In last week's Viðskiptablaðið, there is a noteworthy article by Bergþóra Halldórsdóttir, a lawyer at the Federation of Icelandic Industries. In the article, entitled „Competition and the Inefficiency of Smallness“, it is rightly pointed out that the Icelandic business environment faces various difficult challenges due to its small size.
However, the article gives the impression that the author believes the Competition Act and its application are part of the problem in this matter. Thus, the article suggests, for example, that competition legislation and the supervision based on it are implemented without regard for local circumstances. Discussion of Icelandic-specific circumstances has given way to a kind of one-size-fits-all solution. It is impossible to agree with this interpretation.
It is true that Icelandic competition law essentially contains the same substantive rules as in other European countries. The Competition Act thus contains a prohibition on illegal collusion and the abuse of a dominant market position, and a power to intervene in mergers that harm competition. These same substantive rules are also among the core provisions of the EEA Agreement.
There can hardly be any disagreement about these basic principles. As a society, we cannot tolerate companies harming their customers and consumers by engaging in illegal collusion or abusing a dominant market position. Nor can we turn a blind eye when it is clear that corporate mergers are damaging the public interest.
It is also true that the assessment under domestic competition law is based on comparable methods to those used elsewhere in Europe. In its rulings, the Competition Authority often looks to foreign precedents, as its decisions demonstrate.
These two things, comparable competition rules and comparable enforcement methods, are of great importance for the competitiveness of Icelandic business life. This is a key prerequisite for new companies to venture into business here in the country, and also a prerequisite for our success in attracting investment and, for example, improving our creditworthiness in foreign markets.
However, it is a great misconception to claim that the Competition Act is enforced without regard to the circumstances in this country. It is precisely the nature and substance of the provisions I mentioned above that the assessment based on them is dependent on the circumstances of each case.
A look at the Competition Authority's website reveals that in its rulings, the authority takes into account the specific circumstances of our small community. In many cases, for example, the competition authorities have authorised co-operation between companies, which would otherwise be considered illegal, in order to create scope for economies of scale or to resolve various other pressing issues. In assessing this, the circumstances of the specific case are considered on the basis of recognised methods.
The proposals of the steering group of the government and business advisory forum on increased prosperity, published in May 2013, discuss the interplay between competition and economies of scale in particular (see www.samradsvettvangur.is ). It points to the importance of economies of scale in increasing the productivity of the economy. Due to the small size of markets, companies often find it difficult to take advantage of economies of scale. However, competition is the single most important factor in promoting increased productivity. Competition reduces waste and leads to lower production costs. To promote maximum productivity, the right balance between competition and economies of scale needs to be found. The Project Board points out in particular that the consumer benefits of economies of scale will not increase unless these economies are accompanied by competition.
The Competition Authority has had the same guiding principle in its decisions. An example of this is Decision no. 14/2012, Exemption request concerning the activities of Reiknistofu bankanna hf. and the merger with Teris. Through a special settlement with the parties to the case, they undertook to comply with certain rules, which are intended to provide financial institutions with the scope to utilise economies of scale in information technology. At the same time, an effort is made to ensure competitive restraint in the relevant markets in order to ensure that the economies of scale benefit everyone, not just the owners of the Reiknistofan.
It is clear that we face various challenges due to the small size of the economy. In this respect, competition law and its enforcement are part of the solution, not the problem.
Siding aside competition laws or turning a blind eye to their enforcement is often a protectionist measure that harms the economy and the population of the respective countries.
There is a general and international consensus that strengthening competition is the cheapest and simplest method available to nations for increasing productivity. The Competition Authority's current focus is primarily on using competition law to increase productivity in the domestic services sector, where productivity lags behind that of, for example, the other Nordic countries.
[This column was published as an article in the Viðskiptablaðið on 12 February 2015.]
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