Competition law states that an undertaking has a dominant position:
The assessment of a dominant market position is carried out in two steps, namely the definition of
the market in which the company in question operates and then an examination of the economic
the company's strength in the defined market.
When assessing the position of companies in the market, the most important thing is to consider
market share in the relevant market and the structure of that market.
Market share provides a very strong indication of a company's position in the market.
A very high market share can in itself constitute proof that
that the company in question is in a dominant market position unless there are exceptional circumstances
circumstances that suggest otherwise. If market share is higher than 50% are
any likelihood that a company is in a dominant market position. It is also important that
compare the share of the company being evaluated with the share
of other companies in the market. If there is a significant difference in that company's market share
which has the largest share and the company that comes next in the ranking is
It is likely that the aforementioned company is a market leader. It is worth bearing in mind that
Companies can also be in a dominant market position despite having a lower
share, but 50% in the relevant market. Then companies in
In exceptional cases, they are considered dominant on the market despite not having the greatest
the share in the relevant market.
The structure of the market also matters when assessing a dominant market position, but
this refers to issues such as, for example, access barriers (legal barriers and
barriers related to the type of market), financial strength,
economies of scale, vertical integration, technological advantage, bargaining power, accessibility
to suppliers, developed sales systems and well-known brands.
It should be borne in mind that the concept of a dominant market position does not include a requirement that
no competition exists in the relevant market. A dominant market position can thus
being discussed despite lively competition in the relevant market.
Existing firms are usually threatened by the potential entry of new ones.
competitors in the market in which they operate. Potential entry of new competitors
provides a check on the pricing of their goods and services to consumers. When a new
When a competitor enters a market, the reason is often that he believes he has
something else to offer than those who are already there and are aiming to get a share of
their market share and profits. The companies already on the market
often react to the arrival of new competitors by trying to increase
optimisation in order to be able to lower prices or by improving service. The companies
realise that with the arrival of new competitors they could lose
customers and thereby revenue and market share. There are to be impacts
increased competition leads to a fall in prices. A fall in prices by companies in a market in response to
The arrival of a new competitor in the market is, as a rule, natural and desirable.
However, a different picture may emerge if the dominant company reacts.
a new competitor with a price cut that involves selling a product below
at cost price. It can also be an offence if a dominant undertaking takes
for a specific price reduction intended to distort competition. This is then a case of
an action directed specifically against the new competitor or the products which he
sells.
By the above-mentioned actions, the dominant company is sacrificing
short-term gain for the express purpose of excluding a competitor from the market or
prevent his entry into the market. Both of these measures involve
predatory pricing of some kind, as it is directed against a competitor with it
the ultimate aim of driving him out of the market or harming his competitive position with
seriously. Specific price reduction or undercutting by a market-dominating
A company's action against a new competitor may constitute a breach of Article 11 of the Competition Act.
Different pricing by suppliers for goods to retailers can lead to
it is cheaper for a retailer to buy a product in a discount store than directly from
the relevant supplier. It is known that discount stores, which are part of a larger
Retail chains can get better terms from suppliers than smaller retailers. In
In certain cases, this can be considered normal, as larger retail chains can
Take advantage of economies of scale and get a discount from the supplier, as they buy in much larger quantities.
with other shops. Then suppliers may provide those retail chains with further
a discount if they handle the distribution of goods to their own shops and arrange them in
shelves. Thus, other retailers, who do not receive such discounts, may have to pay
suppliers charge a higher price for the same product. For that reason, the shops have limited
the possibility of engaging in price competition, as they would generally have little
imposing a levy on their sales if they were to match the prices of discount stores within
shopping centre chains. It is possible that the lowest retail price of discount stores is
lower than the purchase price of smaller shops. Therefore, it can be more cost-effective for
a retailer buying a specific product from a discount store.
It is therefore of the utmost importance that suppliers pay particular attention to whether a difference in price arises.
individual retailers derive from normal economies of scale or are anti-competitive
the buyer's incentive of the relevant retail chain. If a supplier who is in a dominant market position
position in the relevant market, cannot demonstrate that the normal conditions are present
to secure better terms for certain parties, such an unnatural
Pricing constitutes a breach of competition law. The Competition Authority assesses
it is a matter for each individual case whether pricing is considered lawful in view of
the nature of the transaction and the market position of the companies involved.
It should be noted that in the report of the Competition Authority number.
1/2012, Price development and competition in the grocery market, the watchdog discussed
on the trading terms of suppliers to retailers in the grocery market. The Competition Authority launched
independent investigation á
Election of several suppliers to retailers in July 2012.
Undercutting is when a company sells a product or service below a certain cost threshold. Generally, this refers to a price below the average variable cost. Undercutting can be against competition law if the company in question is a dominant firm. Such conduct can potentially create or maintain barriers to entry and thus have detrimental effects on competition.
In assessing whether undercutting constitutes a breach of competition law, it is therefore first necessary to determine whether the company in question was in a dominant position at the time the undercutting took place. If so, the extent of the undercutting and the length of time it has lasted must be considered. Undercutting can constitute an infringement of competition law when a dominant undertaking sells a product or service below cost price continuously for a certain period with the aim of strengthening its dominant position and even to push out a competitor(about) its competitors out of the market or to prevent the entry of new competitors.
Regulations designed to combat predatory pricing are based on the principle that it is undesirable for a dominant market player to use its financial strength to sell a product at an unreasonably low price in order to destroy competition. Although consumers may benefit in the short term from receiving the relevant product at a very low price due to predatory pricing, it is believed that the disruption to competition resulting from this practice leads, in the long term, to higher prices, lower quality, and a reduction in consumer choice. Thus, the consequences of a dominant firm's predatory pricing can be that weaker competitors see no reason to compete. Furthermore, it is clear that the incentive to challenge a dominant firm will be reduced if it is free to respond to competition by selling its product below cost. Finally, a consequence of undercutting can be that competitors are forced out of business.
Theoretically, there are certain instances where undervaluation by a dominant undertaking does not constitute a breach of competition law. It is generally incumbent upon the company concerned to provide convincing, objective justification for this. For example, the sale of stock approaching or just past its sell-by date, or promotional offers on new products, can be possible justifications for undercutting.
Competition authorities have in several instances had to take action due to harmful undercutting by dominant undertakings. Examples of such cases include undercutting Bonus on dairy products in 2005 and 2006, undercutting Icelandair when Iceland Express was entering the market and undercuttingThe phone with a 3G dongle offer which the company did to users in the summer of 2009.
You can read more about the above matters by clicking on the company names above.
According to competition law, a company is dominant in the market when it has significant economic strength and can prevent effective competition, operating to a large extent without having to take competitors, customers and consumers into account. A high market share (greater than 50%), significant financial strength compared to competitors, and barriers to entry are among the factors that indicate a dominant market position.
In some cases, the situation can be such that two or more companies in the same market are considered to be in a so-called jointly dominant position. Such a position allows the companies concerned to coordinate their behaviour in the market without having to take competitors or consumers into account. The companies are therefore in a position to limit competition and increase prices or reduce services.
When assessing whether companies are jointly dominant, it is necessary to examine whether the relevant market is characterised by what has been termed tacit collusion. This refers to circumstances that enable companies to formulate a joint or coordinated market strategy and operate to a significant extent without taking competitors, customers or consumers into account. Indicators of this include, among others:
It is not a requirement for a joint dominant market position that all the conditions are met. The companies do not necessarily have to formulate a joint market strategy by consulting with each other; it is sufficient for it to arise from their tacit coordination. This means that the companies take mutual consideration of one another and can therefore know with a certain degree of certainty what competitors' reactions will be to specific market actions. The companies therefore lack the necessary competitive restraint, but market conditions lead to them adopting coordinated behaviour, e.g. by limiting the supply of a product or service in order to increase the selling price, with the aim that coordinated market behaviour will maximise their joint profits.
Competition authorities have in several cases examined the jointly dominant market position of companies, see e.g. decision No. 28/2006 where the mergers of Lyfja and Heilsu and Lyfjavers were discussed, see the decision of the Competition Appeals Board in the case No. 6/2006; decision No. 50/2008 (Kaupþing's takeover of SPRON); decision No. 15/2009 (Myndform's purchase of a 50% stake in Þrjúbíói) and decision No. 4/2010 where the abuse by Lyfja og heilsa of a dominant market position was under consideration, see decision of the Appeal Board in the case No. 5/2010.
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