This information page holds information,
measures and viewpoints related to price increases in Icelandic markets and
competitive distortions that may emerge under the prevailing economic conditions. The Competition Authority also calls for
views and suggestions on possible barriers to competition and the observations that
related to this.
Below are various aspects
price increases and competition. This includes a published analysis of company margins on
three key markets.
Rising prices, all else being equal, reduces
purchasing power, reduces the public's quality of life and disrupts economic fundamentals in
household management. These views have, among other things, been reflected in collective bargaining.
Inflation, all else being equal, also creates uncertainty in the operation of businesses and reduces
from the momentum of the economy.
There are various reasons for that high inflation.
which has raged over the past quarter. Examples include the conduct of the war, setbacks in
supply chains worldwide, government responses to COVID-19 (including significant
interest rate cuts), high volatility in commodity markets and climate change.
In times of high inflation, it is natural to ask
whether competition is sufficiently active and supports the public interest and
of industrial life. These issues are under discussion in most of the world's countries about
these days.
On the market
Where competition is weak, there is a risk that companies will find it easier to go bankrupt.
passing on price increases to customers and consumers. Also that the increases go
back to a monopolistic environment when external conditions improve. The danger is therefore that
that the general public and the economy as a whole will be left to bear the consequences for a long time to come.
with a corresponding breakdown of assumptions, e.g. in collective agreements, household management or
operation of businesses. Then there is a risk of
that price increases also apply to goods and services that are not subject to the
deteriorating external conditions.
The vast majority of economic theories strongly support that
competition in markets is highly desirable, as it increases consumer welfare and
Contribute to efficiency in business life (The Competition Authority
(2019)). In countries where active
where competition exists, productivity can therefore generally be expected to increase,
economic growth and innovation are greater, product prices are lower and product availability is greater. Then contributes
competition for a faster recovery after economic hardship, reduces inequality and
boosts the level of employment. Due to the economic difficulties that the world's countries have struggled with
...in recent quarters, i.e. disruptions in supply chains, is also under discussion how effective competition can strengthen resilience.
economies, and make them better equipped
to tackle inflation.
Under the current circumstances, it is therefore
It is important to keep a watchful eye on any kind of barriers to competition, but
Barriers to competition can consist of the conduct of companies, the structure of markets or
the framework that the government provides for the markets.
In this connection, it must be borne in mind that
The Competition Authority does not undertake direct price control.
The supervision, on the other hand, is aimed at detecting possible breaches of
competition law and other barriers to competition which, among other things, affect prices.
In order to better analyse the effects of adverse
external influences on price development and identifying potential competitive distortions has
The Competition Authority has obtained information on the development of revenue and costs on three
key markets, i.e. the grocery market, the fuel market and the building materials market.
The data collection was carried out from 2017 to 2022. A more detailed analysis was conducted.
article for the information gathering on the supervisory authority's website, cf. News
on the 29th of April.
Discussion paper no. 3/2022 on the results of the information gathering is
available here.
The presentation provides further information on, amongst other things, the following:
Grocery market:
Building materials market:
Fuel market:
There are clear indications that increased competition
with the arrival of Costco, and the subsequent response from Atlantsolur and other oil companies,
has had a downward effect on the price of petrol. There, the countryside appears to be,
With the exception of Akureyri, however, they have remained and there have been few changes to the levies.
the sale of diesel raises questions as to whether there is a lack of competition there. Then raises
notice that profit on the grocery market has increased by almost a third on
the period 2017-2021, in addition to which the profit on the building materials market has increased in
several important product categories in recent years. The Competition Authority calls
after a discussion about the causes of this.
Before the Competition Authority takes further
Conclusions from the aforementioned information on the development of profit margins are for companies to draw.
to give the relevant markets, consumer advocates and other interested parties an opportunity
to present viewpoints and, if necessary, further information. In particular, viewpoints on the above are requested.
points and then whether it is possible to trace the changes that have occurred in profit and
profit margins to a lack of effective competition. See chapter 9 for more details.
hereinafter.
In recent quarters, interest rates have risen worldwide.
all due to the central bank's response to rising inflation. Has that, and inflation
significant impact on the cost of borrowing for households and businesses.
However, effective competition between financial institutions should minimise the impact on
individuals and companies, where a lower interest rate margin than would otherwise be expected can be expected in
an environment of effective competition. In that respect, it matters, among other things, based on
from a competitive perspective, that pension funds compete in the mortgage market alongside banks and
thus creating increased competitive pressure in that market.
In research on the financial market,
The Competition Authority has striven to reduce barriers to competition and have
the banks, among other things, committed to taking measures that reduce
switching costs and thereby make it easier for customers to create a lock-in. However
It could be better if it is to be effective. Thus, the banks are still criticised for
service charges for customers are still very opaque and difficult for
Consumers to access information that enables them to engage in consumer protection.
The performance of the four insurance companies was generally
good during the period 2015-2021. The return of the companies' securities portfolio, which
consisting of both bonds and shares, was exceptionally good as it stood
throughout a period of prosperity in the stock markets. During the period, it strengthened
the so-called composite ratio of the companies also, but it indicates how
The companies are well run.
Criticism has been raised in public debate.
high cost to individuals due to insurance premiums and alleged limited
competition between insurance companies which, in the opinion of many, has manifested itself in growing
Convergence in home insurance price offers. Among other things, it has emerged
Criticism of procedures in the communication between insurance companies and potential customers, e.g.
that insurance companies call for an overview of current insurance policies and premiums from
to those individuals who seek quotes from the relevant insurance company.
With the recent decision of the Competition Authority, No. 7/2022, Excerpt
Association of financial institutions under Article 12 of the Competition Act and decision-making guidelines
No. 17/2004, the organisation was fined for maintaining a common defence
for the pricing policy of insurance companies following criticism from the FIB. The SFF thus went
with an official representation regarding the pricing and services of member companies which
prevented them from each individually defending their pricing policy by
in an independent manner.
Called for
points of view
The Competition Authority
Seeks views and suggestions on the state of competition in the banking and
insurance markets which can, among other things, be useful for monitoring and prioritisation
investigations and other tasks in the monitoring of competition in this area.
When difficulties arise in the running of a business
It can be expected that interest groups in their field will take an interest in the matter. Competition law
However, place significant restrictions on business interest groups.
information dissemination and discussion of price increases. Otherwise, for example, there is a risk that
price increases also apply to goods and services that are not subject to worsening external
circumstances. These provisions are reflected in Article 12 of the Competition Act, but in accordance with
It is forbidden for an association of undertakings to decide on restrictive practices or to encourage them.
barriers to competition.
In light of the coverage by interest groups about
The Competition Authority publicly pointed out the expected price increases for autumn 2021.
dangers that accompany such coverage, cf. notification
on the authority's website, dated 22 October, and column,
15 October 2021. The Competition Authority then opened a special instructions page
on interest groups and competition rules.
Then took
The Competition Authority is also investigating the participation of the Association of Financial Institutions.
in a discussion about insurance companies' pricing of motor insurance premiums.
The organisation subsequently reached an agreement with the supervisory authority in March 2022, where they
admitted infringement of Article 12 of the Competition Act and previous decision no. 17/2004,
paid fines and took measures to prevent further breaches. The matter
is described in more detail in decision
No. 7/2022.
Price increases in recent terms have had
a significant impact on the assumptions of collective agreements. In collective agreements, it is therefore inevitable
to discuss how to protect the interests of wage-earners against rising
pricing.
It is recognised that effective competition is very important.
a matter of purchasing power and the pay of the working people. This was the subject of a conference which
The competition authority held a hearing on 31 August. The speaker was Fiona Scott Morton,
a professor of economics at Yale University in the United States, and she discussed the effects
Competition for economic growth and pay.
In her speech, Fiona discussed, among other things
research on the positive effects of competition and competition law on the labour market,
including the recruitment and terms of staff. It emerged that the results of the research suggested
so that companies with market power would use it in negotiations with
staff. The authorities would then have various ways to respond.
anti-competitive behaviour by companies towards staff and that there would be a need for active
enforcement of competition law in this respect.
A recording of the conference is available. here.
The above-mentioned viewpoints are well known here on
country. In her article in Vísbendingu, on 19 August 2022, Katrín discusses
Ólafsdóttir, an associate professor of economics at HR, on, among other things, the significance for the working population of
Strengthen competition oversight.
Instructions
granted in connection with the conclusion of collective agreements
In recent weeks, the Competition Authority has
to engage with the parties to the labour market on possible ways to do so
work against further price increases in important markets. In collective agreements with
Given the prevailing circumstances, it is therefore natural to discuss how it is possible to hold back.
further price increases.
Various options may be considered, including
The following:
i.
Promote increased consumer engagement
Comparable information on prices and
Commercial terms enable customers and consumers to make informed decisions.
decisions about where they direct their business and thereby generate additional
Incentives for competitors in the relevant markets to bid higher to reach
to pursue greater business or defend their position.
In various markets, such as the grocery market and
in financial markets, there are therefore opportunities to enhance customer retention with
to make information on prices and commercial terms more accessible. Is that in accordance with
in line with the Competition Authority's previous priorities. For example, the Competition Authority has
long-standing calls for banks to disclose information on service charges
more accessible. In decisions No. 22, 24 and 25/2017, Actions
to enhance competition in general commercial banking services, committed
the three commercial banks manage to make a living from transaction costs and contribute to
more effective competitive pressure from customers.
Further measures by the banks in this direction, e.g. for
The encouragement of the parties to the labour market is positive in this respect. Also, can
Standardised information on the prices of groceries would be a good thing.
Although transparency in markets is most often to the benefit
Falling to facilitate oversight by customers and consumers can have the same effect.
Transparency in some cases has given companies additional opportunities to coordinate prices.
and business terms and thus promote tacit coordination among themselves, consumers
and to the detriment of customers. This must be borne in mind when the government,
Interest groups or stakeholders in the labour market develop ways to increase transparency.
second.
Competitors' agreements to maintain prices
down
It may be considered that companies on
important consumer markets committed to not raising prices in
conformity with specified assumptions. In this context, it must be ensured that
agreements of this kind do not prevent competition to the detriment of the public and
company. Thus, any agreements between competitors on pricing
unlawful, unless they fulfil the exception provisions of Article 15 of the Competition Act.
Among other things, it must be borne in mind that contracts
not raising prices can have harmful long-term effects, e.g. if they
in some way restrict the independence of businesses and the initiative to act
better with its customers. Thus, agreements not to raise prices in
In practice, this means that a maximum price is agreed, which soon leads to price coordination. Therefore, it must generally be approached with caution.
methods of this kind.
In this matter, it is a question of whether an exception clause applies.
Article 15 of the Competition Act applies. It, among other things, discusses how it is possible
to ensure that corporate partnerships in this area involve greater benefits for
customers and consumers, rather than the general prohibition on cooperation.
The Competition Authority has issued detailed
guidelines on the application of the derogation clause of Article 15, but they are
available here.
three.
It is the government's responsibility to work against price rises.
In discussions with the parties to the labour market, the Competition Authority has
it was also pointed out that, under the prevailing circumstances, the government should consider that
the framework which is provided by them for important consumer markets, e.g. in legislation,
rules and public charging.
See chapter 8 below for more details on this.
Due to the current economic situation in the world,
The interplay between competition and inflation is widely discussed in the field.
competition authorities and other government bodies. On 13 June, the
The Competition Authority opens a conference on the interplay between competition, inflation and
purchasing power. The meeting was called in connection with
at a conference of the chief economists of competition authorities in Europe. In addition to them, took
Lilja Dögg Alfreðsdóttir, Minister of Culture and Commerce, Ásgeir Jónsson
The Governor of the Central Bank and domestic and international academics took part in the meeting. A recording of
The minutes can be found. here.
It emerged at the meeting that, in general, it could be said that
in the long term, competition would have a limited effect on inflation. Thus,
numerous other economic forces have a greater influence on the development of inflation. Then it would be
It is unrealistic to expect that the actions of competition authorities could prove to be a tool for extinguishing
Lower inflation in the short term.
However, it was also pointed out that on
markets where companies had market power could
corporate price increases have been greater than would otherwise be the case in the event of a demand shock. Then healthy
Markets in business, where active competition is allowed to flourish, become stronger.
We support the economies of nations. It emerged, for example, that a turning point had occurred in
the Icelandic economy's struggle against inflation, when markets were opened and
Competition rules were introduced with the entry into force of the EEA Agreement.
It was also pointed out that in times of inflation
if there is a risk that the price sensitivity of consumers and other customers will dull. That, along with other
create a breeding ground for increased barriers to competition, such as illegal collusion or
abuse of a dominant market position. Therefore, it is important to keep a watchful eye
with any kind of barriers to competition under the prevailing economic conditions.
Following the aforementioned morning meeting,
The Competition Authority discussed this topic at the annual cooperation meeting.
of the Nordic competition authorities, which was held in Iceland this autumn. Then has
The interplay between competition and inflation has been addressed in cooperation.
of European competition authorities and at the OECD.
As a basis for discussion at the meeting
A discussion paper, accessible, was issued by the OECD Competition Committee on 30 November last. here. Essentially, the same conclusions are drawn there.
and at the aforementioned conference of the Competition Authority. The findings state, among other things,
otherwise
„There are several contributing factors to the current
inflationary trends, including the ongoing supply and demand effects of COVID-19
pandemic and the Russian invasion of Ukraine. That competition is also being
What is mentioned in such conversations is worth competition authorities taking note of.
of, regardless of how much of the effect can be attributed to it.
Ultimately, the dynamics of inflation are complicated and
Competition authorities do not need to fully understand how competition
contributes to it. There are good reasons to consider competition an important
contributor to a long-term low inflationary environment, both in terms of reducing
the exacerbating effects of market power on rising costs and in overall better
market functioning.
Despite this, competition policy
should not be seen as a prominent short-term anti-inflation tool. Competition
Interventions take time, both to assess and implement, and rushing them could
create procedural unfairness and undermine the rule of law. Furthermore, despite
having the potential to significantly reduce prices, competition enforcement is
unlikely to be capable of reducing prices substantially enough on its own.
Interventions typically focus on a few markets, meaning that even strong price
The reductions will have a limited impact on the overall price level.
…
Competition authorities should then consider how best they can
play their important, but lower-key, role in restoring inflation to normal
times. This includes being aware of how inflation may affect competition
itself. Given that inflation affects pricing, it could increase the risk of
coordinated price announcements from firms, as well as undermining competition
by raising consumer search costs.
Furthermore, while for the most part it may be business as usual
for authorities, it is worth considering how their mix of work might best
contribute to lowering inflation, provided this does not undermine their
longer-term effectiveness. For example, there may be merit in minor changes to
how different potential sets of action are prioritised. As noted in the
discussion above, this should not be seen as a significant departure from
usual, but authorities may wish to consider placing more emphasis on actions
that induce faster pricing effects, have spill-over effects in as many markets
as possible and seek to deter conduct that appears to exacerbate inflation.
Advocacy and enforcement activity from authorities may also
A revised focus is needed. This includes being aware of risks to competition from
government interventions, such as price controls, as well as being wary of
certain kinds of conduct, such as coordinated price announcements. It is also
Worth considering how pressure on competition authorities to act on inflation
may provide an opportunity to pitch the benefits of competition to a wide
audience. This could include a suitably cautious note about the importance of
competition policy in fighting inflation over the longer term.“
The role of the Competition Authority is to spot
to address and respond to any potential competition barriers that may be revealed in them
the current economic situation.
Barriers to competition which may result from or
The causes of price increases can be of various kinds. The following are listed
Key competition barriers and provisions of competition law to consider:
In times of rising prices and the prevailing economic conditions
It is important that the government considers on a broad basis how it is possible to
to work against price rises and thus inflation. Among such measures is the strengthening of
competition in as many areas as possible. There a diverse range of ministries and
institutions, in addition to the legislature, have a role to play. The following may be mentioned in this regard
relationship.
It must be borne in mind that
tariffs on imported goods, exemptions from competition law and more
Barriers to entry are unequivocally intended to raise the price for the relevant party.
products.
Last November, the focus was
The Competition Authority's priorities for 2023–2025 have been revised. The priorities are
available here.
The priorities include, among other things
Economic outlook and challenges ahead. Among other things, the following is stated:
„8. The war in Ukraine
has greatly weakened the world's economies. The OECD forecasts 3.1% economic growth in
...but that the world economy will grow by only 2.25 per cent in 2023. Inflation will be
likely around 8% in the world's major industrialised countries in 2022, but could be around 6.5% in the year
However, these forecasts are subject to considerable uncertainty. An energy shortage in Europe could
further dampening economic growth and worsening the inflation outlook.
9. A turbulent period in the Icelandic economy
better. In the summer forecast of Statistics Iceland, it is forecast that economic growth will be 5.1% in
years and 2.9% in 2023. Inflationary outlook has worsened here as
elsewhere, and Statistics Iceland forecasts that inflation will rise by 7.51% in 2022, but that
inflation will be 4.9% in 2023 and 3.3% in 2024. Rising house prices,
Foreign price increases and increased tension in the economy are the main contributing factors.
…
11. Pay negotiations are on the horizon and
agreements on the general and public labour market, but they can affect
economic development in the country and the competitive position of companies. But the behaviour of companies and
Consultation can no less shape the position of wage-earners, as scholars have shown.
Oh.
…
22. In these circumstances
It is important that the government and business work against any kind of
barriers to competition that can still harm the public interest and the economy
Rather. This is particularly true in markets characterised by a lack of competition and where products
the general public greatly, e.g. the grocery and financial markets. Has the Competition Authority
in recent months have held discussions and gathered data that can shed light
barriers to competition in the current circumstances. That work will be continued.
It is, however, for other institutions to keep an eye on the development of price levels,
but that division of labour is natural, as it is important that the Competition Authority
to perform solely the function assigned to it by law.“
The Competition Authority calls for points of view,
information and suggestions on the above from companies in the relevant sector
markets, consumer advocates, governments and other interested parties. This includes a request for information and viewpoints.
or suggestions for the following:
Following the publication of a discussion paper number.
3/2022, Margin development 2017-2022 in key markets, called
The Competition Authority after views from companies and trade unions and
consumer and held meetings with several parties. Subsequently, the supervisory authority
some conclusions that were put forward at the meeting National Economic Council
9 February 2023.
The presentation to the National Economic Council includes, among other things, an overview.
overview of the viewpoints that had been received. Also presented are instructions to
government authorities on ways to strengthen competition and thus counteract
further price increases. The presentation is available here.
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