In discussions about competition matters, it is often claimed that competition law is difficult to understand and that it is hard for companies to comply with the law. Heiðrún Lind Marteinsdóttir, a lawyer at the LEX law firm, strikes this tone in an article in Morgunblaðið on 23 October.
The article largely suggests that the law's prohibition on the abuse of a dominant position is incomprehensible and that the competition authorities are reluctant to guide companies.
But is it really so complicated to follow the rules that have been in force in this country and, for the most part, abroad for a long time? In answer to that, I intend to outline here some key points that must be borne in mind if abuse of a dominant market position is to be avoided.
All managers know what product or service their company offers. They also know roughly what product or service they are competing against.
Management also has an understanding of the geographical area in which the company competes. It is common for the market to cover Iceland, but it rarely extends beyond the country's borders. In consumer markets, such as the grocery market, the market can often be assumed to be a smaller area, for example a town or village.
Certainly, issues may arise here which would ultimately need to be resolved in the courts. If a company is in any doubt, it is sensible to err on the side of caution, i.e. to assume that the market is narrower rather than broader.
When assessing whether a company is dominant in a market, market share is a crucial factor. Although companies do not always have access to precise information on this, they can often rely on publicly available figures. Consequently, most companies can easily estimate their share within a certain range.
If market share is below 30%, a dominant market position is very unlikely. If it is above 50%, however, a dominant market position is likely. In the grey area, i.e. 30-50%, further factors need to be considered, such as financial strength compared to competitors and whether the company enjoys a strong position in related markets.
There is nothing wrong with a company being dominant in the market. However, this places certain duties of care on the company and its management. A dominant company may meet competition, but it must not destroy it. The company should compete on the basis of operational performance, but must not sacrifice quality in order to harm a smaller competitor.
Numerous rulings by competition authorities and courts show that dominant undertakings should, for example, avoid selling a product below cost, discriminating between customers, or tying them into long-term business with guaranteed incentive schemes or discounts.
The manager of a powerful company is always on the wrong track if he takes action that he himself believes could lead to a smaller competitor's downfall. In previous decisions by the Competition Authority, there are far too many instances where the evidence shows that company executives were aware of their dominant market position, yet still devised plans to harm a competitor. And they carried out those plans.
The analogy with the large vehicle is apt here. For example, lorry drivers bear a great responsibility on the road, which is reflected in the fact that they need to hold a special licence to drive.
In traffic, there is a specified maximum speed, but the discretionary rule also applies that „speed must always be adapted to the prevailing conditions, with particular regard for the safety of others“.
A lorry driver who drives down the Kambana at the permitted maximum speed in fog and on treacherous, slippery roads, regardless of the size of the vehicle, is likely to place other road users in grave danger. This is particularly true for smaller vehicles coming from the opposite direction. In doing so, he breaches the subjective rule of care in traffic law and can face penalties if damage results.
In the same way, a dominant company has a special responsibility and must shoulder it.
Domestically and internationally, the courts have repeatedly confirmed that the prohibition on the abuse of a dominant position is sufficiently clear to impose sanctions on companies. It should be borne in mind that during the period the prohibition has been in force, many questions regarding its application have been answered by the Competition Appeal Tribunal and the courts.
In discussions about competition policy, it must not be forgotten that competition rules are put in place because experience shows that companies can harm the public interest with their conduct. Collusion or the abuse of a dominant market position leads to harm for customers and consumers, and competitors being driven out of the market.
Experience also shows that managers of smaller companies are very aware of the content of competition law. This is demonstrated by the numerous complaints received by the Competition Authority.
It is therefore important for society that the managers of dominant companies abide by the rules. And when issues arise, the Competition Authority is on hand to provide guidance on the interpretation of competition law. I intend to discuss this in another article in due course.
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