Press release: Measures to open markets and boost the economy

Actions following the Competition Authority's Report No. 2/2008, Robust development – opening markets and strengthening the economy, which was published at the end of November last year

• Last November, the Competition Authority published a report No. 2/2008 guidance on the response to the economic crisis and pointed to numerous measures to boost competition and accelerate the recovery of the economy.
• The parties were given the opportunity to make comments on the watchdog's analysis. The comments have been reviewed and corrections made to the report. No changes are being made to the Competition Authority's substantive assessment at this stage.
• Around 40 cases or investigations are currently under way or being prepared, which are directly related to the barriers to competition discussed in the report.
• The difficult position of businesses in many important markets makes measures to strengthen competition all the more urgent.
• There is international consensus on the importance of responding to economic shocks by strengthening competition.

The report – a review
Following the banking collapse last autumn, the Competition Authority published a detailed report (150 pages) on 27 November regarding the opening up of markets and the promotion of business activity and competition. The main conclusion of the report was that measures to maintain or enhance competition contribute to a faster recovery of the business sector and are therefore the right response to an economic crisis. The report went on to discuss the following in more detail:

• The experience of other countries regarding the importance of competition in economic crises and the lessons that can be drawn from it.
• An analysis of around 15 competitive markets, which highlighted the main barriers that new or smaller companies face when starting up or expanding their operations. It also pointed to measures that can remove or reduce these barriers.
• Measures that public authorities can take in order to open markets and maintain competition.
• Innovation and entrepreneurship, where the main obstacles were similarly highlighted and measures for improvement were suggested.

The report was sent to numerous parties for comment and is publicly available on the Competition Authority's website.

Comments and viewpoints have been taken into account.
Over 30 parties submitted their views and comments to the Competition Authority regarding the report. The vast majority of comments concerned specific aspects of the Competition Authority's coverage of individual markets. In many cases, respondents agreed with the Competition Authority's assessment, but a number of companies objected to the coverage of the markets in which they operate. Thus, several larger companies objected to the authority's assessment of their position in the relevant markets, which had worsened in recent months. In a few instances, corrections were requested to the report.

The Competition Authority has reviewed the comments and views submitted. The Authority does not intend to reconsider the competition assessment set out in the report at this stage, but will instead take the views in question into account when prioritising its work and conducting market analysis in the coming months. However, errors in the original report have been corrected and the amended report can be found on the Competition Authority's website.

The Competition Authority takes action to open markets and boost business activity
Following the publication of the report, the Competition Authority has taken a range of measures aimed at opening up markets and boosting business activity. These measures are based on the assessment set out in the report, taking into account the feedback received.

Around 40 cases or investigations are currently under way or in preparation, which are directly related to the barriers to competition discussed in the report. Many of these investigations are directed at specific companies, but the Competition Authority has also, in various instances, initiated proceedings aimed at issuing formal opinions under competition law to public authorities, calling for the reduction of certain barriers to competition.

One of the matters currently under consideration is requiring the government to assess the competitive impact of new laws and government regulations, in order to reduce the risk of unnecessarily restricting competition and thereby diminishing the efficiency of the business sector. The Competition Authority has written to the Prime Minister's Office, highlighting the importance of such a competition assessment being carried out when enacting legislation and government regulations. The letter proposes a straightforward method for conducting the assessment, which would use a standardised questionnaire. Having received the views of the Prime Minister's Office, a decision will be taken on whether it is necessary to issue a separate opinion on this matter.

It should be noted that the Competition Authority will need to prioritise these tasks in light of the many other matters within its remit. The outcome of the aforementioned investigations and the pace of proceedings will depend, among other things, on this prioritisation.

The difficult position of businesses in many important markets makes measures to strengthen competition all the more urgent.
The 15 competitive markets that the Competition Authority addressed specifically in the aforementioned report are of particular importance to consumers and businesses. These markets include financial services, insurance, food markets, the pharmaceutical market, the oil market, and media and telecommunications. Transport markets are also given special attention, both for the transport of goods and people, by land, air and sea. Transport markets are particularly important from the perspective of consumers and for the promotion of economic activity in most sectors.

The Competition Authority has been monitoring developments in the aforementioned markets since the banking collapse. It is clear that important companies in these markets (or their owners) are experiencing difficulties. Some competitors in most of these markets are now directly or indirectly controlled by one of the three state-owned banks.

In these circumstances, it is particularly important to consider the future competitive conditions in these important areas of business. Three points can be mentioned in this regard:

• It is important to prevent undesirable concentration and seek other solutions to resolve the problems of the companies concerned.
• Barriers preventing new companies from establishing themselves in the relevant markets or growing alongside larger companies must be reduced as much as possible. This is particularly important in markets where a temporary reduction in competition, e.g. through increased concentration, is unavoidable.
• The response of the three state-owned banks to the problems of individual companies or markets must take into account the long-term interests of consumers and businesses in active competition. It is crucial that they establish a credible procedure in this regard. The Competition Authority has issued recommendations to them on this matter, see opinion No. 3/2008, Decisions by banks and governments on the future of companies in competitive markets. 

There is a much greater risk of companies distorting competition through their actions during an economic crisis than in better times. The incentive to engage in illegal collusion or abuse a dominant position increases, and operational difficulties can diminish respect for the law. It is therefore crucial to ensure that companies in difficulty do not resort to measures that breach competition law. Such measures typically cause significant harm to society.

It is therefore very important in these circumstances that the legislature does not take any action that would reduce competition in these important markets. It is particularly important not to reduce the incentives for competition among financial institutions, as the knock-on effects of such measures into other areas of the economy can be significant. The public and businesses have a significant long-term interest in competition prevailing in the financial markets. The Competition Authority has clearly expressed these views in discussions on financial market issues in the Icelandic Parliament.

International consensus on the importance of responding to economic shocks by strengthening competition.
In the report Robust development – opening up markets and boosting business activity discusses, as previously mentioned, the experience of other countries regarding the importance of competition in economic crises and what lessons can be drawn from it. The report concludes that;

• Measures to limit competition prolong economic hardship and work against recovery,
• Measures to maintain or enhance competition contribute to a faster recovery of the economy.

In recent weeks and months, this lesson has also been clearly drawn in neighbouring countries. It is worth mentioning that the new US administration emphasises that measures to promote effective competition are an important part of the response to economic crises and that the mistakes made during the Great Depression of the 1930s must not be repeated, which consisted of weaken competition law. 

The EC Commission has stressed the same as other European competition authorities. At a conference in Bergen on 2 June, the Norwegian Minister for Competition, Heidi Grande Röys, with a special emphasis on strengthening competition enforcement in the current economic downturn and the need to learn the lessons from mistakes made during previous economic crises, to the detriment of society and consumers. Danish competition authorities have pointed out that active competition builds up the economy, not least in times of economic hardship. They have compared the economic crises in Japan and Korea in the 1980s and stated that measures in Korea to promote competition resulted in its economy recovering much sooner.