The Federation of Industry (SI) and the Federation of Trade and Services (SVÞ) have acknowledged collaborating on how companies within their respective organisations handled price changes for pre-packaged food products, in connection with the reduction of value-added tax from 14% to 7% and the abolition of excise duties, which came into effect on 1 March 2007. Both organisations acknowledge that it was decided at their level how to handle the price change in connection with this tax reduction, for products that are labelled by producers at the point of packaging. In this regard, it was decided how the specific loss of revenue would be shared among the relevant members of the associations. SI and SVÞ have acknowledged that they breached competition law in this respect. The associations have, however, stated that the intention was not to restrict competition, but merely to pass on price reductions to consumers.
The Competition Authority launched an investigation into the aforementioned actions by SI and SVÞ following a news report published in the media on 21 February 2007, which stated how parties within SI and SVÞ would jointly respond to the aforementioned tax reduction. In November 2007, the Competition Authority issued a letter of objection to the associations, concluding that they had infringed competition law.
SI subsequently approached the Competition Authority and requested that an agreement be reached in the matter. Negotiations led to a settlement with the association on 16 January 2008. The settlement entails SI admitting to having breached Article 12, in relation to Article 10, of the Competition Act, and agreeing to pay a government fine of 2.5 million króna for the breach. SVÞ submitted comments on the Competition Authority's statement of objections on 17 December. On 28 January, however, the association requested that a settlement be reached in the matter. The discussions led to a settlement with SVÞ on 4 February 2008. The settlement entails SVÞ admitting to having breached Article 12, in light of Article 10, of the Competition Act, and agreeing to pay a fine of 1 million kr. for this breach.
SI and SVÞ are associations of undertakings, and Article 12 of the Competition Act prohibits such associations from engaging in any anti-competitive cooperation. The prohibition in Article 10 of the Competition Act on restrictive horizontal co-operation means that companies must independently decide how they behave in the market and how they price their products and services. Business associations may in no way undermine the independence of their members. In this regard, it is important to note that in the public interest of price competition, competition law prohibits all price-fixing, regardless of whether the agreement is aimed at raising or lowering prices. Price-cutting collusion can, for example, have the harmful effect of resulting in a smaller price reduction than would otherwise be the case.
The measures taken by SI and SVÞ ensured that almost all suppliers (producers) of cheese and meat products, and retailers of these goods, would simultaneously reduce the prices of the aforementioned products by the same proportional amount. The initiative of these parties, i.e. the companies, to decide for themselves how they would respond to the aforementioned changes was therefore taken away from them, and at the same time their competitive independence was reduced. The Competition Authority is of the opinion that the actions of SI and SVÞ had the effect of rendering the competitive opportunity that arose for market players, such as to compete with each other on price following the aforementioned changes to value-added tax, effectively null and void. The changes relating to the VAT reduction could have led to an even greater reduction in price and fiercer price competition for the relevant food products, had the aforementioned actions by SI and SVÞ not taken place.
In assessing the amount of the fines, it was taken into account, among other things, that the infringements were committed over a short period. It was also taken into account that SI and SVÞ requested settlement negotiations and have unreservedly admitted infringements of competition law. Through these actions, the associations have facilitated and shortened the investigation and proceedings of the competition authorities, which has a positive competitive effect. It is also taken into account that both associations have stated in the case that they will adopt rules to ensure that cooperation between their members is always compatible with competition law. The associations have also agreed to comply with orders designed to promote competition. SI and SVÞ have agreed to ensure that within the associations, there will be no discussion of or exchange of information on prices, price developments, terms of trade and other sensitive commercial or competitive matters in a way that could reduce the commercial independence of members and distort competition.
SI is specifically rewarded for being the first to come forward and admit its involvement in a breach of competition law. It is generally important that companies or organisations which take the initiative to admit such breaches or report them receive a special reduction in fines. It should be borne in mind in this case that SI's turnover is much greater than SVÞ's. This is the reason why SI's fine is higher than SVÞ's.
Decision No. 10/2008.
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