Vífilfell hf.'s abuse of its dominant market position

The Competition Authority imposes a 260 million króna administrative fine on Vífilfell for serious breaches of competition law.

The Competition Authority has concluded in its new decision that Vífilfell hf. abused its dominant market position in the soft drinks market, thereby breaching the prohibition clauses of the Competition Act. The company did this by entering into numerous exclusive purchasing agreements with its customers. Exclusive purchasing, in this context, refers to agreements whereby Vífilfell obligated its customers to purchase soft drinks exclusively from the company. Exclusive purchasing agreements are illegal when a dominant undertaking is involved. The Competition Authority imposes a fine of 260 million krónur on Vífilfell.

Vífilfell in a dominant market position
Article 11 of the Competition Act prohibits the abuse of a dominant position in the market. For this provision to apply, the relevant market must be defined and the position of the undertakings on it assessed. As Vífilfell maintained that the company was not dominant, this issue had to be examined in detail in the case. The Competition Authority did not agree with Vífilfell's argument that soft drinks belong to the same market as, for example, milk-based drinks, juices or other non-alcoholic beverages. The case examined the market share of Vífilfell and its sole competitor (Ölgerð Egils Skallagrímssonar) in the soft drinks market over a four-year period. It was found that Vífilfell had a dominant market share (around 70-75%). In light of this share and with reference to the company's other dominant positions, the Competition Authority assesses that Vífilfell was in a dominant market position.

Broken Vífilfell
The Competition Authority's decision states that Vífilfell entered into hundreds of illegal exclusive purchase agreements with its customers. These agreements were with supermarkets, restaurants, newsagents and other resellers of soft drinks. Exclusivity agreements in this context refer to commercial contracts whereby Vífilfell committed its customers to purchasing soft drinks exclusively from the company. Vífilfell also applied restrictive discount clauses to further ensure that customers did not do business with the company's existing or potential competitors in the soft drinks market.

Agreements of this kind are liable to prevent competitors of a dominant undertaking from growing and prospering. Furthermore, such agreements work against new competitors gaining a foothold in the market and thereby strengthening competition. Such agreements therefore strengthen or maintain a dominant market position and thereby distort competition. The Competition Authority's decision outlines numerous agreements by Vífilfell which the Competition Authority considers to have contravened Article 11 of the Competition Act in this respect.

Sanctions
Taking into account, among other things, the scale and nature of the infringements, the Competition Authority considers in its decision that a fine of 260 million króna is appropriate.

Background information
In 2007, the Competition Authority launched a general investigation into contracts between suppliers and their customers in the food market. This data collection targeted around 70 suppliers, including Vífilfell. This investigation led to the Competition Authority issuing a report in May 2008. No. 1/2008, Supplier commercial agreements and other business cooperation in the food market. The report underlined, among other things, the competition law perspective that a dominant undertaking, including suppliers, can infringe Article 11 of the Competition Act by entering into agreements containing exclusivity and sole-purchase clauses. Suppliers, among others, were advised to ensure that their contracts did not contain provisions that restrict competition. The report also stated that the Competition Authority would, in separate administrative proceedings, determine whether specific companies had breached competition law. This has now been done with regard to Vífilfell's agreements.