News

Federation of Icelandic Industries and Icelandic Federation of Trade and Services admit to violations of the Competition Act and consent to payment of a fine

2/14/2008

The Federation of Icelandic Industries (FII) and the Icelandic Federation of Trade and Services (IFTS) have admitted to concerted practices by undertakings under the umbrella of the two federations in implementing price changes in price-labelled food products in connection with the reduction in VAT from 14% to 7% and removal of excise duties that took effect on 1 March 2007. Both federations admit that joint decisions were made on the means of effecting price changes in connection with these tax reductions with regard to products carrying price labels attached by manufacturers at the time of packaging. Among other things, decisions were made concerning sharing certain revenue losses among the respective members of the federations. Both the FII and IFTS have admitted to non-compliance with the Competition Act in this regard. However, the federations have pointed out that there was no intention to distort competition and that the sole intention was to pass the price reductions on to consumers.

The Competition Authority launched an investigation of these actions by the FII and IFTS following a news story published in the media on 21 February 2007, which disclosed the means by which members of the two federations intended to respond jointly to the impending tax reduction.  The Competition Authority sent a statement of objection to the federations in November 2007 with the preliminary conclusion that they had violated the Competition Act.

The FII subsequently approached the Competition Authority and requested a settlement. Discussions led to a settlement being concluded with the federation on 16 January 2008. According to the settlement, the FII admitted to having violated Article 12, cf. Article 10, of the Competition Act and consented to the payment of a total of ISK 2.5 million in administrative fines. The IFTS submitted its comments regarding the statement of objection last 17 December. However, on 28 January the federation petitioned for a settlement of the case. Discussions led to a settlement being concluded with the IFTS on 4 February 2008. According to the settlement the IFTS admitted to having violated Article 12, cf. Article 10, of the Competition Act and agreed to pay an administrative fine of ISK 1 million for the violation.

The FII and IFTS are associations of undertakings, and Article 12 of the Competition Act prohibits such associations from engaging in restrictive practices. The ban in Article 10 of the Competition Act on restrictive practices means that undertakings must decide independently their conduct in the market and their pricing of products and services. Associations of undertakings are under no circumstances permitted to counter this independence of their members. It is important to bear in mind in this context that owing to the public interest in price competition, the Competition Act prohibits all collusion on prices, regardless of whether the collusion is designed to raise or lower prices. Collusion on price cutting can, for instance, have the damaging effect of the price cuts being less than they might otherwise have been.

With the actions taken by the FII and the IFTS it was ensured that virtually all suppliers (manufacturers) of cheese and meat products and retailers of these products would reduce product prices by the same proportion at the same time. The members, i.e. the undertakings, were thereby deprived of the initiative in deciding for themselves their responses to the changes in question, and thereby their competitive independence was curtailed. It is the assessment of the Competition Authority that the actions of the FII and IFTS had the effect that the opportunity for competition created for the players in the market, e.g. to engage in price competition following the changes in VAT, was in effect precluded. The changes resulting from the reduction in VAT could have resulted in still further price cuts and more active competition in pricing the food products in question if it had not been for the actions taken by the FII and IFTS.

In determining the amount of the fines account was taken of the fact that the violations had taken place over a brief period of time. It was also taken into account that the FII and IFTS requested settlement talks and that they admitted to their violation of the Competition Act without reservation. Through these actions, the associations facilitated the investigation and shortened the investigation and processing time before the Competition Authorities, which is beneficial to competition. It is also taken into account that both associations have revealed their intention to establish rules to ensure that co-operation between members of the associations will comply at all times with the Competition Act. Also, the associations have agreed to comply with instructions issued for the purpose of promoting competition. The FII and IFTS have agreed to ensure that there will be no discussions or dissemination of information within the two associations concerning prices, price trends, business terms and other sensitive business or competition issues which could potentially curtail the competitive independence of members and distort competition.

The FII in particular is rewarded for being the first to step forward and admit to its participation in violating the Competition Act. From a general point of view, it is important that companies or associations taking the initiative in admitting such violations or supplying information on them should benefit in the form of reduced fines. It should also be borne in mind that the turnover of the FII is much larger than that of the IFTS. This is the reason that the fine imposed on the FII is higher than that imposed on the IFTS.

The decision of the Competition Authority in the case is accessible on its website.

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