Definition

According to Article 11 of the Competition Act, the abuse by one or more undertakings of a dominant position in a market is prohibited. The provision lists the following cases as possible examples of the abuse of a dominant position:

• that an unfair price, commercial term or trading condition is demanded,
• that restrictions are placed on production, markets or technological development which cause harm to consumers,
• business partners were treated differently with different terms in comparable transactions, thereby distorting competition,
• that it is a condition for entering into a contract that the contracting parties take on additional obligations not related to the subject matter of the contracts. 

However, these instances are not an exhaustive list of the types of conduct that can constitute abuse of a dominant position. It can be said that most cases in this category concern so-called exclusionary abuses, which generally involve actions that cause harm to smaller competitors or are likely to drive them out of the market. This includes, among other things, the following conduct by dominant undertakings: 

• Exclusive purchasing agreements – e.g. an undertaking by a dominant supplier that customers purchase a product or service exclusively from them.
• Loyalty terms – agreements on terms, e.g. a retrospectively paid discount, when a specified volume threshold is reached.
• Predatory undercutting – e.g. when a product or service is sold below certain cost benchmarks, usually variable costs.
• Targeted price reduction – a price reduction specifically aimed at competitors' customers, but which generally does not include the customers of the dominant firm. It is not a prerequisite that the pricing is below cost.
• Price discrimination – buyers are treated differently in comparable transactions without a cost advantage or other legitimate reason justifying the discrimination.
• Price pressure – For example, Company A is the market leader in the wholesale market but also operates in a related retail market. Company A sells an important input to Company B on the wholesale market, which is used to offer a product or service for sale on the retail market, where both Company A and B are competitors. The wholesale price that Company B must pay to Company A is so high that the price at which Company A offers its goods to its retail customers would not cover its costs if Company A's retail division had to pay the same wholesale price as Company B.
• Bundling – e.g. when a condition for the sale of product X is that product Y is also purchased, without any objective justification for the purchase of product Y, such as product Y being necessary for the functioning of product X.
• Refusal to sell – e.g. a supplier's refusal to do business with a particular retailer, which makes it almost impossible for the retailer to obtain the product or a comparable product from another source.

Another type of abuse of a dominant position is so-called exploitative abuses. It is different from exclusionary abuses mainly in that it is directed at customers or consumers rather than competitors. Examples of such abuse include excessive pricing or extortionate pricing. It can also involve unfair commercial terms.

The Competition Authority imposes fines on undertakings that breach Article 11 of the Competition Act, unless the infringement is considered minor or for other reasons it is not considered necessary to impose such fines in order to promote and strengthen effective competition. When assessing the amount of a fine, consideration is given to the nature and gravity of the infringements and their duration. The subjective state of mind of the owners or directors may also be relevant, as may the potential harmful effects of the infringement.

A dominant market position is not prohibited, but companies in such a position have a duty not to take any action that could distort normal competition. These duties are greater the stronger their position is. An infringement of the prohibition on the abuse of a dominant position does not require proof of harmful effects or an intention to distort competition. However, where such an intention exists, it can facilitate the proof of an infringement and make it likely that the penalties will be more severe.

The application of Article 11 of the Competition Act is controversial, as the provision can prohibit behaviour that is generally considered desirable, for example, a price reduction on a product. Furthermore, the question arises as to whether the purpose is to protect competition or competitors who may be operating inefficiently. There has therefore been discussion about placing greater emphasis on assessing the competitive effects of actions by dominant undertakings. However, to date, the approach in European law, from which Icelandic competition law takes its model, has been to rely on a conventional assessment, i.e. that it is not necessary to demonstrate the harmful effects of the actions.

In a nutshell

The abuse of a dominant position by one or more undertakings is prohibited, and a strict obligation rests on undertakings in such a position to do nothing that might distort normal competition. Competition law does not provide an exhaustive list of what constitutes unlawful conduct by dominant undertakings. However, most cases concerning the abuse of a dominant position concern agreements involving exclusive purchasing or supply clauses, undercutting,

Frekari upplýsingar

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