Undercutting

Undercutting
It is when a company sells a product or service below a certain cost threshold.
Generally, the price is set below the average variable cost.
Undercutting can contravene competition law if it involves
a dominant company. Can such conduct potentially create or maintain
barriers to market entry and thus have harmful consequences for competition.

When assessing that
Whether undercutting constitutes a breach of competition law must therefore first be
to reach a conclusion as to whether the company in question was in
a dominant market position at the time the undervaluation took place. If so
it is necessary to consider the extent of the underpricing and for how long
time it has stood. Undercutting can involve a breach of
competition law when a dominant undertaking sells a product or service at below
at cost price continuously for a certain period for the purpose of strengthening
their dominant market position and even push their competitor(s) out of the market
or to prevent the entry of a new competitor or competitors.

Rules intended
is working against undercutting is based on the ideology that it is
It is undesirable that a dominant company can, under the cover of financial strength, sell
a product at an unusually low price in order to destroy competition. Even if consumers
enjoy, for a short time, getting the relevant product at a very low price because
Undercutting is considered that distortion of competition which arises from
Under-pricing leads to higher prices in the long run, lower
quality and a reduction in consumer choice. Thus, the consequences can
Undercutting by a dominant undertaking, for example, has been that of weaker
Competitors see no reason to take part in the competition. Furthermore,
It is clear that the incentive to challenge a dominant market player will be
less if they are free to respond to competition by pricing a product
its own below cost price. Finally, the consequence of undercutting can be that
Competitors are forced to cease operations.

Theoretically
are certain cases where the undercutting of a dominant undertaking does not involve
A breach of competition law. Does that generally fall within the remit of the relevant party?
of the company to present a convincing, substantive argument for it. The sale of stock that
are approaching or have just passed the last day of sale or promotional offer on new
For example, possible justifications for undercutting can be products.

Competition authorities have in several cases had to intervene
for action concerning harmful undercutting by dominant undertakings:

In Decision No. 64/2008, the Competition Authority concluded that
Hagar (which operates, among other things, the Bónus chain of shops) had abused its dominant market position.
through measures directed at the company's competitors in the food market. By doing so
they broke competition law. Haga's offences consisted of undercutting which the company engaged in
in 2005 and 2006. Hagar sold milk in shops below cost price.
Bonus for a long time. The dairy products were sold at a huge loss and led
that the Bónus stores were as a whole run at a loss. He considered
The Competition Authority that the infringement was liable to cause
the business community and the general public significant competitive harm. The appeal board found
the same conclusion with decision no. 2/2009. The District Court confirmed the decision by judgment
No. E-7649/2009, which was later upheld by Supreme Court judgment No. 188/2010.

By Supreme Court judgment no. 205/2011, the Supreme Court confirmed
that Icelandair has abused its dominant market position on the flight route between
of Keflavik and Copenhagen. Was Icelandair made to pay 80 million kr. in
fines. The judgment is precedent-setting as it confirms that a market-dominant
A party to an air passenger flight must take care not to obstruct access to
the market through the promotion and pricing of airfares.

In Decision No. 30/2012, the Competition Authority came to the conclusion that
The company had abused its dominant market position with an offer it made.
to its users in the summer of 2009. The offer consisted of a 3G dongle and a subscription.
for 0 kr. all summer. Was Símanum made to pay 60 million kr. in
An administrative fine. The Competition Authority considered that the offer involved an unlawful
undercutting. The telephone company appealed the decision of the Competition Authority to
of the Competition Appeals Tribunal which reached the conclusion, in decision no.
10/2011, that Síminn enjoyed a significant advantage when looking at the telecommunications market
as a whole. This superiority made it particularly urgent to prevent
for Telenor exploiting its dominance in traditional telecommunications markets to
to create the same dominance for themselves in new, developing telecommunications markets.