Ragnar Árnason, professor emeritus of economics at the University of Iceland, writes an article in Morgunblaðið on 11 February, under the headline „What is the role of the Competition Authority?“ Ragnar criticises the Competition Authority for having spoken out against a draft bill for exemptions from competition law for meat processing plants. Ragnar also believes that the authority's management sees competition as an end in itself and overlooks other methods of achieving macroeconomic efficiency.
Ragnar's article appears to be based on a misinterpretation of competition law, and it is therefore necessary to correct various points it makes.
According to Article 1 of the Competition Act, its objective is to „to strengthen effective competition and thereby to work towards the efficient use of the nation's factors of production.This objective shall be achieved by tackling barriers to competition and harmful oligopoly, facilitating the entry of new competitors into the market, and promoting a healthy competitive environment.
The legislature has entrusted the Competition Authority with the task of enforcing these objectives. Most countries worldwide have established competition rules based on the same principles and procedures.
It is therefore not surprising that „The Competition Authority has gone directly against that wish" [processing plants to obtain an exemption from competition law] on the assumption that increased cooperation between these companies could reduce their competition with each other“, as Ragnar writes, because it is the direct responsibility of the supervisory authority to work towards the aforementioned objectives.
From Ragnar's article, it can be inferred that he believes the Competition Authority does not consider economies of scale and that methods other than competition can lead to national economic efficiency. That conclusion is incorrect.
Competition law therefore recognises that cooperation and mergers between companies can lead to increased operational efficiency. Consequently, Article 15 of the Competition Act provides for exceptions to the Act's prohibition on illegal collusion, provided certain conditions are met. These conditions are concerned with creating opportunities for companies to achieve efficiencies through their cooperation, whilst at the same time ensuring that customers receive a fair share of the benefits.
In the same way, the Competition Authority is required, pursuant to Article 17(c), „to take account of technological and economic progress, provided that it benefits consumers and does not hinder competition.“ This includes, amongst other things, that the Competition Authority can authorise mergers, provided that the merging parties demonstrate that it entails efficiencies and that customers benefit from those efficiencies.
The above provisions of the Competition Act are in accordance with EU/EEA law. The Competition Authority applies these rules in the same way as authorities in the European Economic Area.
In Ragnar's view, the Competition Authority should permit and facilitate companies from taking advantage of economies of scale, but then monitor to ensure that such economies of scale are not abused. Ragnar thus appears to encourage the regulator to approve anti-competitive mergers justified by economies of scale, but then to enforce a ban on the abuse of a dominant market position.
If the Competition Authority were to accede to this request, merger control would in effect be sidelined. Such an approach would be contrary to current legislation and competition law in the European Economic Area. The Competition Authority cannot, of course, accede to this.
In support of his argument, Ragnar refers to exemptions from competition law that have applied to dairy processing plants since 2004. He states that these exemptions have resulted in a very significant reduction in processing costs, to the benefit of consumers and farmers.
Ragnar refers in this matter to a report „which Hagrannsóknir sf. conducted in 2020“. However, he fails to mention that he wrote this report largely himself for the Dairy Association (MS). Although Ragnar undoubtedly has a scholarly interest in agricultural affairs, he ought to have disclosed his involvement in this matter.
The Competition Authority has previously made comments on the assumptions of the aforementioned report, see e.g. Opinion No. 13/2021 and Opinion No. 20/2022 (see homepage). The report examines how the productivity of dairy processing plants developed between 2000 and 2018, attributing the largest part of the productivity gains to the 2004 legislative change. However, it is not known what proportion of the productivity increase during the period could have been achieved by utilising the opportunities for rationalisation, co-operation and mergers permitted by Articles 15 and 17(c) of the Competition Act.
In this connection, one may recall Report of the University of Iceland's Institute of Economics from 2015, which proposes that exemptions from competition law for dairy processing plants be abolished.
Ragnar's report also does not address MS's competition law infringements during the period, see judgment. Supreme Court of Iceland in case no. 26/2020, and the damage that these breaches have likely caused. The report then overlooks that the rationalisation in the sector can be at least partly attributed to competition provided by Mjólka ehf. to MS during the years 2005-2009.
Páll Gunnar Pálsson
The author is the Director General of the Competition Authority.
The article was first published in Morgunblaðið on Tuesday, 14 February 2023.
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