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In public discussion of the food market, both now and in the past, it has repeatedly been claimed that the competition authorities have permitted consolidation in food retail, most recently in connection with discussions about changes to the dairy market. Thus, it has been argued that the competition authorities, among other things, allowed Haga to become the market leader in this sector of the food market. In particular, it has been argued that the competition authorities failed to prevent the merger of Bonus and Hagkaup, and later the merger of Baugur (now Haga) and the 10-11 stores.
Both of those are wrong. Shall I explain that in more detail?.
The merger of Hagkaup and Bónus, as defined by competition law, took place in November 1992. The Competition Act came into force on 1 March 1993. When the merger took place, there were no provisions in Icelandic law that allowed the authorities to restrict mergers of this kind. For that reason alone, the competition authorities were never in a position to make any objections to the merger.
This is discussed in the opinion of the Competition Council. No. 2/1998 Under the current competition law from 2005, the Competition Council and the Competition Authority were abolished, and the implementation of competition law was entrusted to a new institution, the Competition Supervisory Authority., in connection with the then-proposed changes in the ownership of the companies and their merger into a single company. The opinion concludes that the changes would not have resulted in „further market concentration or further effects on the competitive structure of the markets in which the undertakings operate, beyond that which had already occurred by the time the competition law came into force on 1 March 1993”. The proposed agreements could therefore not be examined under Article 18 of the then-applicable Competition Act, which provided for measures in respect of restrictive mergers.
The competition authorities also had no legal grounds to intervene in the merger of Baugur (now Hagur) and the 10-11 stores (Vöruveltan ehf.) in 1999. The merger was discussed in Competition Council decision no. 18/1999.
The merger in question would, in the competition authority's opinion, have resulted in Baug's (now Haga's) market share increasing from 50% to 57-58%. The market share therefore increased by 7-8 percentage points. However, the Supreme Court had, shortly before, annulled the intervention of the competition authorities in the merger of Flugfélag Íslands hf. and Flugfélag Norðurlands hf. [Case no. 500/1997, Flugleiðir hf. v. the Competition Council] The Supreme Court's main argument was that the then-current competition law did not provide for intervention when a dominant market position was strengthened by a merger or acquisition, at least not if such a strengthening was not considered significant.
In that case, it concerned a company with an 85.1% market share (Icelandic Airlines) merging with a competitor that had a 51% market share (Northern Airlines). There was only one other competitor on the market, which had a 10% market share. Given that franchises had limited the growth of Northern Airlines and that these franchises were abolished at the time, Northern Airlines was a much more significant competitor than its 5% market share would suggest. In the competition authority's view, the harmful effects of this type of merger were even greater, and the need for intervention was correspondingly more urgent, than when the merged entity's market share is smaller and there are more competitors in the market, as was the case with the merger of Baug and 10-11. Furthermore, there were clearly significant barriers to entry in the airline market.
Referring to the aforementioned Supreme Court judgment, the Competition Council concluded that there were no legal grounds for intervention in the merger between Baugur and 10-11.
It should be noted that the above-mentioned cases led the legislature to amend the merger provisions of the Competition Act, by law No. 107/2000 on amendments to the Competition Act. Thus, the explanatory memorandum to the bill which became that Act states [Bill on the amendment of the Competition Act, No. 8/1993, as subsequently amended, Doc. 770 – 488.] :
Developments since the enactment of the Competition Act have made it necessary to amend section 18 of the Act. Following the Supreme Court's judgment in case no. 500/1997, Flugleiðir hf. v. the Competition Council, it is unclear to what extent Article 18 can be applied when a dominant undertaking increases its market dominance by acquiring a competitor. On the basis of this uncertainty, the Competition Council, in decision no. 18/1999, did not consider there to be legal grounds to intervene in Baug's takeover of Vöruveltan (the 10/11 grocery stores). This situation creates a risk that a dominant undertaking can eliminate competition by acquiring its smaller competitors, one after another, provided that there is no significant increase in market dominance in each case.
From the foregoing, it is clear that the competition authorities could not, under the law in force at the time, block the merger of Baugur and 10-11.
Furthermore, it should be emphasised that competition law does not provide the Competition Authority with specific powers to restrict a company's internal interest rates. Last March, the Minister of Economy and Commerce presented a bill to the Althingi proposing amendments to the competition law. The bill, among other things, proposes that the Competition Authority be given the power to break up dominant undertakings if it is shown that their position in the market seriously distorts competition. The bill has not been passed..Companies can therefore, through internal growth, enter or strengthen a dominant market position in the relevant market, without the possibility of intervention by the Competition Authority. One of the most important indicators of a dominant market position, and its development, is a company's market share in the relevant market. If the market share of companies in the food retail market is examined for the country as a whole, the following trend can be seen for the years 2005 to 2008:
| Company | 2005 | 2006 | 2007 | 2008 |
| Behaviour | 49% | 51% | 52% | 55% |
| Purchase order | 21% | 20% | 20% | 19% |
| Co-op | 15% | 15% | 16% | 15% |
| Other parties | 15% | 14% | 12% | 11% |
| Total | 100% | 100% | 100% | 100% |
The table shows that the largest retailer has significantly increased its market share in recent years, without this having been achieved through corporate takeovers.
It is also important to bear in mind that a dominant market position is not, as such, prohibited under competition law. However, a company is prohibited from abusing its dominant market position, and such abuse can be subject to significant penalties.
In recent quarters, the Competition Authority has imposed heavy penalties on dominant undertakings in many important markets. Suffice it to mention the following:
Páll Gunnar Pálsson
Director-General of the Competition Authority
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