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The Icelandic Competition Authority fines Mjólkursamsalan, an incumbent dairy firm owned by cooperatives, 370 million ISK (approx. 2,4 million Euros) for abusing its dominant position in the market

9/29/2014

  • mjolkurglas.jpgMjólkursamsalan (MS) abused its position in the market by selling its smaller competitors raw milk at a price 17% higher than the prices set up for firms connected with MS by ownership etc.
  • The price discrimination weakened Mjólkurbúið Kú, a small privately owned dairy firm, and led to the selling of Mjólka, another privately owned dairy firm, to Kaupfélag Skagfirðinga (KS), a cooperative, in the year 2009. KS is a 10% owner of MS.

In the beginning of year 2013 the ICA started investigating allegations that Mjólkursamsalan ehf., (MS), a dairy firm, had breached the prohibitionary clause in Article 11 of the Competition Act, which prohibits the abuse of a dominant position in the market. The ICA initiated its investigation when Mjólkurbúið Kú ehf. (Mjólkurbúið), a small dairy firm, complained that the price for raw milk MS offered Mjólkurbúið was 17% higher than the price MS offered to the competitors of Mjólkurbúið, but these competitors of Mjólkurbúið are connected with MS. Mjólkurbúið is owned by Ólafur Magnússon et al. but he was also the founder of the dairy firm Mjólka ehf., which started operations as a competitor of MS in 2005. At the end of year 2009 Kaupfélag Skagfirðinga (KS), a cooperative, bought Mjólka ehf. and has operated that firm since. In this case another price difference was also examined, i.e. the difference in the price of raw milk sold by MS, on the one hand to Mjólka when Mjólka was owned by Ólafur Magnússon et al. and on the other hand after Mjólka had been sold to KS. Mjólkurbúið has stated its opinion that by maintaining this difference in the price of raw materials to dairy firms, MS abuses its dominant position in the market against its smaller competitors.

By changes in the Act on the Production, the Pricing and the Sales of Farm Products no. 99/1993 in the year 2004, the clauses of the Competition Act that are intended to work against mergers that restrain competition and against collusive behaviour in the market were set aside in the milk markets in Iceland. Before the changes there were five dairy firms operating in Iceland. Since then there have been mergers of the dairy firms, which the ICA has not had the legal mandate to oversee. MS and related undertakings have emerged from these mergers with a near monopoly in these markets of processing and wholesale distribution of dairy products. On the basis of an exemption from the prohibitionary clauses of the Competition Act that forbid collusion, KS and MS have collaborated extensively with regard to the production and sales of dairy products. In addition KS owns a 10% share in MS. Spokesmen for MS have stated that MS, KS and Mjólka are to be considered as a single „business unit“ [Icel. „viðskiptaleg heild“]. There is no doubt that MS has a dominant position in the market.

MjólkurvörurRaw milk is a basic ingredient in the processing of dairy products and discrimination in its pricing has obvious effects on the firm that is victim to it and that firm‘s possibilities to compete in the market. The aforementioned competitors of MS not only had to live with price discrimination from the hands of a dominant firm in the market, but also the fact that undertakings connected to MS could buy this raw material for a much lower price than they themselves, the competitors, could. This led to a competitive advantage for the undertakings connected to MS. The ability of the aforementioned competitors of MS to compete with MS and connected undertakings was in this manner severely diminished and the dominant position of MS on the market defended. In the end this harms the consumers. MS has stated, in its defence, that the changes in the Act on the Production, the Pricing and the Sales of Farm Products no. 99/1993 which allow collusive behaviour that restrains competition in the dairymarket have the effect that the aforementioned price discrimination cannot be in breach of the Competition Act. The ICA argues, in its decision, that the legislature did not intend to exempt dairy firms with a dominant position in the milk market from the prohibitionary clauses of the competition act that prohibit the abuse of a dominant position in the market. The same rules apply to MS in this regard as to other dominant undertakings in other markets.

The ICA concludes that MS has seriously breached Article 11 of the Competition Act. The clause, i.a., forbids dominant undertakings to discriminate between its customers by applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage.

The ICA deems it fitting to lay an administrative fine on MS to the amount of 370 million ISK for this breach. The breach is serious in nature as it is connected to important consumer goods, and the breach has lasted for a long period, or at least from the year 2008 until the end of the year 2013. Dairy products are a major part of the groceries purchased by Icelandic homes. It was also taken to consideration that this was a repeated breach. In the year 2006, a former subsidiary of MS, Osta- og smjörsalan, breached in the same manner against Mjólka while Mjólka was owned by its former owner, cf. the ruling of the Competition Appeals Committee in case nr. 8/2006. No fine was set in that case but in this case it is considered necessary to prevent further breaches in this important market.

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