In its decision of 19 December 2008, the Competition Authority concluded that Hagar (which operates the Bónus retail chain, among others) had abused its dominant market position through actions aimed at its competitors in the food market. The Competition Authority considered that Hagar's breach of competition law was likely to have caused significant competitive harm to business and the public. This decision was upheld by the Competition Appeals Board on 4 March 2009.
Hagar sued the Competition Authority in the Reykjavík District Court and demanded that the aforementioned decision be annulled or the fines overturned. In its judgment today, the Reykjavík District Court rejected all of Hagar's claims in the case. The judgment states the district court's assessment that Haga's infringement was particularly serious.
It is stated in the case that Hagar has a dominant market share in the food market. Nationwide, Hagar's share was over 50%. This share of Hagar's has grown significantly in recent years at the expense of other competitors. In the capital region, the company had a market share of around 60%. Its competitors' market shares were much smaller. In light of this share, among other factors, it was considered that Hagar was in a dominant market position.
Haga's breach of competition law was considered to consist of so-called below-cost pricing that the company resorted to in 2005 and 2006. Predatory pricing essentially involves a dominant firm selling its products below cost. Such anti-competitive pricing can, among other things, lead to smaller competitors being driven out of the market or to a reduction in price competition with the dominant firm. Even if consumers benefit in the short term from receiving a product or service at a very low price, an abnormal price reduction by a dominant undertaking can cause a distortion of competition. Such a disruption leads, in the long term, to fewer competitors, higher prices for consumers, lower service or quality, and fewer consumer choices.
Haga's breaches occurred during the so-called price war of discount supermarkets, which began in late February 2005 when Krónan, owned by Kaupáss, introduced a price reduction of up to 25% on the most common categories of groceries. Hagar abused its dominant market position by selling milk and dairy products below cost in its Bonus stores for a long period. The main dairy products were sold at a substantial loss, which led to the Bonus stores as a whole operating at a loss. The Competition Authority therefore concluded that the pricing constituted an unlawful below-cost sale and that the conduct was intended to, and did, unlawfully maintain and strengthen Haga's position in the market for the sale of groceries in supermarkets. Furthermore, the Competition Authority's investigation showed that the infringements were extensive. Haga's actions were intended to exclude its main competitors, such as the discount stores owned by Kaupás (Krónan) and Samkaup (Nettó and Kaskó), from competition and thereby weaken these companies as competitors in the market. Given the serious nature of Haga's infringement and the significant consumer interest in competition in the food market, the Competition Authority and the Competition Appeals Board considered a fine of 315 million krónur to be appropriate.
Hagar appealed the Competition Appeals Board's decision to the courts, demanding that it be overturned or the fines significantly reduced. In its ruling today, the District Court has upheld the decision of the Competition Appeals Board. The court finds that Hagar harmed the interests of consumers with these actions and that the company must have known they were unlawful. The court agreed that the 315 million króna administrative fine was a proportionate penalty. This is the highest fine ever imposed in Iceland for the abuse of a dominant market position.
The District Court ordered Haga to pay costs, totalling 1,750,000 kr.
See review District Court of Reykjavík.
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