The article was first published on Innherji on Tuesday, 28 December 2021.
Barriers to competition must be tackled in as many areas as possible, the regulatory burden must be reduced and markets opened up. In this regard, it is important that the government does not protect Icelandic companies from foreign competition or give them an illegal advantage. This will benefit neither them nor Icelandic consumers in the long run.
The emergence of the Omicron variant has once again reminded us how unpredictable our immediate future is, but since the COVID pandemic struck the global community, the concept of predictability has taken on a new meaning in the minds of most. The experience of recent centuries and decades shows us that when the economic situation for nations becomes difficult, governments often tend towards protectionism, i.e., measures aimed at protecting domestic activities or specific industries, often at the expense of free competition.
It is interesting in this light to see that despite the ongoing difficulties, the governments of most countries around us continue to defend free competition. Although governments have had to support businesses with various forms of state aid, they continue to emphasise ensuring effective competition, because experience shows us that effective competition accelerates economic recovery and at the same time protects the public interest.
In the United States, it has been record that the average family in the country will lose five thousand dollars a year due to higher prices and lower wages which can be attributed to a lack of competition. The President of the country, Joe Biden, has, in part for this reason, championed various reforms aimed at promoting more effective competition and thereby lowering prices for the benefit of families, raising the wages of working people, and increasing innovation and economic growth. Last July, the President introduced 72 actions to kick-start and strengthen competition. The measures include, among other things, an instruction for federal agencies to actively promote increased competition, e.g. through public tenders, the Ministry of Agriculture is given powers to promote increased bargaining power for farmers in contracts with abattoirs and meat processors, it will be made easier for bank customers to switch banks, it will be made easier for working people to change jobs, etc.
The experience of recent centuries and decades shows us that when the economic situation of nations becomes difficult, governments often tend towards protectionism.
Britain is finding its feet in a new environment following its withdrawal from the European Union. One might think that the British government would take the opportunity to erect barriers against international competition for the country's business sector. However, that is not the case. This summer, the British government published for consultation a detailed strategic planning in the field of competition and consumer affairs. The emphasis there is on improving consumer welfare by strengthening competition rules and competition surveillance. Following the strategy, the UK has already legislated to give the UK competition authorities the power to intervene in markets where large digital companies operate. Under consideration is how state aid from the British government to British companies will be monitored, a role previously carried out by the European Commission until the UK's exit from the EU. The Danish government is also considering whether and how to strengthen oversight of large digital companies.
In mainland Europe, measures have long been in place to ensure effective competition for the benefit of consumers and national economies. In 2014, the European Union established a specific directive aimed at making it easier for businesses and consumers to seek compensation from companies that breach competition law. Among other things, the directive facilitates the gathering of evidence and the proof of infringements.
In 2019, a directive came into force which aims to strengthen the competition authorities of the European Union, often referred to as ECN+. Last year, the European Commission then began work on strengthening its resources to tackle new challenges, not least in the field of digital markets. Subsequently, the European Parliament recently approved legislation granting the European Commission enhanced powers to intervene in the activities of digital companies engaging in unfair business practices, as the Parliament considers the powers of the EU's competition department insufficient to address these problems.which may arise.
Following the strategy, the British have already enshrined in law the powers for British competition authorities to intervene in the markets where large digital companies operate.
It is clear from this that our trading partners have adopted a clear policy of strengthening competition, thereby providing a firmer foundation for consumer protection and the public's welfare.
The challenges of competition supervision here are of the same nature as those faced by our counterparts. It is essential to ensure that the competition law provides the public with protection during uncertain times, as global shortages of goods and disruptions in the supply chain can lead to higher prices and poorer service. In such times, transport markets are of great importance to a small island economy like ours. The Competition Authority has therefore placed great emphasis on ensuring compliance with competition law in this area. This summer, the Competition Authority's investigation into Eimskip's conduct concluded with a settlement in which the company admitted to having committed serious infringements of Article 10 of the Competition Act and Article 53 of the EEA Agreement, and paid a fine of 1.5 billion krónur for the breaches.
Issues relating to the development and maintenance of the infrastructure that underpins national competitiveness are becoming prominent. In this area, it is important to harness the power of competition. For example, competition in telecommunications infrastructure has contributed to better access to high-speed networks in this country than is found in most other places. This path must be continued, but the tools of competition must also be used to support infrastructure where competition is less likely to emerge. This can be done by using tenders to secure more favourable prices and improve services. These matters must be taken more firmly here in Iceland, for example by strengthening the oversight that works against collusion in tendering.
Digital markets are and will become an increasingly prominent feature of the Competition Authority's work. International large corporations create digital platforms for cross-border trade and open up various opportunities for Icelandic consumers and businesses. However, these changes bring with them various challenges. The position of large technology companies can become so strong that their existence or conduct can distort competition. This can manifest itself in restrictive terms and conditions, pricing, or in other ways.
Then there are projects related to sustainability and measures that reduce global warming, which are also becoming more and more prominent. Thus, the Competition Authority has seen an increase in cases related to the electricity market and the energy transition currently underway.
Competition in telecommunications infrastructure has contributed to better access to high-speed broadband in this country than is found in most other places. This must be continued.
There is a growing debate about this within the global competition watchdog community, and competition authorities on both sides of the Atlantic have taken various measures or announced actions aimed at ensuring effective competition. Similarly, governments are widely strengthening the powers of competition authorities to address these new challenges. This includes, for example, the powers of competition authorities in the UK and Iceland for so-called market investigations.
The issues of food production are and will remain an important matter for the competition authorities in Iceland. The importance of a strong food production sector in this country is clear to everyone. The recent merger of the meat processing companies Norðlenska, The merger of the meat processing companies Norðlenska, Kjarnafæðis and SAH was the subject of a detailed investigation by the Competition Authority, which concluded with a settlement with the merging parties, in which they undertook to take measures aimed at protecting the interests of consumers and farmers. During the investigation, the Competition Authority conducted detailed surveys among farmers in order to gather their views. The investigation once again highlighted the importance of effective competition in protecting the interests of farmers. In this respect, the interests of farmers coincide with those of consumers.
Regarding merger control in general, 49 notifications were received in 2021. In three mergers, intervention was required to address adverse effects that would otherwise have resulted from the mergers, and in one case, the merging parties withdrew their merger notification following a statement of objections which outlined the potential adverse effects. No merger was cleared with conditions in 2021. Finally, it should be noted that in a small economy like ours, issues related to concentration and ownership and control relationships are always prominent in the work of the Competition Authority. During the year, the Authority published report no. 2/2021, which outlines investigations and actions concerning management and ownership links.
As the global economy, and the Icelandic one, begins to recover from the effects of the COVID pandemic, it is important to protect effective competition, as it is essential for ensuring prosperity in the long term. Effective competition has a positive impact on price, quality, innovation and productivity, which means that living standards improve if it is protected. Barriers to competition, however, have the exact opposite effect. They lead to lower purchasing power with consequential effects on Icelandic households, particularly those least able to afford it. For this reason, it is important that the government, together with business and trade unions, supports effective competition through its actions.
In a small economy like ours, issues relating to concentration and ownership and control relationships are always prominent in the work of the Competition Authority.
In this regard, it is also appropriate to have regard to the Competition Authority's discussion paper no. 4/2021., Competitiveness indicators – an international comparison. It states, among other things, that almost a third of managers in Icelandic companies perceive collusion in the markets in which they operate, just over a third have noticed abuse of a dominant market position, and 85% of consumers perceive a competitive problem. Furthermore, the competition indicators suggest that barriers to entry in the country are considerable by international standards. Thus, Iceland ranks 7th-10th (out of 10 countries compared) when it comes to trade barriers in international trade, cross-economy regulatory burden, retail regulatory burden and the time it takes to start a business.
Governments are encouraged to take their role in supporting effective competition seriously, but the EFTA Surveillance Authority (ESA) has sent a reasoned opinion to Iceland regarding the authorities„ participation in a campaign in which the people of Iceland are encouraged to favour domestic goods and services (“Icelandic, let's go for it"). In the ESA's view, the measure breaches EEA rules, in particular the provisions of the EEA Agreement on the free movement of goods and the freedom to provide services. In the ESA's view, the circumstances in Iceland in relation to the COVID-19 pandemic do not justify the measure.
Almost a third of executives at Icelandic companies perceive collusion in the markets in which they operate, and just over a third have witnessed the abuse of a dominant market position.
The tasks ahead are considerable. Barriers to competition must be tackled in as many areas as possible, the regulatory burden must be reduced and markets opened up. In this context, it is important that the government does not protect Icelandic companies from foreign competition or give them an illegal advantage. This will benefit neither them nor Icelandic consumers in the long term. The strengthening of competition rules and competition oversight is therefore part of this task.
Valur Thráinsson
The author is the Chief Economist of the Competition Authority.
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