Article no. 6/2012.This article is based on a speech given by Páll Gunnar Pálsson, Director-General of the Competition Authority, at an open meeting of the Business Association on the Competition Act and its enforcement, on the occasion of the publication of the association's report on the same subject.
The Federation of Icelandic Businesses has published a report on the Competition Act and its implementation, proposing various amendments to the Act and to the operations of the Competition Authority. The Authority welcomes the discussion of these matters, as it highlights stakeholders' priorities and sharpens the implementation of the law.
In the opinion of the Competition Authority, the report's recommendations somewhat favour larger companies. The report and its recommendations call for a broader discussion about the competitive landscape in Iceland and the conditions for new and smaller companies to grow and prosper. This article outlines some perspectives on the matter.
There is greater concentration in our competitive markets than is the case in the countries we often compare ourselves with. The fact that there are few competitors in the running in the competitive markets of a small economy is, in many respects, a matter of course. Oligopoly is not illegal in itself. However, it is undesirable because it is a breeding ground for those who wish to engage in illegal collusion or abuse a dominant market position at the expense of competitors, consumers and society as a whole.
It also affects the development of competitive markets that markets here face greater geographical isolation than comparable markets in neighbouring countries.
Economically, we also have a unique identity, with a special currency and other economic characteristics that set us apart from others. This was the case before the crash, and it is even more so afterwards. The long-standing capital controls bear irrefutable witness to this.
On top of this, many companies in competitive markets are struggling. Following the banking collapse, the three recapitalised commercial banks came to hold a key position in Icelandic business life. Immediately after the collapse, and in close cooperation with the Business Council, the Competition Authority issued, in a special opinion, ten commandments concerning the decisions of banks and the government on the future of companies in competitive markets. That work was the beginning of the Competition Authority's ability to impose detailed conditions on numerous takeovers of companies by the banks in order to protect competition in various key markets.
These measures have accelerated the resolution process for the banks. Most of the companies taken over by the banks have now been sold. However, this does not mean that all problems have been solved. In a report from the Competition Authority from this spring, which bears the dramatic title „Corporate Restructuring – Phoenixes or Zombies?“, it is pointed out that many Icelandic companies are heavily indebted by international standards. It is obvious that highly indebted companies can neither provide competition for rivals nor operate efficiently in the market. It is also clear that the banks' influence over such companies remains significant.
2. The actions of the Competition Authority reflect a difficult competitive situation and stem from the market itself.The difficult competitive conditions described above are well known to corporate executives. Almost a year after the crash, a survey was conducted on what business leaders and the general public thought of the regulator's oversight. It was striking that 80% of respondents in the Gallup corporate board considered that the Competition Authority should provide greater oversight of companies and public bodies. Around 90% of the general public agreed.
The business community itself also agreed. The organisation's industrial policy, from January 2009, specifically addresses competition issues. It states that competition plays a fundamental role in promoting innovation, reform and progress, and is therefore an important pillar in the reconstruction of Icelandic industry.
This understanding is also reflected in our interactions at the Competition Authority with the country's businesses. Since the crash, the number of cases before the authority has increased by almost 70%. It would in fact have doubled if the authority had not had to reject complaints and close cases as part of measures to respond to excessive pressure and insufficient funding.
All of these matters have one thing in common: they are based on complaints, suggestions or other information from those who work in the relevant markets. Indeed, the regulator's investigations do not originate in the minds of those of us who work there. They are primarily generated through our interactions with the country's businesses and with you, who work in the business community. The Competition Authority's role is to receive and gather information about the state of competition markets, assess it, and take action when necessary.
Without pharmacists in Akranes, the Competition Authority would not have been able to place limits on a large pharmacy chain, creating space for smaller players in the market. Without entrepreneurs in airport and passenger flight services, there is a risk that these sectors would still be monopolised. Without complaints and suggestions, major barriers to competition in the payment card market would not have been removed. The same can be said for the barriers to competition that have been stopped in the food market, in telecommunications or in the sale of fuel, to name but a few examples. Merger intervention is of the same ilk. The Competition Authority has never intervened in a merger without first thoroughly examining and assessing the views of those operating in the relevant market.
These measures are therefore all aimed at securing the interests of business, consumers and society as a whole from effective competition.
The proposals put forward by the Confederation of Industry in its report, „The Competition Act and its Enforcement“, raise many questions when viewed in this light. According to the report, the proposals are presented as the views of the business community. Upon closer inspection, it becomes clear that the main substance of the proposals is to weaken the enforcement of competition law. It is obvious that this is a ploy to favour larger companies and those who wish to operate in peace from the Competition Authority and competition law.
It would appear, then, that the Federation of Icelandic Industries wants to relieve large companies of the responsibility of defining their own position and power, by obliging the Competition Authority to pre-determine which companies are in a dominant market position and what they are permitted to do.
The organisation wants to limit the Competition Authority's ability to intervene in anti-competitive mergers by raising the turnover thresholds. They would rather that anti-competitive mergers go ahead than the regulator be given the opportunity to remedy a procedural flaw in a decision. It remains to be seen how this would be compatible with the interests of member companies which, for example, are dependent on the merger parties for supplies.
The organisation wants to repeal from the Competition Act the newly acquired power to mandate changes to the conduct and structure of markets. A power that threatens only those who seek to profit from barriers to competition and, possibly, monopoly.
They do not want the Competition Authority to be able to challenge the decisions of the Appeals Board in the courts. And they want to limit the Authority's powers to seize data during searches, powers that have been thoroughly and repeatedly tested in the Icelandic courts.
All these proposals, in their nature, work against the interests of those companies that need competition law to enter markets and to grow and prosper alongside larger companies. They work against the interests of consumers and society in having active competition.
And all the proposals seem to be put forward under the pretext of reducing uncertainty arising from capricious, flawed and over-ambitious competition law enforcement. This overlooks what was stated above: that competition law investigations stem, in one way or another, from the market itself. It is the member companies of the Federation of Icelandic Industries that often demand that the Competition Authority halt the actions of dominant firms which are said to threaten all competition.
The organisation's proposals will not be scrutinised in detail here. I shall therefore content myself with outlining two points of complaint which we have noticed are of some concern to the business community.
The first is the call for the Competition Authority to guide the market rather than punish. The Authority agrees on the importance of utilising the knowledge it generates in order to guide the market. The Authority has made great efforts in this regard in recent years. We maintain an extensive website, where we publish news, articles, reports, opinions, decisions and various educational materials. The website was updated this week to make it even more user-friendly. We have also recently set up Facebook and Twitter accounts. There, we will be posting a range of more light-hearted educational material in addition to our regular content. We have also recently asked business associations for access to mailing lists for their member companies, in order to facilitate direct communication. Some of the associations have responded favourably, while others have unfortunately been unwilling to grant us this access.
The Competition Authority has also published a number of reports on the competitive conditions in various markets, both on its own and in cooperation with the competition authorities in the Nordic countries. These reports have often been followed by well-attended conferences.
The grocery market is a good example of a market that the Competition Authority has repeatedly tried to guide. The experience in that area, as in others, is unfortunately, however, that the companies concerned have generally shown little interest in, or made use of, those guidelines.
It should not be forgotten that previous decisions of the Competition Authority are supposed to provide the market with rich guidance, if companies make the effort. The report from the Confederation of British Industry is highly critical of the fact that the regulator does not guide companies on who is considered dominant in the market and what they are permitted to do. On the regulator's website, one can find recent analyses of dominant market positions in a multitude of markets. In many cases, there is also a detailed, well-reasoned guide on what such companies are and are not permitted to do.
The problem, therefore, hardly lies in the market not being sufficiently informed on this matter. The problem is much more that in this country, companies generally do not acknowledge their dominant market position or speak out of turn. The Competition Authority has defined numerous companies as being in a dominant market position in recent years. Few of those companies acknowledged their position, or have done so subsequently. And this is despite the fact that the evidence in some of the cases shows that the management of certain companies was fully aware of their position and exploited it.
It is worth emphasising here that it is the companies themselves that have the best information on whether or not they are dominant in the market. If a manager believes they can use the company to drive a competitor out of the market, then they also know they must be careful not to do so. What he must not do is fairly well known. For example, he must not enter into exclusive purchasing agreements, he must not undercut, and he must not launch specific attacks directed against a small competitor. But he may compete on a fair basis.
The second point I wish to mention specifically is the call for faster proceedings. The Competition Authority certainly understands this demand. Admittedly, the resolution of competition matters often takes a considerable amount of time, not just here, but also in other countries. However, there are two things that make this difficult for the Competition Authority. On the one hand, it is a fact that businesses are often prepared to go to some lengths to prolong the proceedings. Unfortunately, there are examples where the authority has had to issue two statements of objections in the same case due to misleading and, in some cases, incorrect information provided during the proceedings.
However, it cannot be denied that the cuts to funding after the crash have made our task difficult. At the end of last year, the Ombudsman of the Althingi launched a special investigation into the handling and speed of the supervisory authority's proceedings, following complaints from companies that considered the investigations were proceeding too slowly. He obtained detailed information on all cases that had been under consideration since 2008. The conclusion was that there was no reason to make any observations about the supervisory authority's procedures in handling cases, as they stood. However, he pointed out that a reduction in funding had meant that the authority could not conduct its work in a manner consistent with the administrative law rules on the speed of proceedings.
Based on the draft budget for next year, the authority's funding for its core functions will have fallen by a quarter between 2008 and 2013. This does not include minor funding for additional tasks allocated in the 2011 budget.
If the Federation of Icelandic Industries genuinely wants to promote faster proceedings, it would be welcome if it were to advocate for increased funding for the supervisory authority. The ideas in the report that higher turnover thresholds in merger cases would increase the authority's scope are completely unrealistic, as it would only save a relatively small amount of time.
6. The corporate culture of competition – Business organisations must join forces with the supervisory authoritiesIt is impossible to leave this topic without turning one's thoughts to corporate culture in Iceland. Somehow, there is a deeply-rooted attitude in the business community, particularly among larger companies, that competition law and its application should be approached with reservations. A company's dominant market position must never be acknowledged. Very few companies in Iceland have seen a benefit in championing their competition policy. Worse still, business associations have shown little interest in this and have instead tended to foster scepticism towards competition law. However, not all organisations can be put in the same bracket. Some business organisations have at times spoken out clearly in favour of applying competition law.
I was reminded of this quite a lot this summer when I received an email from a lawyer here in town. He had been contacted by the director of a company who, on a business trip around the country, had realised upon arriving at his accommodation that the managing director of his main competitor was staying in the room opposite. Our traveller became considerably uneasy about this and immediately contacted his solicitor. He seriously considered packing up, late in the evening, with his family and finding another place to stay. In the end, the lawyer decided to immediately report this unfortunate incident to the Competition Authority.
The response was spot on. Interestingly, however, the person involved was foreign. In fact, this is the first and only time the Competition Authority has been aware of competitors going on a fishing trip, a golfing trip or a hiking trip together here in Iceland. Would an Icelandic executive in the same position react in the same way? The lawyer who sent the notification, at any rate, could not help apologising. He therefore made a point of stating that he recognised that such matters were surely not common, but that his client was used to operating in larger markets where such issues are taken seriously. Where such issues are taken seriously.
Here, the Federation of Icelandic Businesses could truly roll up its sleeves and join forces with the Competition Authority. A quick glance at the organisation's homepage is actually heartening, as one comes across a button labelled 'Competition Policy'. This feeling is short-lived, however, as the last post under that heading is from February 2007. Most of the content on this page is about competition laws that are too strict, too strict a level of scrutiny. There are no guidelines on complying with competition law, codes of conduct on competition matters, or any other similar encouragement for businesses.
The Competition Authority calls on the organisation to make a change here. To row in tandem with companies that want to grow and prosper in healthy competition. Put the other shoe on. Tie the knot so that being a member of the organisation is a mark of quality for a company in the field of competition law. Do not foster suspicion. And follow the example of sister organisations in the Nordic countries and elsewhere. Svenskt näringsliv has a public policy of actively combating collusion and encourages companies to establish a competition policy. The same applies to the sister organisation in Norway. Useful examples of this can be found widely online, where business associations send strong messages to their member companies. For example, company managers are reminded that competition law applies even at dinners with rivals, and members are informed that breaches of competition law can lead to expulsion from the association.
The Competition Authority will welcome cooperation on this basis, which aims to strengthen the culture of competition and the enforcement of competition law.
Páll Gunnar Pálsson
Director-General of the Competition Authority
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