When assessing the competitive effects of mergers, the competitive constraints the merged entity will face are of great importance. The greater the constraints, both domestic and foreign, the less likely it is that the merger will harm competition.
In recent cases under investigation by the Competition Authority, the competitive restraint of foreign online retailers has been examined.
During the investigation into Haga's proposed acquisition of Lyfju, an assessment was made of the extent to which foreign online retailers would provide competitive constraint to the combined company. As the combined company would have acquired a strong position in the Icelandic cosmetics retail market, this factor was of considerable importance. The Competition Authority's investigation revealed, among other things, that few cosmetics retailers in Iceland considered foreign online stores to be their main competitors. Of the 24 responses received, no cosmetics retailer named pure online players as their main competitor, nor as a close second. This finding was reflected in a consumer survey conducted for the Competition Authority in this case, in which around 81% of respondents said they had bought cosmetics from a foreign online retailer in the past 12 months. The investigation revealed that the competitive constraint from foreign online retailers in the sale of cosmetics during the period the merger was under investigation appeared to be limited. The merger was annulled, but the merging parties did not appeal the Competition Authority's decision.
In the investigation of the mergers between N1 and Festar, and Haga and Olís, it was not necessary to conduct a detailed examination of the competitive constraint that foreign online retailers would provide to the merged entities following the mergers. The reason for this is simple: the foreign competitive constraint faced by grocery and fuel retailers from overseas online stores is extremely limited. This applies both in Iceland and abroad, but competition in these markets is generally very local, as it is difficult for retailers to move these products across borders and regions; proximity to consumers is usually important, and the products are often needed at very short notice.
As has been stated, the Competition Authority assesses the impact of foreign competitive constraint when investigating mergers. If the Authority overestimates foreign competitive constraint, it can lead to too many merger transactions that restrict competition being allowed to proceed. If the restraint is underestimated, it can lead to intervention in mergers that do not harm competition. It is therefore important that the Competition Authority neither overestimates nor underestimates the foreign competitive restraint present in each case. This best serves the interests of Icelandic consumers and businesses.
Disclaimer: The views are those of the author and do not necessarily reflect the position or policy of the Competition Authority.
The author is Valur Þráinsson, Chief Economist at the Competition Authority.
A column was published in the Fréttablaðið on Tuesday, 27 March 2019.
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