% of the total turnover of the relevant undertaking.

Opinions and instructions issued by the Competition Authority pursuant to c-item of the first paragraph of Article 8 and/or Article 18 of the Competition Act do not constitute an administrative act. The Competition Authority is, however, entitled to follow up on such opinions with enquiries to the person at whom the opinion was directed, and responses to such enquiries shall normally be published on the Authority's website.

Drafting reports on bills

The Competition Authority also has an important role to play in drafting submissions on draft bills. Each year, the Competition Authority receives dozens of requests for submissions and, in each case, assesses whether there is cause to submit a response. The Authority can thus proactively point out the potential competition-restricting effects of the proposed bill. The Authority's main opinions are published on the institution's website.

From the perspective of competition law, the general principle is that local authorities or other public bodies can operate in a competitive market, or in other words, carry on a business in competition with private companies in the market. However, when public bodies engage in such competitive activity in the market, stricter requirements are placed upon them than are generally applied to private companies. This is primarily because public bodies, such as local authorities and government agencies, are generally run on public funds. For example, these public bodies receive revenue from the budget or are allocated specific sources of income by other legislation. For this reason, and due to other circumstances, public bodies may have an advantage in competition over other competitors, who must rely on their own financing and revenue generation to cover all operating costs.

It can be said that the requirements placed on public bodies that operate in a way that is or could be competitive with private entities, alongside the performance of public services, are similar to those placed on undertakings with a so-called dominant position.

Under Article 14 of the Competition Act, the Competition Authority may require financial separation between a public entity's competitive operations and its operations that benefit from a monopoly or protection, for example, by receiving public funding. When financial separation is stipulated in this context, it is for the purpose of ensuring that public funds are not used to subsidise competitive activities.

The Competition Authority may then, on the basis of Article 16 of the Competition Act, take other forms of intervention than those described above against the conduct of a public authority that has a detrimental effect on competition. Such conduct may be prohibited if it is not authorised by the specific legislation that applies to it. Over the years, the Competition Authority has made observations regarding the inappropriate and anti-competitive commercial activities of public bodies. Recent examples include the leasing of state-owned premises for hotel operations, the running of fitness centres in connection with swimming pool operations, and access to gravel pits.

One problem that arises when, for example, a local authority begins to operate in a field that no one else has in that area is that it becomes more difficult than before for a private party to start operating in the same field. Public sector operation can thus hinder private access to the market.

It is stated in b. clause of the first paragraph of article 16. Article 16(b) of the Competition Act No. 44/2005 provides that the Competition Authority may take action against acts by public authorities to the extent that they may have an adverse effect on competition, provided that specific legislation does not contain special rules on the authorisation or obligation for such acts.

Sports and swimming venues
When local authorities run swimming pools and leisure facilities, a problem can arise where competition is distorted in the market, as the operation of the facilities and the activities that take place there often do not pay for themselves. The costs exceeding the operating income are then covered from the local authorities' funds. When this is the case, local authorities subsidise this type of activity. When private operators, who do not receive subsidies from local authorities, compete with operations supported by them, it is clear that the former's competitive position in the relevant market is impaired. The private operator receives no subsidy and must pay the full price for its inputs and other operating costs. Its pricing must therefore reflect this fact. For this reason, the Competition Authority has, in several cases, stipulated that municipal gyms competing with private gyms must be run with cost-accounting separation from the municipalities' other sports facilities and swimming pools.

Healthcare services
The Icelandic Psychological Association complained to the Competition Authority about the agreements between the National Insurance Institution and psychiatrists to pay a portion of patients' costs for their specialist services. The Insurance Authority had not agreed to contribute towards the cost of patients' treatment with psychologists who offer talk therapy. This was based on the conclusion that, in the case of non-medication-related mental health problems, the service was operating in the same market as psychotherapy provided by clinical psychologists. The Competition Authority reached this conclusion, decision. No. 8/2005, that the decision by the health authorities not to negotiate with clinical psychologists regarding public reimbursement for the cost of mental health services had a detrimental effect on competition and went against the objective of the Competition Act. That decision was overturned by the Appeal Board of Competition Affairs, decision no. 19/2005, on the grounds that specific provisions in the Act on Health Services took precedence over the provisions of the Competition Act. Therefore, the competition authorities would have lacked the authority to intervene in the matter as was done in the decision under appeal. The Icelandic Psychological Association appealed the decision of the Competition Appeals Board to the Reykjavík District Court, E-4825/2006. The court disagreed with the Competition Appeals Board's conclusion that the Health Services Act prevents the Competition Authority from taking the necessary action against the health authorities who were the subject of its decision. The District Court's ruling was appealed to the Supreme Court, case no. 411/2017, which upheld the decision of the appeals board. The Supreme Court held that the Competition Act is a general statute which must yield to conflicting provisions of special legislation. The Competition Authority was therefore not considered to be authorised, under the support of Article 16(1)(b) of the Competition Act, to take action in the manner determined by its decision.

Rubbish collection
The Competition Authority concluded in Decision No. 34/2012 that SORPA bs. had breached competition law by abusing its dominant position in the market for waste sorting and treatment. The infringement consisted of SORPA granting its owners, i.e. the municipalities of the capital region and Sorpustöð Suðurlands bs., a higher discount than other customers. Other customers of SORPA, for example, were other waste collection companies that were even bringing in more waste than the aforementioned municipalities. The Competition Authority's assessment was that these differential discounts by SORPA had had a detrimental effect on competition. SORPA was therefore directed to revise its tariff for its services. The commercial terms in the new tariff were to be general and transparent, so that parties engaged in similar business with SORPA would enjoy the same terms.

The decision of the Competition Authority was confirmed by the Competition Appeals Board, decision no. 1/2013. SORPA took the case to the Reykjavík District Court, which acquitted the Competition Authority in case E-3598/2013. SORPA appealed that judgment to the Supreme Court, which upheld the District Court's judgment, Supreme Court case no. 273/2015.