In the decision of the Competition Authority No. 64/2008 On 19 December 2008, it was concluded that Hagar (which operates the Bónus supermarket chain, among others) had abused its dominant market position by taking actions directed against its competitors in the food market, thereby breaching competition law. The Competition Authority considered that the infringement was likely to cause significant competitive harm to business and the public. The Competition Appeal Board reached the same conclusion in its ruling No. 2/2009 On 4 March 2009 and on 19 February, the Reykjavík District Court confirmed a ruling of the appeals board. In its judgment today, the Supreme Court of Iceland has confirmed Haga's infringement and that the company must face sanctions for it.
Hagar has argued in court, among other things, that the company is not dominant and that its actions did not constitute an infringement of competition.
However, it is noted 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 at the expense of other competitors. In the capital region, the company had a market share of around 60%. Its competitors' market share was 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. Undercutting essentially involves a dominant company selling products below cost. Such abnormal 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 company. Even though consumers may benefit in the short term from receiving a product or service at a very low price, an undue price cut by a dominant undertaking can distort competition. Such a disruption leads, in the long term, to a reduction or weakening of competitors, higher prices for consumers, lower service or quality, and a reduction in consumer choice.
Haga's breaches occurred during the so-called price war between discount supermarkets, which began when Krónan, owned by Kaupáss, introduced a price cut of up to 25% on the most common categories of groceries. Haga 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 maintain and unnaturally 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 supermarkets owned by Kaupás (Krónan) and Samkaup (Nettó and Kaskó), from competition and thereby weaken these companies as competitors in the market. Given the seriousness of Haga's infringement and the significant consumer interest in competition in the food market, the Competition Authority considered a fine of 315 million krónur to be appropriate. The Competition Appeals Board reached the same conclusion, and it was upheld by the Reykjavík District Court.
In its judgment today, the Supreme Court has upheld the District Court's finding that Haga's offence was particularly serious. The court finds that with these actions, Hagar harmed the interests of consumers and that the company must have known they were unlawful. The court agrees that a 315 million króna administrative fine was an appropriate penalty.
„This Supreme Court judgment is of great importance for the development of competition law in this country. It sets an important precedent for companies in competitive markets to follow. The judgment means, among other things, that it can be costly for dominant undertakings to abuse their strength and restrict competition, to the detriment of consumers and business life.“, says Páll Gunnar Pálsson, Director General of the Competition Authority.
Background information:
According to Article 11 of the Competition Act, any abuse of a dominant position is prohibited, and the penalty for such an offence is an administrative fine imposed by the Competition Authority. The fine imposed on Haga is the highest ever imposed in Iceland for an infringement consisting solely of the abuse of a dominant position. In recent years, the Competition Authority has imposed substantial penalties on other dominant undertakings in many important markets. For example:
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