At present, there is considerable discussion about competition and competitive conditions in Icelandic business life. In that debate, the views of those parties in the business community who believe that the Competition Act and its enforcement unduly restrict their operations carry the greatest weight. Recently, this discussion has been particularly concerned with corporate mergers.
In this regard, it has been said that the Competition Authority is not aware of the changes taking place in various areas of business life, does not take sufficient account of the importance of efficiencies in relation to mergers, the authority is inflexible, does not provide sufficient guidance and the handling of merger cases takes too long. Some of these complaints were addressed in an editorial in the Viðskiptablaðið newspaper last week.
For this reason, and in the interest of an informed debate on competition matters, it is appropriate to briefly outline the handling of merger cases by the Competition Authority.
The investigation takes into account the nature of the merger
The vast majority of mergers are completed without any objections from the Competition Authority and receive a quick clearance. Almost 70% mergers are notified using the so-called short notification procedure. This notification procedure applies, for example, when the merging companies operate in unrelated markets or when other circumstances of the merger make it less likely than otherwise that the merger would create barriers to competition.
A merger generally requires closer scrutiny when the companies involved operate in the same or related markets, have a strong market position, or where there is significant market concentration. When mergers involve markets that are important for the public or the economy, there is a particular reason to scrutinise their effects.
Various factors are to be considered when assessing a merger: In which market does the merger have an impact? Is the market changing, e.g. due to technological developments? What is the position of the merging companies in the market? Are the companies significant competitors? Is a dominant position being created or strengthened? What effect does the merger have on competition in other respects?
Mergers are often intended to lead to efficiencies and economies of scale. The merging parties are then given the opportunity to demonstrate that the plans are viable and that customers, including consumers, will enjoy the benefits of the efficiencies.
A foothold in international cooperation
When assessing mergers, the Competition Authority benefits from being a participant in a network of foreign competition authorities that face similar challenges, work together and learn from each other.
In the processing and handling of cases, the Competition Authority bases its conclusions, among other things, on guidelines issued in the European Economic Area and which are available to companies in this country. Likewise, the authority draws on precedents from both domestic and European case law.
First and foremost, the Competition Authority bases its conclusions on the best available information about markets and the competitive conditions within them. This information is obtained, among other sources, from competitors and others who operate and trade in the relevant markets.
The progress of the investigation is primarily determined by the position of the merging parties.
The merger parties have a significant influence on how the Competition Authority's investigation proceeds. It facilitates the handling of the case if they have made a realistic assessment of the merger's impact and identified ways to prevent potential competition distortion. Detailed and accurate information submitted at the outset of the case speeds up the investigation.
When merger parties are well-prepared, a constructive dialogue can often be established between them and the Competition Authority regarding the effects of the merger and any possible measures to prevent potential harm.
If the Competition Authority's preliminary assessment is that a merger is anti-competitive, it publishes its preliminary assessment to the parties to the merger, a so-called statement of objections, in which the grounds for the preliminary assessment are described in detail and the parties are given an opportunity to present their views. Thus, merger parties are afforded a greater right of objection than is required by administrative law.
At all stages of the proceedings, the merging parties have the option to request settlement talks. In settlement discussions, it is important that the companies themselves put forward proposals for measures on which a settlement can be based. This is because the companies concerned are best placed to assess which measures are consistent with the objectives of the merger.
The Competition Authority, however, advises against entering into settlement negotiations if the merging parties fundamentally disagree that the merger will distort competition. In such cases, it is more prudent for the merging parties to maintain their positions and challenge the final decision of the Competition Authority before the Appeal Board and the courts, if they cannot agree with it.
Great benefits for consumers and society
While sensible, well-executed mergers can lead to benefits for society, mergers that stifle competition can have serious and irreversible consequences. They manifest, for example, in less innovation, a smaller range of products or higher prices, which harms consumers and the competitiveness of the companies concerned.
In some cases, a merger that restricts competition can create a situation for the merged companies where consumers effectively pay for unprofitable investments or operational mistakes, through higher prices.
Merger control is therefore of great importance for the public interest and the competitiveness of Icelandic industry.
Páll Gunnar Pálsson,
Director-General of the Competition Authority
[This column was published as an article in the Viðskiptablaðið on 6 September.]
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