SWEDISH COMPETITION AUTHORITY, REPORT 2004:5 · REPORT 2004:5 Address SE-103 85 Stockholm Visiting...

Competition in Sweden 2004

Competition in Sw

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Address SE-103 85 StockholmVisiting address Sveavägen 167Telephone +46 8 700 16 00Telefax +46 8 24 55 43 E-mail [email protected]

The report you are about to read gives an idea of the competitive situation in the Swedish economy in 2004. ‘Competition

in Sweden 2004’ is the third publication we have issued describing the state of competition in different sectors. For this year’s report we have chosen a dozen industries in seven sectors that the Swedish Competition Authority has dealt with in one way or another during 2003 and the fi rst half of 2004.

SWEDISH COMPETITION AUTHORITY, REPORT 2004:5


Swedish Competition Authority, Report 2004:5

Swedish Competition Authority, december 2004Helen Jakobsson (project manager)ISSN-nr 14018438Translation: Stephen CroallForm and layout: Odelius New Media, #2938

ForewordThe report you are about to read gives an idea of the competitive situation in the Swedish economy in 2004. ‘Competition in Sweden 2004’ is the third publication we have issued describing the state of competition in different sectors. For this year’s report we have chosen a dozen industries in seven sectors that the Swedish Competition Authority has dealt with in one way or another during 2003 and the fi rst half of 2004. Accordingly, the report does not represent an exhaustive survey of competition in Sweden.

We hope and believe that the report will create interest and generate questions and debate, and that it will in time help realise the Compe- tition Authority’s vision for the future: Welfare and prosperity through effi cient markets.

Claes NorgrenDirector General

Swedish Competition Authority • Competition in Sweden 2004

Contents

Contents

The content and structure of the report 6

A word of introduction 7Introduction 8Why is competition important? 8Competition in Sweden 2004 8Promoting competition 9The Competition Act and the term ‘relevant market’ 9New competition rules in 2004 11Selected sectors 12

Price and concentration criteria 15Price level and competitive pressure 16Mergers and entry barriers 17Food retail trade 18Construction and civil engineering 20Markets subject to regulatory reform 20The fi nance sector 21Import competition 21Consumer mobility 22Conclusions 23

The retail trade 25High concentration in the grocery market 26High concentration and vertical integration 26Structure of stores 28Private label merchandise on the increase 30Private imports of new cars still very limited 32New private cars 32Used cars 33

Service and repairs 33Changes in the authorisation of car repair shops 35

Transport 37Increased competition in the aviation market 38Falling air fares and signs of passenger load recovery 38The role of low-price carriers in Sweden 40Entry barriers in the aviation market 40The problems facing competition authorities 42Lack of competition on profi table passenger routes a competitive problem 43High concentration in goods and passenger traffi c 43

Electronic communication 47New regulations for the electronic communication market 48Fixed-line telephony 48Mobile telephony 52Internet services 54

Financial activities 57Finance – a sector in transition 58Credit institutions 58Mutual fund companies and insurance companies 62Securities companies 63The consumer perspective 63Harmonisation in the EU 63

Competition in Sweden 2004 • Swedish Competition Authority

Electricity and gas 65The importance of the Nordic market for electricity price formation in Sweden 66Production 66Network activities 69Electricity trading 69

Contruction and engineering 73Construction and engineering 74Housing construction 74Civil engineering 76Building materials 76Competitive problems identifi ed 77

Forestry 81Control of raw materials crucial in forestry 82The forestry sector has several elements that encourage collusion 82Forest ownership 82The sawmill industry 84Pulp and paper 85

Public procurement 87Public procurement 88Rules 88Barriers to entry and competition 88Unlawful direct procurement 89Joint procurement and framework contracts 89Interrupted contracts 91

Access regulation 93Access regulation 94Adopting a position on access regulation 94Markets with one infrastructure owner (one-way access) 95Markets with several infrastructure owners (two-way access) 98Concluding observations 99

Trade organisations in Sweden 101

Trade organisations 102Trade organisations in Sweden 103The activities of trade organisations 103Information activities 103Lobbying 104Standardisation and substitutability 105Research and development, R&D 105Training and guidance 106The competitive impact of trade organisations 107

Summary of conclusions 109

References 114

6 Swedish Competition Authority • Competition in Sweden 2004

The content and structure of the report

The purpose of ‘Competition in Sweden 2004’ is to give a summarised picture of the state of competition in a number of different areas of the Swedish economy. Our aim is to show what competitive problems exist at the present time and to describe what has occurred over the 18-month period covered by the report.We have chosen a number of industries that have come to our attention in one way or another in 2003 and the fi rst half of 2004. These are described in brief, with the emphasis on the competitive aspect. The sectors dealt with in the report are primarily those that have featured prominently in the Competition Authority’s activities and in the tips and complaints that have come our way. Thus the report does not give a full, all-inclusive picture but provides examples from industries that are not necessarily representative of the Swedish economy. The sectors dealt with in the report account for approximately a quarter of Sweden’s gross domestic product (GDP).In describing the industries involved, we have focused principally on the factors that we take into account when enforcing the Competition Act, such as degree of concentration, entry barriers and trade barriers. The report defi nes industries and sectors in a way that we consider to be generally acceptable to the market actors. Thus when we use the terms ‘markets’, ‘industries’ and ‘market shares’, this in no way implies that the Competition Authority has taken a position on what may be deemed to constitute a relevant market in the competitive sense. Market demarcation in competition law means that the Competition Authority, when considering a case, looks at how consumers perceive the market in two specifi c ways: from a product viewpoint and from a geographical viewpoint. By analysing which goods and services customers consider substitutable, and in which geographical area the goods and services are offered, the Competition Authority is able to determine the relevant market. On the basis of this

THE CONTENT AND STRUCTURE OF THE REPORT

defi nition, the Authority decides how large the various market actors are, and whether one or more of them may be considered dominant in a competitive sense under the law. Defi nitions of relevant markets proceed from a specifi c situation and necessitate thorough analysis of factors such as consumer behaviour and the properties of the products etc.As described in ‘Competition in Sweden 2004’, a sector or industry may encompass a number of relevant markets. Analysing the competitive situation in the sector as a whole necessitates analysis of its submarkets. Besides describing the various industries, the report contains a number of fact boxes dealing with Competition Authority cases and economic phenomena that we encounter in the course of our duties. It also contains three theme chapters – on trade organisations, access regulation and public procurement – that examine the Swedish economy from a different angle, cutting across the traditional sector categories.In composing this report, we have striven to provide short, easily accessible accounts of matters that sometimes tend to be fairly complex. We do not claim, therefore, to describe the situation exhaustively. Instead, for anyone wishing to study the subject in closer detail, we offer a number of suggestions for further reading.Case offi cers from different Competition Authority departments have contributed their expertise to the report and furnished the project group with supporting material. In addition, Econ Analys AB has conducted a study of trade organisations in Sweden. Of the Authority’s own contributors, Arvid Nilsson has written about simulations, Niklas Strand about predatory pricing, Per-Arne Sundbom about public procurement, and Mikael Ingemarsson about access regulation. Other chapters were written by the project group, which has comprised Anna Norberg and Mats Bergman, with Helen Jakobsson as project manager.

Competition in Sweden 2004 • Swedish Competition Authority 7

A word of introductionA word of introduction


Introduction

A key question both today and for the future is how society is to assemble enough economic resources to fi nance welfare services while still leaving scope for real wage increases. In a long-term perspective, demographic deve-lopment in Sweden is expected to reduce the size of the working population, which will make it harder to meet the demand for welfare services. Welfare presupposes that we have resources to distribute, and economic growth is a crucial prerequisite in this respect. Without growth, no new resources become available for such services as healthcare and education. Thus growth is essential – both in the form of increased productivity and in employment – if we are to meet public costs in the future.

WHY IS COMPETITION IMPORTANT?Creating effi cient competition in markets

is a way of boosting productivity. Properly functioning competition leads to a more ef-fective distribution of resources in society; undertakings are encouraged to reduce their costs and promote internal effi ciency. When the system works properly, consumers fi nd that undertakings compete through lower prices and a more varied range of goods and servi-ces, and generally adapt to consumer needs. Competition leads to the kind of pressure for change that promotes growth and innovation, and this benefi ts both the macro economy and the consumers.

Competition helps to secure welfare provi-sion in two separate ways. It increases resour-ces, which makes it easier to fi nance welfare, and it encourages resource effi ciency in the production of welfare services, which means less resources are required for the same volume

Introduction

of production. Measures designed to enhance the degree of competition and broaden the competitive part of the economy, therefore, are crucial to future welfare in Sweden.

COMPETITION IN SWEDEN 2004There are a number of signs that competi-

tion in Sweden is not working as effi ciently as it should. The Swedish price level is higher than the European Union (EU) average, which may be partially explained by wage and tax levels. In a series of reports, the Competition Authority has examined the extent to which the high price level is due to poor competition. While this question is not easily answered, an unequivocal conclusion is that greater competi-tion leads to lower prices, more diversity and greater consumer benefi t.

A distinguishing feature of many parts of the Swedish economy is a relatively high degree of concentration. Despite the regulatory reforms of recent years, designed to enhance competition, despite Sweden’s membership of the EU, and despite the fact that the Swedish economy is becoming increasingly integrated into the global economy, important entry bar-riers still persist in many markets.

In light of this, ‘Competition in Sweden 2004’ describes and analyses a number of sectors where competitive problems appear. There are many different way of selecting the appropriate sectors for a study of this kind. We have chosen to apply the sectoral categories that the Competition Authority uses for its ca-ses and for the tips and complaints we receive from the general public (see fi gure 4). Together, the sectors we have selected account for 60 per cent of the tips/complaints submitted and for


70 per cent of the decisions taken by the Aut-hority that directly affect Swedish enterprise. Together, the sectors reviewed here account for approximately a quarter of Sweden’s GDP.

The present report contains no recom-mendations on how competition might be improved but focuses instead on analyses and on problem-based descriptions of the current situation.

The Competition Authority’s chief instrument for

promoting competition in Sweden is the Competi-

tion Act. On 1 May 2004, the EU introduced a num-

ber of regulatory changes in the competition fi eld,

aimed at further decentralising enforcement of its

competition regulations and at making competitive

controls in the single market more effective. Besides

enforcing competition rules, the Swedish Competi-

tion Authority makes recommendations concerning

regulatory changes and other measures, partly in its

comments on government proposals referred to it

for consideration and partly in its more comprehen-

sive sector-specifi c reports.

Competition creates effi cient markets, which benefi ts both consumers and entrepreneurs. Markets, however, are seldom perfect, but re-quire rules in order to work properly. The aim of competition policy is not to prevent busines-ses from growing but on the contrary to ensure

that growth is not achieved at the expense of other undertakings’ growth potential. Another important aim is to strengthen the market posi-tion of the consumer.

THE COMPETITION ACT AND THE TERM ‘RELEVANT MARKET’

The purpose of competition rules and competi-tion authorities is to enhance consumer benefi t and market effi ciency by combating anti-com-petitive behaviour. In the case of cooperation between undertakings, therefore, the rules focus on instances where this is anti-competi-tive in character and where the disadvantages of restricted competition outweigh any other economic or public advantages that may be present. The Swedish Competition Act (Article 6, which corresponds to Article 81 of the EC Treaty) gives examples of prohibited anti-com-petitive cooperation.

Cooperation that restricts competition may sometimes be permitted if it benefi ts society and the consumer, but certain forms of coope-ration of a particularly serious nature are in

Promoting competition


Introduction

principle always prohibited. Classic example of prohibited cooperation are price cartels and collusive bidding, market sharing and the limi-ting of production.

A dominant position is defi ned as a situa-tion in which an undertaking wields a signi-fi cantly high level of market power. Having a dominant position, or even a monopoly, is not in itself prohibited. What is forbidden by law is abusing this kind of market strength. The Swedish Competition Act (Article 19) gives examples of what constitutes abuse of market power. This article corresponds to Article 82 of the EC Treaty.

Acquisitions and other types of company mergers, or concentrations, are an important part of economic restructuring. In some cases, however, concentrations can have an adverse effect on consumers, namely if they signifi cant-ly reduce competition. A merger that does not have a ‘Community dimension’, and is thus

not subject to a ruling by the European Com-mission, must be reported to the Swedish Com-petition Authority if the combined aggregate turnover of all the undertakings concerned exceeded SEK 4 billion in the preceding fi nan-cial year and if at least two of the parties had a turnover in Sweden in the preceding fi nancial year of more than SEK 100 million each.

In cases where a merger leads to or reinfor-ces a dominant position and this has a signi-fi cant anti-competitive effect on the relevant market (see below), the Competition Authority may seek an order from the Stockholm City Court prohibiting the move. Generally, ho-wever, planned acquisitions do not reach the courtroom as the great majority are judged harmless or benefi cial. In the few cases where the Competition Authority chooses to oppose a merger, undertakings tend to abstain from it of their own accord.

20

Antal

15

10

5

FIGURE 1: Number of business concentrations registered monthly with the Swedish Competition Authority, January 2000–August 2004

jan-00

jan-01

jan-02

jan-03

jan-04

Source: Swedish Competition Authority


To some extent, concentrations follow the business cycle, in that they tend to decline in number during recessions and increase in number when the economy recovers. Con-sequently, the number of registered mergers appears likely to increase in the forthcoming period. They also tend to fl uctuate systemati-cally over the year, peaking around mid-year.

In order to determine whether a merger will lead to or reinforce a dominant market position that will signifi cantly inhibit effi cient competition, the Competition Authority has to assess in which market the undertakings concerned are active (demarcation of the rele-vant market). Only then is it possible to decide whether a dominant position is being created or reinforced (the ‘dominance test’) and to as-sess how competition may be affected by the merger (the ‘competition test’).

When demarcating the relevant market, the Competition Authority carries out an as-sessment in each case partly of the relevant product market and partly of the relevant geo-graphical market. The relevant product market encompasses all goods and services that are considered substitutable due to their pro-perties, their price and their intended use by consumers/customers. Similarly, the relevant geographical market encompasses the area in which the undertakings concerned supply the relevant goods and services and within which competitive conditions are suffi ciently similar. For the purposes of such analyses, the Autho-rity often requisitions information from the parties concerned.

NEW COMPETITION RULES IN 2004Many undertakings operate in more countries than one. To decentralise Community competi-tion law to a greater extent and strengthen a posteriori control, the EU introduced a number of regulatory amendments in the competi-

tion fi eld on 1 May 2004. As a result of these changes, national competition authorities are to enforce the Union’s competition if a practice affects trade between member states. Other important changes are summarised below:· Negative clearances and exemptions: The

option whereby authorities provide advance notifi cation of whether a partnership or prac-tice is compatible with the competition rules has been removed from Community law as well as from Swedish law. Undertakings must now decide for themselves whether a joint venture constitutes an infringement of the competition rules.

· Information gathering: As before, the Com-petition Authority may gather information or evidence on behalf of the European Commis-sion, by such means as so called dawn raids. The difference is that the Authority may now do so on behalf of competition authorities in other EU member states.

· Network: National competition authorities in the EU have set up a joint network, the Eu-ropean Competition Network (ECN), within which they can freely exchange confi dential information on violations of the Community competition rules. A system for distributing cases among the various authorities has also been established. If a practice has an impact in several member states, it is dealt with by the authority or authorities best suited to the task. Cases involving more than three countries are always passed to the European Commission.

· New concentration regulation: In concentra-tion cases dealt with by the European Com-mission, greater weight is now attached to the effect of the merger (while the degree of do-minance has become less important). The new regulation also introduces a number of chan-ges in merger control procedure, for instance the length of time allowed for decisions.


Introduction

SELECTED SECTORSEnforcing the competition rules is perhaps the foremost means by which the Swedish Com-petition Authority promotes competition, e.g. when considering acquisitions or investigating suspected infringements of the Act. However, the Authority also helps improve competitive relations in the Swedish economy by recom-mending regulatory changes and other mea-sures. These proposals are presented in the agency’s comments on government reports referred to it for consideration, in comments on the reports of other agencies, or in the more comprehensive sector-specifi c reports issued by the Authority from time to time.

Infringements or suspected infringements of prohibitions in the Competition Act of-ten come to the attention of the Competition Authority via tips or complaints from busines-ses or private individuals. In 2003, the Aut-hority received a total of 556 tips, of which a fi fth related to telecommunications. The large

5 10 15 20 25

Figure 2: Industries affected by Competition Authority decisions based on the Competition Act, 2003, by per cent.*

Per cent

FinanceTransport

ConstructionPost, telecom and media

Services**

InsuranceEnergy

Wood processing and manufacturingMinerals and metals

Hotel and cateringForestry, agriculture and fisheries

*) Statistics based on Competition Authority cases classified according to sector, which make up about half of the agency’s total case file.**) This refers to property management/caretaker services, computer/IT services, lawyers’ commissions etc (Annual Report of the Swedish Competition Authority 2003).

Source: Swedish Competition Authority

FIGURE 3: Industries acted upon by the Competition Authority in 2003, proportion of GDP

Credit institutions and

insurance companies

3.2%

Transport and

communications 6.1%

Wholesale andretail 8.6%

Construction 3.6%Agriculture, forestry

and fisheries 1.5%

Electricity, gas, heatingand water 2.4%

Other sectors74.6%

The sectors discussed in this report account for approximately a quarter of Sweden's GDP.

Source: Statistics Sweden, SCB.


number of tips appears to have been caused primarily by the prices of ADSL products and what many people experienced as a shortage of available broadband. Another industry that attracted a large number of complaints in 2003 was the energy industry.

Complaints about the media and telecom-munications were also fairly numerous in the fi rst half of 2004, although the wholesale and

retail trade attracted the largest number during the latter period (almost a quarter of all tips and complaints). The problems frequently concerned the use made of recommended price lists. The number of complaints concerning the public sector, especially the procurement prac-tices of public actors, was also fairly substantial during the fi rst half of 2004.

20 40 60 80 100

FIGURE 4: Number of tips and complaints per industry, first half of 2004

Antal

Construction, housing

Energy, chemicals

Finance and insurance

Transport

Services

Others

Public sector

Media, telecom, postWholesale and retail trade

Caption: Read more about these industries in the sector-specific sections of the report. Source: Swedish Competition Authority.


A word of introductionPrices and concentration criteria


Prices and concentration criteria

Price level and competitive pressure

Source: Eurostat, Economy and fi nance – Statistics in focus, 2004. *) The 2002 fi gures are preliminary. The fi gures for 2003 are forecasts based on preliminary data (‘nowcast).

TABLE 1. GDP price level index in a selection of countries, 1997–2003* (EU15 = 100)

The general price level often indicates the degree of

competition present in an economy. When market

concentration is high, for instance, a small number

of actors can keep prices at a high level, to the de-

triment of consumers. Accordingly, it is worthwhile

comparing the Swedish price level to prices in other

countries and examining the extent to which this

can provide information about competitive pressure

in the Swedish economy.

A number of studies show that Sweden has a relatively high price level for goods and servi-ces of various kinds.1 The table below describes price levels for GDP in a selection of countries (EU15) between 1997 and 2003. The price level is expressed as an index and calculated as the ratio of purchasing power parity to the nomi-nal exchange rate.2 The fi gures are taken from Eurostat. Put simply, the table shows how consumption and investment costs in a country compare with the EU average.

1997 1998 1999 2000 2001 2002p 2003nNorway 126 122 121 121 125 136 130Denmark 127 126 124 123 123 126 127Sweden 120 118 116 118 1 1 1 114 116Finland 108 107 107 107 107 110 112Ireland 97 97 101 104 108 110 114UK 100 104 107 113 110 108 101Germany 1 1 1 1 1 1 110 107 107 107 107Netherlands 100 100 101 101 101 103 105Austria 103 103 102 100 101 102 103Italy 90 88 88 88 90 92 94France 103 102 101 100 99 99 100Belgium 102 102 103 100 99 98 99Spain 81 81 80 81 83 83 86Portugal 71 71 71 71 72 73 75Greece 78 76 78 75 76 76 78


The table shows that the price level in Sweden for the goods and services included in the GDP is signifi cantly higher than the EU average. In comparison with a country such as Denmark, however, Sweden does not seem expensive.

A number of factors, including macro eco-nomic ones, infl uence the relative price level in a country. Countries with a higher GDP per capita, i.e. the richer countries, usually have higher price levels. Higher labour costs also result in higher prices, as do higher taxes. An-other important factor is the rate of exchange. If the currency in a given country is overva-lued, this causes the price level in that country to be higher in relation to other countries than it would have been if the exchange rate were in equilibrium.

Sweden’s scattered population and geo-graphical position may also have contributed to our high price level. Moreover, Sweden is a large country which means transportation between suppliers and consumers is extensive. A study shows, however, that differences in transport costs between EU countries can only

account for one or two percentage points of the difference in food prices between Sweden and the EU average.3 This is also likely to be true of other products.

The Competition Authority concludes from its analyses that the above-mentioned factors do not explain the whole price discrepancy bet-ween Sweden and the EU. While a signifi cant share of the higher Swedish level is attributable to factors such as national income, labour costs, taxes, consumption patterns and exchange rate fl uctuations, some of the remaining price gap, according to the Authority, is due to competi-tive failings in Sweden. More extensive compe-tition would lead to lower prices.

The fact that considerable scope exists for reducing prices on groceries (consumer nondurables), for instance, is shown by the substantial regional differences that occur. It is a well documented fact that the price level for groceries is lower in western Sweden than el-sewhere. Yet wages, taxes and other conditions in this sector are largely the same all over the country. This suggests that price cuts in other parts of Sweden are a realistic option.

Mergers and entry barriersThere are many different criteria for measur-ing the degree of concentration in a market. A common measure is the four largest underta-kings’ share of the market (CR4). Another is the Hirschman-Herfi ndahl-Index (HHI), which is calculated as the sum of the undertakings’

squared market shares. This fi gure is at its highest when a monopoly is present, i.e. when an undertaking has 100 per cent of the market. In such cases, HHI equals 10,000.Often, too, measuring the degree of concen-tration can help determine whether there is



competitive pressure in a market. A small number of market players ordinarily means less competition. Empirical studies show that market outcome – in the form of lower prices and higher production – improves when the number of undertakings increases. High mar-ket concentration makes it easier for underta-kings to limit competition by such means as price collusion or market sharing. If the num-ber of undertakings is small and their demand and cost situations are very similar, they may be strongly inclined to try and limit competi-tion and to agree on a price close to that which would pertain under a monopoly.4 This may apply, for instance, in the case of mature mar-kets or homogenous products such as cement, asphalt and petroleum.

In some situations, there is less competition than the degree of market concentration might lead us to suppose. This occurs, for instance, when undertakings in a market coordinate their behaviour by means of tacit or open cooperation, i.e. by establishing a cartel. In order to survive over time, a cartel must make it possible for its members to monitor (and to punish by some means or other) one another so as to ensure compliance with the agreement. As it is easier to detect price cuts in a market comprising only a few undertakings, it seems likely that an anti-competitive agreement can be maintained for a lengthy period in such a concentrated market. If signifi cant barriers to market entry are present, cooperation becomes even easier. There is a strong suspicion that serious infringements of the Competition Act have occurred in a number of areas, including parts of the petroleum and construction indu-stries. Substantial entry barriers are a feature of both of these industries.

Entry barriers are sometimes reinforced by the conditions specifi c to a given industry, by bottlenecks caused by infrastructural controls,

by trade barriers or by domestic regulations. The sectoral reviews in the present report clearly illustrate this point.

In order to provide a transparent picture of long-term trend in competitive pressure in the Swedish economy, Table 2 shows the degree of concentration in a selection of industries for the years 1993, 1997 and 2002.5 The selected industries have a relatively large turnover.6 Imports are not included in the fi gures, which means concentration is over-estimated. Ho-wever, import competition is negligible in the case of several of the industries. This is due amongst other things to the fact that the goods supplied are subject to standard and specifi ca-tion requirements which in practice act as trade barriers, that their transport costs are high, or that they are unsuitable for transportation over long distances. In practice, too, some services cannot be exposed to import competition.

For some of the above industries, the HHI rate has undergone some fairly substantial changes. It has increased in the case of 15 in-dustries and decreased in the case of 16. Below are more detailed comments on some of these industries.

FOOD RETAIL TRADEIn the sugar industry, where concentration is very high, industry statistics show that three undertakings were operating in 2002. How-ever, the largest among them, Danisco, had such a market position that it should be regar-ded as a monopoly.

The broad-range food retail category does not include department stores or large super-markets and hypermarkets. As the sectoral re-views show, three chains dominate the grocery retail market. Largest among them is Ica with some 1,800 affi liated stores (undertakings). As in the case of the power plant category, the de-gree of concentration here is under-estimated.


Source: SCB. *) The Hirschman-Herfi ndahl-Index (HHI) is calculated as the sum of the undertakings’ squared market shares. This fi gure is highest when a monopoly is present, i.e. when an undertaking has 100 per cent of the market. In such cases, HHI equals 10,000.

Table 2. Long-term development of market concentration in Sweden in selected industries, HHI rates for 1993, 1997 and 2002, and HHI changes in the number of units between 1993 and 2002.*

SNI-kod Bransch HHI HHI HHI Changes 1993 1997 2002 in HHI

02011 Forest owners 4,169 2,128 2,090 –2,07902013 Timber cutting 5,424 1,327 1,570 –3,85415111 Livestock slaughter 1,539 2,271 4,760 3,22115512 Other dairy products 4,219 4,052 2,390 –1,82915810 Bakeries 48 490 480 43215830 Sugar industry 10,000 10,000 9,610 –39015960 Breweries 3,751 2,857 5,310 1,55915980 Mineral water and soft drinks 7,503 7,819 5,000 –2,50320101 Sawmills 157 230 140 –1721121 Newaprint and magazine paper 2,782 2,853 3,970 1,18822121 Newspaper publishing 422 424 430 822222 Printing 83 64 100 1723200 Petroleum refi neries 2,126 2,086 2,640 51424150 Fertilisers and nitrogen compounds 8,743 8,769 9,610 86724420 Pharmaceutical products 4,677 4,856 1,960 –2,71726510 Cement 9,410 9,390 9,030 –38028520 Workshops for general mechanical engineering 24 16 30 632200 Radio and TV transmitters, line telephony etc 3,204 1,719 2,430 –77434100 Motor vehicles 1,820 1,768 1,550 –27040100 Power plant 486 309 390 –9645211 Housing construction entrepreneurs 437 512 550 11345230 Civil engineering entrepreneurs 1,738 2,512 850 –88845310 Electrical installation services 164 158 130 –3450201 Car repair shops, non-specialised 71 75 190 11950500 Petrol stations 166 337 1,230 1,06452112 Broad-range food retailers 62 547 450 38860100 Railways 8,334 8,976 3,760 –4,57462100 Regula airline services 3,309 3,930 4,200 89164201 Networks stations 5,575 1,734 1,250 –4,32565120 Commercial and savings banks etc 1,511 1,338 2,230 71965220 Other fi nance companies 835 1,332 650 –185



CONCENTRATION IN THE BREWERY INDUSTRY

In the case of the mineral water and soft drinks industry and the brewery industry, relatively large changes have been noted. For the former, concentration in terms of the HHI increased by approx. 2,500 units in 1993-2003 and by 2,800 units between 1997 and 2003. These changes are partly due to the fact that Carlsberg, when purchasing Pripps Ringnes in 2000, agreed to terminate its collaboration with The Coca-Cola Company. This meant that the latter, which is responsible for a large share of soft drinks sales in Sweden, was thenceforth counted separately in the industry statistics. However, as a result of this acquisition, concentration among breweries increased. Here, though, import competition plays a part. The import share of beer consumption is estimated at around 20 per cent in the Swedish market. Thus the above concentration fi gures give an exaggerated picture of the situation in the industry, even though they are relatively high despite the presence of import competition.

CONSTRUCTION AND CIVIL ENGINEERING

The Swedish cement industry could virtually be described as a monopoly. No major changes have occurred there since 1993.

Low concentration, in the form of a low HHI rate, does not necessarily mean that competition in this industry is satisfactory. One example is the industry for housing construc-tion entrepreneurs. During the period under review, this industry comprised between 11,000 and 12,000 undertakings. The majority, however, were small. Over 90 per cent of the undertakings had a maximum turnover of SEK 9.9 million in 2003. As can be seen from the report on the construction and civil engine-ering sector, there are only a few construction companies operating nationwide. Also, these are vertically integrated. The small underta-kings in this industry, therefore, are not opera-ting in the same markets as the large ones. The same is true of civil engineering entrepreneurs, where just over 85 per cent of the undertakings had a turnover of no more than SEK 9.9 million in 2003.

MARKETS SUBJECT TO REGULATORY REFORM

The above table includes sectors that have been liberalised and opened to competition during the past ten-year period. Gross production in these industries accounts for an estimated ten per cent of GDP. The statistics show that concentration has declined in several of the industries. One industry in which the degree of concentration is diminishing signifi cantly is network stations (telecom). This has to do with the fact that the number of undertakings has grown considerably since the market was opened to competition in 1993. This in turn has led to substantial price falls for telecommunica-tion services in Sweden in recent years. There


are still substantial inter-Nordic differences in respect of various telecommunication servi-ces, however, which means there is scope for further price reductions.7

The power plant category comprises undertakings concerned with the production, transmission and distribution of electricity. Growth in the number of operators, and the-reby in concentration as well, was infl uenced by the regulatory reform of the electricity market in 1996, under which network activities could no longer be conducted in the same un-dertaking as the production or sale of electri-city. Accordingly, a signifi cant increase in the number of undertakings occurred from 1996 onwards. In practice, however, as the sectoral review for the electrical power industry shows, concentration in terms of electricity produc-tion and selling is considerably higher than the table indicates.

Concentration in the railway industry declined signifi cantly between 1997 and 2002. This may be partially due to the fact that the Swedish State Railways (SJ), then a public en-terprise, lost a number of important tenders in 2000. A more pertinent factor, however, was the conversion of SJ into a joint-stock company in 2001, whereupon the operation was divided up into different undertakings. This involved, for instance, separating passenger services from goods services. As a result, the overall number of railway undertakings increased without there being any increase in competition in the separate passenger service and goods service markets. In 2003, SJ AB was responsible for almost 90 per cent of long-distance domestic rail travel (beyond 100 km). The company still has a legal monopoly on the routes that it deems profi table. The goods market is domina-ted by the state-owned company Green Cargo AB, which together with its subsidiary, TGOJ Trafi k, has an overall market share of approx. 80 per cent.

THE FINANCE SECTORIn the category for commercial, savings and cooperative banks, concentration lessened bet-ween 1993 and 1997, only to increase between 1997 and 2003. The decline in competition in the fi rst period was due to the ‘niche banks’ be-coming established and gaining market shares. The fact that two banking giants, Förenings-banken and Sparbanken Sverige, merged in 1997 and became Föreningssparbanken me-ant that market concentration increased once again.

IMPORT COMPETITIONAn important long-term trend is an increase in the degree of import competition. This app-lies, for instance, to parts of the food industry, where foreign suppliers have entered the mar-

“A frequently neglected problem that arises in markets exposed

to regulatory reform and competition is that consumers do

not possess enough information about the established

companies’ rivals.”



ket and captured substantial market shares. Swedish producers, meanwhile, have joined together to form larger units, as a result of which the degree of concentration in the above table may show an apparent decline in compe-titive pressure.

The growth in import competition needs to be viewed in a longer and more internatio-nal perspective. Not only have markets been opened up within the EU but the single market has now been enlarged with the addition of ten new member states, which has clear implica-tions for the Swedish market. Moreover, new markets are developing rapidly in Russia, In-dia and China. As a result of this development, global market growth may become more rapid while at the same time it will become increa-singly important for undertakings to develop strategies that exploit these new opportunities.8

Rapid expansion of the productive pro-cess in places like the Baltic States, Russia and China can be expected to exert greater pressure on the supply side and also increase competi-tive pressures, which may have a dampening effect on price development in the long term. In the case of the Swedish economy, more intense import competition will mean greater competitive pressure.

CONSUMER MOBILITYNo market can function smoothly without active, informed consumers who have a good grasp of what is available. Regulatory reform and the opening of markets to competition, new technology and new services, along with increasing sectoral integration, all present con-sumers with new opportunities. If consumers are to take full advantage of the benefi ts engen-dered by enhanced competition, they must be familiar with the alternatives available to them and feel motivated to make choices.

A frequently neglected problem that arises in markets exposed to regulatory reform and competition is that consumers do not possess enough information about the established companies’ rivals. Also, gathering the informa-tion they need in order to compare the vari-ous undertakings’ prices and terms is often a time-consuming and costly business. However, rapid technological advance among telecom-munication products over the past 10-15 years and improved access to the Internet has signi-fi cantly altered market conditions and reduced consumers’ search costs. Better information can boost market mobility, which ultimately makes for greater competition and downward pres-sure on prices.


ConclusionsConcentration is clearly high in several of the industries listed in the above table. A number of them are subject to only limited import competition, while the entry barriers are substantial. Concentration is very high in the sugar industry, the industry for fertilisers and nitrogen compounds, and the cement industry.

In industries with a low degree of concen-tration, where the HHI is signifi cantly less than 1,000, the majority of active undertakings are relatively small. This is the case, for instance, for sawmills, general engineering workshops, housing construction entrepreneurs, civil engi-neering entrepreneurs and non-specialised car repair shops.

As regards the long-term development of competitive pressure, the table shows that domestic concentration, measured in terms of HHI fl uctuation, has decreased in several industries since the beginning of the 1990s. In a number of industries, this is a result of increased competition. Empirical studies show that market outcome – in the form of lower prices and higher production – improves when the number of undertakings increases.

The trailblazing sectors here are those that have been exposed to regulatory reform and opened to competition. Over the past 10-15 years, concentration has declined in these industries. Concentration in the telecommu-nications industry in general has continued to diminish, due to the arrival of many newco-mers since 1993. Other industries subjected to regulatory reform have not experienced a rise in market entrants on the same scale.

In some sectors, a higher degree of con-centration may be observed. In certain cases, however, this increase has been offset by grea-ter import competition, which helps reduce the market power of domestic undertakings. This is true, for instance, of the brewery industry and other food producers. This in turn has led to lower prices to consumers.

In the view of the Competition Authority, there is scope for further price reductions in a number of different sectors. The obstacles stan-ding in the way of greater competition in these sectors of the Swedish economy are described in closer detail in the sectoral reviews below.



1 See for instance the Competition Authority report, Competition in Sweden 2002 (Konkurrensverket 2002:4).2 Purchasing Power Parity (PPP), or the real exchange rate, is defi ned as the ratio of a domestic price in the currency of the domestic country to a foreign price in the currency of the foreign country. In the purchasing power statistics compiled by the EU, the real exchange rate is usually linked to the euro.3 See also the Competition Authority’s report, De svenska priserna kan pressas (Konkurrensverket 2002:5).4 The greater an undertaking’s market share, the less it stands to gain by deviating from a price agreement, as it would be more likely to ‘harm itself’ by reducing prices. By the same token, the smaller an undertaking’s market share, the less ‘harm’ it sustains by reducing prices. 5 The fi gures are based on the HHI concentration benchmark. This in turn is based on industry statistics and is thus constructed from the supply side, which means that products considered substitutable on the demand side may not be included. In such cases, the degree of concentration is over-estimated. By the same token, recorded concentration may be low in the industry although the industry has a dominant position in local markets. Thus, when an undertaking in this industry is active in different markets, its degree of market power is under-estimated. In addition, the number of undertakings may have grown without this having any effect on competition, e.g. if different divisions with an undertaking are converted into independent companies within one and the same group. In such cases, the results are misleading. The fi gures have been compiled by Statistics Sweden (SCB), based on data drawn from VAT (value added tax) returns.6 Most of the selected industries had a domestic turnover of around SEK 10 billion or more in 2002. Turnover is defi ned as tax-free sales plus converted taxable sales. Taxable sales have been calculated with the aid of reported closing tax. The sales fi gures do not include exports.7 This is clear from the report, ‘Telecompetition – Towards a Single Nordic Market for Telecommunication Services’, prepared by the Nordic competition authori-ties (2004)8 See Growth and Development, The Path to 2050, Goldman Sachs (2004).


A word of introductionThe retail trade


The retail trade

High concentration in the grocery market

FIGURE 5: Actors in the Swedish grocery retail market, 2003, broad definition*

*) In principle, a broad definition of the actors in the grocery trade embraces all trading in grocery products (consumer nondurables).

Lidl 0.1%

Othe

rs21

.4%

Reitan 1.4%Bergendahls 2.8%

Axfood 18.2%

The Swedish Cooperative

Union 18.3%

Ica 37.8%

Source: Fri Köpenskap, Dagligvarufakta (April 2004).

Swedish food prices are still high by international

standards, and competition in the grocery trade is

inadequate, although a slight improvement has been

noted following the market entry of large low-price

chains. Horizontal cooperation is still widespread

among both wholesalers and retailers, and there are

substantial entry barriers. Application of the Plan-

ning and Building Act is one of the more important

barriers to market entry for actors seeking to esta-

blish outlets.

The grocery trade (consumer nondurables) may be roughly divided into three stages: the producer or supplier stage, the bulk or who-lesale stage and the retail stage. In the past, suppliers have been viewed as the strongest of the three, but there has been a change in rela-tive strength as the retail stage has undergone structural changes. Nowadays, decisions on the range of goods offered at stores are largely taken centrally within the chains, and the retail chains have strengthened their position vis-à-vis the suppliers.

HIGH CONCENTRATION AND VERTICAL INTEGRATION

High concentration is a characteristic of both the supply and the retail stage in the Swedish grocery retail market. At the supply stage, it is not uncommon for a product area to be domi-nated by two or three undertakings that ac-count for more than 75 per cent of deliveries. In addition, smaller suppliers with limited market shares are sometimes present.

The wholesale trade targets both retailers and different types of restaurants, commercial kitchens and institutional catering. The who-lesale stage includes both full-range whole-salers and specialist wholesalers. A full-range wholesaler is typically a food retailer’s main supplier, although stores may supplement their purchases from this supplier with merchandise from specialist suppliers. In 2003, full-range wholesalers accounted for almost half of over-all turnover in the food wholesale trade.9 The major chains (particularly Ica, Coop, Axfood and BergendahlsGruppen) are active in both the wholesale and the retail trade.


Table 3. The grocery retail trade in Sweden

Chain10 Turnover Market share, Market share, Change, (SEK million) broad defi nition narrow defi nition Jan–June13

2003 2003, %11 2003, %12 2004, %

Ica 76 38 48 0.8The Swedish CooperativeUnion 37 18 23 –3.1Axfood 37 18 23 2.8Bergendahls 6 3 4 6.5Reitan 3 1 2Others 43 22 –Total 201 100 100 1.4

Jan–June 2004

Netto14 0.4 0.6Lidl15 0.8 1.1

Source: Swedish Competition Authority (Konsumenterna, matpriserna och konkurrensen), and Fri Köpenskap, Dagligvarufakta, April 2004, and Fri Köpenskap, 6 Aug 2004.

Retailers operate partly via different types of foodstores and food departments at large su-permarkets and hypermarkets, and partly via specialist stores, roadside outlets and conve-nience stores, and via outdoor market trading and e-commerce. The market is dominated by three big chains, Ica, Axfood and Coop, all of which integrate their buying and retailing to a considerable extent.

The market leader is Ica, which is one of the largest grocery retailing groups in the Nordic area, with some 1,800 affi liated stores in Sweden. Ica is also active in the food distribu-tion fi eld and as a provider of bank services to consumers.

The second largest actor is the Swedish Cooperative Union. Its 900 stores in Sweden are owned by local consumer associations and Coop Sverige AB.

Axfood is both a wholesaler and a retailer. Its wholesale operation comprises Dagab and Axfood Närlivs, which distribute goods both to the group’s own retailers and to independent partner retailers. Over 200 stores are wholly owned (Hemköp, Willys, Willys Hemma), and a further 200 stores are run as franchises (Vivo and Spar). Vivo Stockholm, with 60 outlets, recently announced that it planned to replace Axfood with Bergendahls as its main wholesa-le supplier. In recent times, Axfood’s low-price segment in particular has grown in size, due to the strong growth of the Willy shops.


The retail trade

Other actors include Bergendahls, Reitan, Föreningen Fri Mat, and PrisXtra. Recently, new actors have entered the market in the low-price segment via both the Danish chain Netto in 2002 (half-owned by Ica) and Lidl of Germa-ny. In the autumn of 2004, Netto had 45 stores in Sweden. Both these actors are established in a number of countries and are now growing rapidly in the Swedish market.

Food prices in Sweden are still high by international standards. Excluding VAT, they exceed prices in Germany and the Netherlands by nine per cent. Regional differences in Swe-den amount to eight per cent at the most. Thus there is no reason why Sweden should not have food prices on a par at least with the UK or Finland excluding VAT, i.e. about fi ve per cent lower than at present. In the opinion of the Competition Authority, this could be achieved by means of better competition.

The entry of new low-price chains has strengthened competition in the grocery retail

market in Sweden, and there are signs that the gap between the Swedish price level and price levels in other countries is closing.

In its present form and in the way it is enforced, the Planning and Building Act repre-sents one of the more important entry barriers for new actors in the grocery retail market, as some municipalities do not always take compe-titive aspects into consideration when applying it.

STRUCTURE OF STORESDevelopments in the market have had a marked impact on the way stores are structu-red. The trend towards fewer and larger outlets is continuing, while low-price stores and large supermarkets/hypermarkets are gaining mar-ket shares.

The number of grocery retail stores in Swe-den is now less than 5,000, which represents a decline of almost 30 per cent over little more than a decade. Total sales space, however, has

108

FIGURE 6: Consumer Price Index (CPI) and the price of food and non-alcoholic beverages, mean annual figures (1996=100)

Food and non-alcoholic beveragesCPI total

1996 1997 1998 1999 2000 2001 2002 2003 2004 (jan–sept)

106

104

102

110

100

In recent years, Swedish food prices have increased at a slower rate than the Consumer Price Index.Source: Statistics Sweden, SCB, processed by the Competition Authority.


50 100 150 200

FIGURE 7: Price level index for food and non-alcoholic beverages in a selection of countries in 2003, incl. VAT (EU25=100)

IndexRomania 51

PolandLithuaniaCzeh Republic

HungaryTurkey

SpainGreece

EU25 100UK

GermanyAustria

FranceItalyLuxemburg

FinlandSweden, 124

DenmarkSwitzerlandIceland, 156

Portugal

Source: Eurostat 2004 (Eating, drinking, smoking - comparative price levels in EU, EFTA, and Candidate Countries for 2003).

8886 92 94 96 98 10090

FIGURE 8: Price level index for food in Sweden and in a selection of other countries in 2003, excluding VAT (Sweden=100)

IndexNetherlands

Germany

UK

Finland

France

Denmark

Sweden

Source: Swedish Competition Authority (Konsumenterna, matpriserna och konkurrensen), and Eurostat 2004 (Eating, drinking, smoking – comparative price levels in EU, EFTA, and Candidate Countries för 2003), processed by the Competition Authority.


The retail trade

Table 4. Structure of grocery retail stores

1993 2000 2004

Number of stores 6,678 5,296 4,719Sales space (1,000 m2) 2,608 2,764 2,665Average space (m2) 391 522 565Market shares (%)16

– Large supermarkets/ hypermarkets 7 12 14– Low-prices stores 3 11 12– Convenience stores 5 6 5

Source: Swedish Competition Authority (Konsumenterna, matpri-serna och konkurrense, p. 13, table 2.2), and Delfi Marknads-partner AB, statistics from the database of the Swedish Food Workers’ Union, estimates by the Competition Authority.

not diminished over the period, which means the average store is gradually becoming larger. In 1993 it was just under 400 m2 in size, while today it is almost 600 m2.

Large supermarkets/hypermarkets now have a market share of approx. 14 per cent in Sweden as a whole, which is twice that of 1993. Low-price stores have quadrupled their share of the market in recent years, which now stands at 12 per cent.

PRIVATE LABEL MERCHANDISE ON THE INCREASE

Swedish retail chains are increasingly produ-cing merchandise under their own labels to compete on the shelves with products from suppliers. These private-label goods are often produced by manufacturers who also sell products under their own name. In many parts of Europe, private labelling is more wides-pread than in Sweden, despite the fact that the proportion of such products has increased

dramatically here over the past ten years. In 1992, their sales share was about two per cent, while it is now 7-11 per cent and looks likely to increase further in the near future. Both Ica and Axfood have declared that their aim is to boost the proportion of private-label merchandise to 25 per cent of sales.

There are a number of reasons why retai-lers choose to invest in their own labels. Such an approach may be part of a chain’s strategy to develop a profi le, while at the same time placing the chain in a stronger position vis-à-vis its suppliers. Also, retailers’ margins tend to be higher when they sell goods under their own label. In Sweden, the emphasis on private labelling should be viewed in the light of gro-wing low-price competition from abroad.

Private-label goods are typically low-price products, and their prices may be 10-40 per cent lower than those of the market leaders. But there are countries, such as the UK, where private-label goods are also designed and mar-keted as high quality products.

The overall impact on consumers of the growing share of private-label goods is not clear. Such products can be seen as an expres-sion of stronger price competition. The overall range of shelf goods, however, may become smaller, which may adversely affect certain supplier categories.


“Food prices in Sweden are still high by international standards.

Excluding VAT, they exceed prices in Germany and the Netherlands

by nine per cent.”

THE FUTURE IS NOT EASY TO FORESEE

Mergers are an important feature of structural change in a country’s economy. Sometimes, however, they may have adverse effects for consumers, for instance in cases where they signifi cantly reduce competition. There is a crucial difference between merger control and other applications of the Competition Act. In the former, instead of investigating what happened when the offence was committed, as is the practice in cartel and abuse investigations, the Competition Authority is required to assess the likely future effects of the merger. In recent years, the Competition Authority has built up its own capacity for simulating the impact of a merger by mathematical means. Simulation was fi rst used to assess a merger when Cerealia AB acquired Schulstad AB in the spring of 2003 (reg. no. 107/2003). The case focused principally on the fresh bread market. To keep the exercise at a manageable level, the number of types of bread used was reduced from the actual fi gure of 2,000 to about twenty. With the help of this simulation, the Competition Authority decided the merger would probably not affect consumers adversely.The simulation methods applied in Sweden have been imported from the US, where

they have been in regular use for some time. Simulations supplement more traditional methods for reviewing mergers and assessing their effect on competition. The advantage of this type of quantitative approach is not only that the analysis is easier to follow, as all the assumptions are explicit, but also that it is easier to weigh favourable and unfavourable effects against one another, as they are quantifi ed. Furthermore, the undertakings themselves may welcome the opportunity, when planning an acquisition, to analyse its potential impact on the market, and, by extension, to learn what action might be taken to alleviate any adverse competitive effects of the move. One of the drawbacks of simulations is that they may be considered complicated. Careful explanation of what is happening in the simulation model then becomes essential. Also, it is diffi cult to take account of all the peculiarities of a given market, which means that the results of a simulation must be treated with great caution. To date, the Competition Authority has only made use of simulation in a few cases.


The retail trade

Private imports of new cars still very limited

Under an exemption clause in the Competition Act,

suppliers can give dealers in Sweden sole rights on

the sale of new private cars within a geographically

defi ned area. In late 2002, however, the European

Commission adopted a new block exemption regu-

lation for motor vehicles, as evaluation had shown

that under the previous system consumers had

found it diffi cult to make purchases across borders,

and car distribution in Europe had become struc-

turally rigid. The new block exemption regulation

aims to enhance competition both in the new car

market and in the market for car repair services.

On 1 January 2002, over four million Swedish-registered cars were running on the country’s roads. The largest make was Volvo, with 984,000 cars (almost 25 per cent of all vehicles on the road), followed by Volkswagen, Saab and Ford with about nine per cent of the mar-ket each. The car market can be divided into new car sales, used car sales and an after-mar-ket (service and repairs).

NEW PRIVATE CARSNew car sales in Sweden are generally

structured around a general agent who sells the vehicles to authorised dealers stocking just one or a small number of makes. As a rule, aut-horised dealers have one or more districts at their disposal, under an arrangement sanctio-ned by the European Commission in its block exemption regulation for the distribution of motor vehicles (see below). Often, authorised dealers also sell used cars. In addition, they service and repair vehicles.

There are signifi cant price differences been EU member states, although the gap has closed somewhat in recent years. Which country in the Union has the lowest and highest prices re-spectively, however, varies for different makes and models. In Denmark, prices excluding VAT are among the lowest in the EU for many mo-dels. New car tax in Denmark, however, is very high, which means that prices there including tax are among the highest in the EU. Despite the price gap, private individuals only buy cars abroad to a very limited extent, although

FIGURE 9: Sales of new cars in 2003, for general agencies

Audi, Porsche,

Skoda, Seat,

Volkswagen 17%

Daew

oo,

Opel

, Saa

b 15

%

Peugeot 7%

Ford 6%

Others 16%

Citroën

4%

Hyun

dai 3

%

Jaguar, Land Rover,

Renault, Volvo 25%

Lexus,Toyota 7%

Source: Assocn for Motor Retail Trades and Repairs, MRF (Motorbranschen, Feb 2004 nos. 1–2) and Bil Sweden.


private imports have increased since Sweden joined the Union.

The new car market in Sweden is charac-terised by a satisfactory level of competition between makes, although competition between rival undertakings selling the same make has been dampened as a result of authorised dealers being allotted specifi c sales districts. By introducing changes in its block exemption re-gulation, however, the European Commission aims to strengthen competition and give con-sumers a large share of the industry’s profi ts.

USED CARSUsed cars are sold by private individuals, authorised car dealers, unauthorised car dea-lers and other legal entities. Each respective group’s share of the market varies considerably according to the age of the vehicle. The cars

sold by authorised dealers tend to be newer than those sold by private individuals. In all, private sellers accounted for almost 70 per cent of all sales of used cars in 2002.

SERVICE AND REPAIRSThe after-market can be divided into sales of spare parts and accessories, and repair shop services. The latter are provided by car repair shops that are either authorised by the general agent (known as brand shops) or independent. About half of the repair shops in Sweden are authorised. To obtain authorisation, a repair shop must fulfi l a wide range of requirements drawn up by the general agent, concerning premises, procedures for dealing with custo-mers, and investment in special tools etc. The price of car repairs and maintenance are usual-ly higher in metropolitan areas than elsewhere

45

Per cent5050

353025201510

5

FIGURE 10: Price gaps, for three makes, between the cheapest and most expensive car markets in the EU zone defined as share of the higher price excl. tax

BMW 318 i

VW Golf

Opel Corsa

40

nov97

may98

nov98

may99

nov99

may00

nov00*

may01

nov01

may02

nov02

may03

The price gap between a selection of car models in the cheapest and the most expensive country in the EU zone has tended to close in recent years.*) After Greece joined the EU in the winter of 2000, the price differential increased for a couple of years, particularly for certain makes in the small and medium car range.

Source: http://europa.eu.int/comm/competiton/car.sector/price_diffs/, 2004


The retail trade

1995 1996 1997 1998 1999 2000 2001 2002 2003

250

Thousands

300

200

150

100

50

0

FIGURE 11: New car sales and direct imports of private cars (three latest models), number of cars

a) New registrationsb) Directly imported cars, three latest models

Source: Bil Sweden (Bilismen i Sverige 2002 and press releases 2004-01-12 and 2003-01-10), and the Association for Motor Retail Trades and Repairs, MRF (Motorbranschen Feb. 2004 1–2)

a b a b a b a b a b ab

a b ab*

ab*

*) Applies to cars that are no more than three years old, regardless of production year.

0,5–5 yrs 5–10 yrs 10–15 yrs

100

Per cent

75

50

25

0

FIGURE 12: Used car market shares of authorised dealers, according to vehicle age*

a

a) Authoriseddealers

b) Others**

a a

b

a

b

a

b

c e

*) Refers to November 2002–Oktober 2003. **) This category includes private individuals, unauthorised car dealers and other legal entities.

Source: Association for Motor Retail Trades and Repairs, MRF (Motorbranschen februari 2004 1-2, p. 27), and Vroom AB.


and higher at authorised repair shops than at unauthorised ones.

Ordinarily, customers travel for no more than 30 minutes in order to reach a repair shop, which encourages regional price variations. There is also a tendency towards customer lock-in among authorised repair shops, as they usually carry out repairs during the guarantee period. Also, authorised repair shops provide a stamped certifi cate of service, which may affect the second-hand price of the vehicle.

CHANGES IN THE AUTHORISATION OF CAR REPAIR SHOPS

On 1 October 2002, the European Commission adopted a new block exemption regulation for motor vehicles. Evaluation had shown that un-der the previous system consumers had found it diffi cult to make purchases across borders and car distribution in Europe had become structurally rigid. A change in the exemption rules was therefore considered essential. The new block exemption regulation aims to en-hance competition both in the new car market and in the after-market for car repair services and the sale of spare parts.

Car manufacturers can choose between two different distribution systems, an exclusive

one and a selective one. They can only choose the exclusive system, however, if their market share is less than 30 per cent. The change in the rules applies to the selective system and the after-market.

As the result of a general change introdu-ced into the new car market, it is now easier for sales organisations to sell different makes in a joint showroom. Under the selective distribu-tion system, dealers will now be able to active-ly market their wares in all EU markets where selective systems apply. In addition, they will be free to expand their activities, for instance by establishing new sales outlets (applies from 1 October 2005). Under the exclusive system, only passive selling is permitted, i.e. sales wit-hout active marketing.

In the case of the after-market, all repair shops that meet the manufacturer’s require-ments will be entitled to authorisation and will be allowed start up wherever they like in the EU. The authorisation requirements are so stringent, however, that it is not clear what ef-fect the new rules will have on market competi-tion between repair shops. Furthermore, access to training, tools and equipment at indepen-dent repair shops must also be assured.

“There are signifi cant price differences been EU member states, although the gap has

closed somewhat in recent years.”


The retail trade

CASES DEALT WITH BY THE COMPETITION AUTHORITY

In 2004, the Competition Authority sued eight Volvo and Renault car dealers for SEK 157.5 million (reg. no. 331/2004). The retail companies were suspected of having infringed the Competition Act by agreeing on prices and discounts in both the new and the used car markets.In early 2004, Bilia Personbilar AB applied to purchase Eneqvist Bil AB in the county of Stockholm. After assessing the merger by means of an in-depth study, the Competition Authority decided not to take any action (reg. no. 212/2004).

9 Statistics Sweden (SCB), SNI 5139 and 5131-513810 The Ica group comprises Ica stores, Netto, Etos, and chainstores in partnership with Ica-Meny; the Kooperationen group comprises Coop Sverige AB and regional and local consumer associations; the Axfood group comprises Axfood AB, partner stores and the Axfood Näringsliv associate chains Tempo, Handlar’n, Jour Livs, and Red&Blue; the Reitan group comprises Pressbyrån, 7-Eleven and Rema 1000; the ‘Others’ category includes sales in roadside outlets, fast-food stalls, unprofi led convenience stores, market trading, specialist stores and numerous other sales outlets.11 Share based on a ‘broad’ market defi nition, including ‘Others’. The broad market is defi ned as all grocery retailing (consumer nondurables) (Source: Fri Köpenskap, Dagligvarufakta, April 2004, p. 9-10)12 Share based on a ‘narrow’ market defi nition, excluding ‘Others’. Under this defi nition, only full-range stores are included. (Source: Fri Köpenskap, Dagligvarufakta, April 2004, p. 9-10)13 Calendar adjusted percentage change in volume for the fi rst six months of the year compared with the corresponding period in 2003. The Ica fi gure is excluding Netto, Etos, and partner chains to Ica-Meny, and the Axfood fi gure is excluding Handlar’n, Jour Livs, and Red&Blue. (Source: Fri Köpenskap, 6 Aug 2004)14 Competition Authority calculations based on data estimates (Source: Fri Köpenskap, 6 Aug 2004)15 Ibid.16 Based on turnover.

Further reading about the retail trade:Report, Dagligvaruhandeln – struktur, ägarform och relation till leverantörer (Swedish Competition Authority 2002:6)European Commission Regulation (EC) No. 1400/2002 of 31 July 2002Report, Konsumenterna, matpriserna och konkurrensen (Swedish Competition Authority 2004:2)The Power of Private Label, A Review of Growth Trends Around the World (ACNielsen)


A word of introductionTransport


Transport

Increased competition in the aviation market

“Tougher competition from low-price carriers and

generally weak demand has caused air fares to fall in

many countries.”

Swedish air travellers have recently been given

access to lower air fares following the arrival of

low-price airlines in Sweden. What used to be a

major entry barrier for new actors – a lack of takeoff

and landing times, or slots, at Arlanda airport – is

no longer a major problem. This is due partly to the

opening of the third runway at Arlanda and partly

to weak growth in the aviation fi eld. Access to slots

has improved as the demand for them has declined.

Should the market situation change, however, the

present slot allocation system may make it harder

for new actors to secure attractive takeoff and lan-

ding times.

The aviation market was liberalised in 1992, which gave other airlines besides SAS the opportunity to enter. One of the purposes of liberalising the market was to open it up for competition between the two major carriers in the Swedish domestic market, SAS and Linje-fl yg. A few months before liberalisation was introduced, however, SAS purchased Linjefl yg, which eliminated the competition between them. In the EU zone, the aviation market has been gradually liberalised since 1979.

The domestic market in Sweden is highly concentrated, with SAS and its partner Sky-ways holding a combined market share of approx. 70 per cent in terms of passenger load. At the beginning of 2003, thirteen carriers were operating domestic services on some 70 routes, although only seven of these were competitive. During 2004, the number of competitive routes has increased.

FALLING AIR FARES AND SIGNS OF PASSENGER LOAD RECOVERY

The aviation market can be roughly divided into regular passenger services and charter ser-vices, and domestic and international fl ights. In terms of passenger load, 1990 was a record year for domestic aviation in Sweden. The numbers then fell, but rose again later in the decade. In 2001 and 2002, air travel stagnated in many countries, which is frequently attribu-ted to the terror attack of 11 September 2001 in the US and to the outbreak of the SARS epi-demic. In 2002, ticket sales rose again in most countries, but in Sweden air travel continued to decline, and has only showed an upturn in recent quarters.

Tougher competition from low-price carri-ers and generally weak demand has caused air fares to fall in many countries. This develop-ment has brought pressure to bear on a num-ber of major airlines. In Sweden, for instance, SAS has reported that overcapacity in many markets and strong price pressure severely reduced its ‘yield’ in April and May 2004.17 In response, SAS has launched a comprehensive austerity programme. The parent company has been divided up into three national un-dertakings and a company for intercontinental


16

Miljons

12

10

8

6

4

18

14

FIGURE 13: Number of passengers* at Swedish airports travelling by regular services and charter services

International

Domestic

1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

*) Number of arriving and departing passengers on international flights and number of departing passengers on domestic flights.Source: Swedish CAA (Luftfart 2003, p. 25) and the Swedish Institute for Transport and Communications Analysis, SIKA.

125

120

115

110

100

105

FIGURE 14: Price trend for domestic air travel (business and private) compared with CPI overall*, annual average in Sweden, 1996=100

Private travel

Business travel

1996 1997 1998 1999 2000 2001 2002 2003 2004(jan–july)

*) The relative price is calculated as the ratio of the subindex for domestic air travel (business and private) to CPI overall, yearly average.

Source: Swedish Competition Authority (Monopoly Markets in Transition) and Statistics Sweden.


Transport

services. Also, following the example of several other major carriers, SAS entered the low-price market via a new undertaking, Snowfl ake. Eighteen months later, however, Snowfl ake was closed down as a self-contained company due to poor earnings, and the concept was integrated into SAS’s regular fl ights.

THE ROLE OF LOW-PRICE CARRIERS IN SWEDEN

In Sweden, the last two years have seen a ma-jor breakthrough for low-price carriers. In 2004, for instance, the Swedish state awarded a fram-ework contract to the low-price carrier FlyMe for the Stockholm-Gothenburg route. Ryanair, which has Skavsta as its Nordic hub, currently operates from four Swedish airports.

ENTRY BARRIERS IN THE AVIATION MARKET

The allocation system for takeoff and landing times sometimes represents a problem for new actors at airports where these slots are in heavy demand. Slots are distributed according to the principle of ‘grandfather rights’, which means that carriers are given prior access to the slots they had during the previous period, on condi-tion that they made proper use of them during that time. Besides the potential effi ciency losses involved, as a result of carriers maintaining unprofi table departures simply to keep their slots, this system may make it diffi cult for newcomers to access peak-time slots at attrac-tive airports. Previously, new actors found it diffi cult to obtain attractive slots at Arlanda, for instance, but due to the opening of a third runway at the airport and the general decline in air travel, slots distribution there is no long-er a major problem. During 2004, for example, the low-price carrier FlyMe was allocated slots at Arlanda. If the market improves and traffi c growth continues, however, the slots distribu-

tion system may once again prove a problem. The European Commission is currently revie-wing the grandfather rights principle.

Entry to the aviation market is also com-plicated by the fact that travellers switching airlines incur costs, known as ‘lock-in’ costs. Frequent fl yer (loyalty) programmes (FFP) contribute to these costs by giving customers the incentive to use the same airline a number of times. The incentive is even greater if the air-line is large and many other carriers are affi lia-ted to its FFP via alliances. In 1999, the Compe-tition Authority ordered SAS to cease operating its FFP, EuroBonus, in such a way that points or their equivalent leading to bonus offers could be earned on domestic fl ights in Sweden. An

FIGURE 15: Slots allocation at Arlanda airport, summer 2004*

SAS 36.7%

Skyways

12.7%

Blue 1 8.2%

**Ri

kstra

fiken

3.1%

Fly m

e 2.3

%

KLM

0.7%Britis

h Airways 1.3

%

Sterling 1.4%

West Air Sweden 0.6%

Others 21.4%

Nordic Airli

nk 4.7%Lu

fthan

sa 3.

5%

Finna

ir 3.

4%

*) 28 March–30 October 2004 (Slots status on 6 August 2004)**)Rikstrafiken (the National Public Transport Agency) is a government body that procures passenger services in the transport field, including air travel.

Source: ACS.


“ In Sweden, the last two years have seen a major breakthrough for

low-price carriers.”

appeal was lodged, and in early 2001 the Mar-ket Court ruled that SAS and its partners could no longer use EuroBonus on domestic routes where the airline was in competition. There is nothing to prevent other airlines from awarding points on all their domestic routes.

One matter that often comes up in con-nection with the aviation sector is predatory pricing, i.e. when companies set their prices below their production costs. On a number of occasions, competition authorities in various countries, among them Norway, have investi-gated whether airlines have been guilty of this practice (see section headed ‘Predatory pricing – when the price is too low’).

ALLIANCES

Airlines in the US began forming alliances in the early 1980s, and European carriers followed suit towards the end of the decade. The three largest alliances today account for approximately 60 per cent of all international air traffi c. Alliance-forming in the aviation sector is interesting from a competitive viewpoint, and a close eye has to be kept on this phenomenon to ensure that it does not lead to market sharing.

FIGURE 16: Slots allocation at Bromma aiport, summer 2004*

*) 28 March–20 October 2004.

SAS 2.5%

Skyways 11.7%Sunair 2.4%

Swedline 6.7%Golden

Air 21.

2%

Malmö Aviation 55%

Source: ACS.

FIGURE 17: Market shares of global aviation alliances, 2004

*) Air France, Continental, Delta, Aeromexico, Alitalia, CSA Czech Airlines, KLM, Korean Air, Northwest**) Aer Lingus, American Airlines, British Airways, Cathay Pacific, Finnair, Iberia, Lanchile, Qantas, Swiss***) Air Canada, Air New Zealand, Austrian Airlines, ANA, Asian Airlines, bmi, LOT, Lufthansa, Mexicana, SAS, Singapore Airlines, Spanair, TAM, Thai, United, US Airways, Varig.

**One world 16.8%*Sky t

eam 21

.2%

***Star alliance 23.8%

Others 38.2%

Source: Swedish CAA (Annual report 2003).


Transport

PREDATORY PRICING – WHEN THE PRICE IS TOO LOW

Companies sometimes accuse one another of engaging in predatory pricing. The injured party usually argues that the low prices have been introduced solely for the purpose of eliminating competition or to prevent potential rivals from entering the market. Under Swedish, European and American competition law, dominant undertakings are in some circumstances forbidden to set prices below a relevant cost level. Non-dominant undertakings can set prices at whatever level they wish, even way below marginal cost. Such a move would simply be viewed as competition in action. In EU case law, what are known as the AKZO criteria for predatory pricing apply. The European Court of Justice has established two rules specifying what constitutes predatory pricing. Firstly, if a dominant company sets prices below the average variable cost for an article of goods or a service, this in unlawful in all cases. It is diffi cult to see any point in a dominant company selling each unit at a loss unless the aim is to harm a competitor. Secondly, prices that lie between the average variable cost and the average total cost are deemed unlawful if the authorities can show that the aim of the dominant company’s pricing was to eliminate competitors, which in the longer term would push up prices to consumers. Economic theory holds that a couple of conditions must be met if predatory pricing is to prove a profi table strategy for a dominant company. The company must be able to eventually recover the losses it sustains during the predatory pricing phase, which presupposes that it wields considerable market power through having eliminated all its competitors. If competition in the market is effi cient and entry

barriers are low, the company is unable to recover its losses by raising prices and a predatory pricing strategy thus becomes impossible.Pricing below marginal cost sometimes occurs even in markets with effi cient competition, for instance in the form of an introductory offer. The seller counts on recovering the loss at a later stage, once customers have been ‘locked in’. Viewed over the whole life cycle of the product, however, prices are on a par with costs, and the market is thus working well. There are also other market properties that may generate similar or more complicated price patterns over time, such as falling costs to producers or network externalities affecting the products. There are plenty of instances, however, of a dominant company seeking to pursue a predatory pricing strategy. Such cases frequently occur in the aviation market, where a dominant actor often sets considerably lower prices on routes where new competitors are trying to establish themselves. Lower prices are to be expected where there is competition. Rival airlines sometimes claim, however, that the low prices are a predatory pricing strategy designed simply to eliminate them. On a number of occasions, competition authorities have seen fi t to launch investigations into alleged predatory pricing in aviation markets, against such actors as American Airlines (US), Air Canada (Canada), Quantas (Australia) and SAS (Norway).

THE PROBLEMS FACING COMPETITION AUTHORITIES Less effi cient companies sometimes exploit the diffi culty of distinguishing between very tough competition and underpricing to try and persuade competition authorities to protect


them. Even where prices are not so low as to threaten its survival, the company may welcome the opportunity to have the authorities ‘approve’ a higher market price. All undertakings, including the dominant one, benefi t from this kind of offi cial sanction.Competition authorities must be able to show that the price is being kept below the short-term average or total cost on a lasting basis. In competition cases, it is often a question of who to believe. In underpricing cases, the company lodging the complaint and the dominant actor accused of improper practice may supply

confl icting cost information. Assessing cost data that is diffi cult to verify, from companies acting in their own specifi c interests, is a sensitive task. Expressed simply, the costs that the price is to be compared to, in the case of a company with many products, are the variable costs that the company avoids if the product in question is not produced. A further problem is that the processing of underpricing cases by the authorities may take such a long time that the company which lodged the complaint may have vanished from the market before any action has been taken. This may also deter companies from seeking re-entry.

Liberalisation of the railway sector in Sweden began

back in the late 1980s, which was early by European

standards. The state-owned companies SJ AB and

Green Cargo AB, however, are still in a very strong

position in the markets for passenger and goods

traffi c respectively. In the case of passenger services,

the main problem from a competitive viewpoint

is that SJ enjoys sole rights and therefore does not

encounter any competition on those routes that it

considers profi table. In addition, the inadequate

level of interoperability between EU states in terms

of technology and safety makes it diffi cult for opera-

tors to establish a presence in other countries.

Lack of competition on profi table passenger routes a competitive problem

In 1998, Swedish State Railways were divided into a track maintenance agency (the National Rail Administration) and a railway operator, SJ, which was subsequently conver-ted into a joint-stock company and divided up into a number of independent undertakings. Passenger services have since been operated by SJ AB and goods services by Green Cargo AB. Both are wholly owned by the Swedish state.

HIGH CONCENTRATION IN GOODS AND PASSENGER TRAFFIC

Rail transport in Sweden comprises goods services and passenger services. The former market was opened to competition in 1996 and


Transport

could now be described as fully competitive. The principal actor in the goods traffi c market is Green Cargo, with a current market share of around 80 per cent. Besides Green Cargo, there are about a dozen companies operating goods services. Today, Green Cargo AB is ow-ned wholly by the state, but in April 2004 the Swedish Government introduced a bill under which the state would be allowed to sell off all or part of its holdings in the company. The bill was subsequently approved by the Swedish parliament. In addition, the Government is to acquire shares or holdings in the company that buys Green Cargo, and will also be putting up capital.

SJ is easily the dominant actor in the pas-senger service market, with a market share of approximately 90 per cent for distances above 100 km. In the overall rail passenger market, its share is approximately 55 per cent.18 Besides SJ, there are about a dozen market actors affi liated

to the Association of Swedish Train Operators. To some extent, rail travel also competes with air, car and bus travel.

The passenger traffi c market may be divided into two submarkets operating under different competitive conditions: the contract market and the market for interregional traffi c considered profi table by SJ. Contract services, comprising local and regional public transport and unprofi table interregional traffi c, have been open to competition since the early 1990s. Contracts are offered by the traffi c principal or Rikstrafi ken (the National Public Transport Agency)19 and the company that wins the bid-ding is normally given sole rights to the route concerned. In the other submarket, i.e. for rou-tes that SJ deems profi table, SJ holds a mono-poly position. The fact that SJ is able to decide which routes are profi table gives the company a signifi cant competitive advantage over other operators. The only requirement made by the

Journeys above 100 km,passenger services

Total market forpassenger services

Goods servicesby rail

100Procent

80

60

40

20

0

FIGURE 18: Market shares of SJ and Green Cargo

a) SJb) Othersc) Green Cargo

ac ea c

b

a

b

b

Source: SJ (Annual Report 2003) and Green Cargo (Quarterly Report, Jan-March 2004).


“Another problem is the lack of interoperability between the

EU member states in terms of technology and safety, which

makes it diffi cult for operators to establish a presence in

other countries.”

state in return for granting SJ sole rights is that the company must show a profi t.

Another problem is the inadequate level of interoperability between the EU member states in terms of technology and safety, which makes it diffi cult for operators to establish a presence

in other countries. This issue has been raised within the Union, and the European Commis-sion has been trying to resolve it for some time. The work currently under way in the EU to develop an inner railway market with harmo-nised rules and standards, therefore, is going to be of major competitive importance to the Swedish market.

In comparison with other countries in Europe, the liberalisation of the railway sector in Sweden began early. It resulted in a num-ber of actors entering the market, on both the passenger side and the goods side, but both Green Cargo and SJ still have very large mar-ket shares. Prices on domestic rail routes have increased sharply in the 1990s – between 1990 and 2003 by almost 30 per cent relative to the Consumer Price Index (CPI).

In 2001, the Railways Commission was set up to conduct a broad review of legislation and organisation in the railway sector. One of

170160150140

120130

100110

FIGURE 19: Price trend for rail travel in Sweden compared with the CPI* in 1980–2003 (passenger services), 1980=100

1980 1983 1986 1989 1992 1995 1998 2001

*) The relative price is calculated as the ratio of the subindex for rail travel (passenger services) to CPI overall, yearly average.Source: Swedish Competition Authority (Monopoly Markets in Transition) and Statistics Sweden, SCB.


Transport

the recommendations in its report (SOU 2003:104), presented in late 2003, was that SJ’s legal monopoly on profi table routes be abolished. In a bid to increase the number of actors in the goods market, it also proposed that TGOJ Trafi k, a Green Cargo subsidiary, be detached from the Green Cargo group so that it might compete with its present parent company. The recommendations of the Railways Commission will be a key part of the material on which the Government’s transport policy bill due in 2005 will be based.

Further reading about transport and underpricing:Flygkrisen i Sverige, Analys och förslag till åtgärder (Swedish CAA 2004:2)Flygets utveckling 2003 (Swedish CAA)Swedish Ministry of Industry, Employment and Communications report, The Railway in Service for Passengers and Goods (SOU 2003:104)Annual Report 2003 (Swedish CAA)Monopoly Markets in Transition (Swedish Competition Authority 2004:3)Predation and the Logic of the Average Variable Cost Test (Baumol, W J, 1996)Predatory Pricing and Related Practices under Section 2 of the Sherman Act (Areeda, P and D Turner, 1975)Report, The Pros and Cons of Low Prices (Swedish Competition Authority 2003)

17 Interim report of the SAS Group, January-June 200418 SJ Annual Report 200319 Rikstrafi ken purchases for the State such air, train, boat and bus ser-vices which are justifi ed from the viewpoint of economics but unprofi table from the viewpoint of business economics.


A word of introductionElectronic communication


Electronic communication

New regulations for the electronic communication marketDramatic changes have taken place since the

electronic communication market in Sweden was

opened to competition ten years ago, resulting in

greater competition and greater consumer benefi t.

A number of competitive problems remain,

however, including TeliaSonera’s control of

the fi xed access network.

A distinguishing feature of the market for electronic communication – embracing both fi xed-line and mobile telephony, computer communication services, Internet services and radio and TV – is rapid technological deve-lopment and innovation. Below is a general description of the markets for fi xed-line and mobile telecommunication services and for the Internet.

When the Swedish Telecommunications Act entered into force in 1993, the telecommu-nications market was opened to competition after previously having been more or less an unregulated monopoly. In 2003, the Electronic Communications Act (2003:389) was introdu-ced. Under this law, the central administrative authority for the sector, the National Post and Telecom Agency, was to impose competition-enhancing requirements on companies having a signifi cant market power (SMP) in the market concerned.

FIXED-LINE TELEPHONY In 2003, some fi fty operators were supplying telephony services in Sweden, and the market shares of the former monopolist TeliaSonera

(Telia) had declined considerably from ten years earlier, when the market was opened to competition.

In terms of total revenue for fi xed-line call services, Telia’s market share was approx-imately 54 per cent in 2003. In terms of total revenue for fi xed-line telecommunications services, including revenue from subscriptions, etc, its market share was just over 70 per cent. The fact that Telia’s market shares are higher if they are calculated in terms of total revenue for fi xed-line telephony is due to the majority of customers with rival companies having ‘carrier pre-selection’ (CPS) customers. Such customers pay call charges to the CPS operator but still pay a subscription fee to Telia. The CPS operator in turn pays Telia for the use of its infrastructure. The number of CPS custo-mers has increased fairly substantially in recent years, and on 31 December 2003 just over two million private customers, or about 40 per cent of all private customers in Sweden, were CPS customers with an operator other than Telia.

The fact that Telia still enjoys a strong posi-tion in the fi xed-line market is due mainly to its control of the only access network – in the form of copper cable from the telecommunications station to the customer – reaching the vast ma-jority of households and businesses in Sweden. This means that most customers still have a contractual relationship with Telia, even if they are CPS customers with another operator.

Operators wishing to charge a customer a subscription fee in the same way as Telia, must either have access to infrastructure of their own or lease cable between the telecommuni-cations station and the customer from Telia. As


100Per cent

80

60

40

20

0

FIGURE 20: Market shares – all traffic revenue for fixed-line call services (national calls and Internet, from fixed lines to mobile networks, and international calls)

e

a) Othersb) Telia

a a ebb

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003a

ba

ba

ba

b

a

b

a

b

a

b

a

b

a

b

Source: National Post and Telecom Agency (Svensk telemarknad 2003).

31 dec 1999 31 dec 2000 31 dec 2001 31 dec 2002* 31 dec 2003*

5 000

Thousands

6 000

4 0003 000

2 0001 000

0

FIGURE 21: Number of subscriptions and number of CPS customers for fixed-line telephony (thousands)

a) Total subscriptionsb) CPS customers, privatec) CPS customers, business

a cb a cb a cb a cb a cb

Number of subscriptions is not a totally accurate comparative measure as a customer may have more than one subscription. It is nevertheless clear that the number of carrier pre-selection (CPS) customers has increased dramatically since 1999, when the CPS reform was introduced. *) The total number of active customers and active CPS customers, fixed-line telephony.




of 2 January 2001, Telia is in principle obliged to let other operators lease cable in the access network (under the EU regulation on access to local loops, LLUB20). In the second quarter of 2004, the number of connections due to the LLUB regulation was approximately 100,000. Leased copper access is used primarily for broadband connections to the Internet, not for offering customers fi xed-line telephony subs-criptions.

Telia has announced that in future it will allow other operators to resell telephone sub-scriptions. Operators would then bill custo-mers for the subscription fee and the customer would no longer need to have a direct relation-ship with Telia. This would mean that entry barriers would be comparatively low for an operator wishing to have an undivided rela-tionship with its end-customers. This would leave little scope for differentiation, however, and it remains to be seen whether and to what extent such a course would result in lower prices for subscriptions. Another new mar-ket feature in 2003 was the introduction of IP telephony on a major scale in Sweden, by the undertaking Bredbandsbolaget and others. IP telephony involves customers using their Inter-net broadband connections for telephone calls instead of their fi xed-line connections with Te-lia. The National Post and Telecom Agency put the number of IP telephony subscriptions at around 40,000 at the end of 2003, of which the majority subscribed during the year. A further development anticipated in Sweden is tele-phony via cable TV networks, something that is already available in the UK and elsewhere. Cable TV operator ComHem announced in the autumn of 2004 that it will be launching such a service on parts of its network.

To date, then, the market for fi xed-line telecommunications services has been largely

characterised by service-based competition, i.e. Telia’s rivals have mainly competed by offering services without any signifi cant infrastructure of their own. Service-based competition brings pressure to bear on the dominant undertaking in terms of service provision, effi ciency vis-à-vis end-customers, and price. Where infrastruc-ture-based competition is viable, however, it is to be preferred to service-based competition within the same network. One of the reasons is that it reduces the need for controls, which in turn reduces the risk of regulatory failure. Also, in the face of infrastructure-based compe-tition, the dominant undertaking is more mo-tivated to upgrade and renew infrastructure, to differentiate price structures and streamline its activities in general. If the benefi ts of scale were substantial enough, however, service-ba-sed competition could be more effective. (Read more about regulatory controls in the chapter headed ‘Access regulation’.)

With the hardening of competition in the market for fi xed-line telecommunications servi-ces, prices have fallen sharply, especially in the case of long-distance and international calls. The per-minute prices and other terms offered by the various operators differ considerably, particularly for calls abroad and to mobile net-works. In 2004, some operators began offering customers the option of calling the fi xed-line network without any traffi c charge per minute. These price differences give informed consu-mers plenty of opportunities to save money, but also necessitate the availability of adequate price comparisons for the specifi c service that the consumer is interested in.

Ten per cent of traffi c-related income to operators with fi xed-line call services derives from international calls, and around 50 per cent from national calls. The remainder, about 40 per cent, comes from calls from fi xed-line


Telia Tele2 UniversalTelecom

Supertel RingBilligt Special(phone card)

3035

25

1520

1050

FIGURE 22: A simple price comparison of peak charges for a 10-minute call, from fixed-line to fixed-line telephony, SEK, june 2004

a) International calls, from Sweden

to Poland

a b a b ba ab

ab

Source: National Post and Telecom Agency and RingBilligt.nu.

SEK

b) National calls, no local calls

100

110

90

80

70

60

FIGURE 23: Price trend for telecommunications services and equipment compared with CPI* in 1980–2003, 1980=100

1980 1983 1986 1989 1992 1995 1998 2001 2003

*) The relative price is calculated as the ratio of the subindex for telecommunications services to CPI overall, annual mean.Source: Swedish Competition Authority (Monopoly Markets in Transition)



connections to mobile networks, despite the fact that these calls account for little more than seven per cent of call traffi c. The fact that such a large share of the income derives from calls to mobile networks is due to the high per-minute prices, which in turn are due to fi xed-line call service operators having to pay a high charge for interconnections (especially terminations) in the mobile network. Previously, only the interconnection charges payable by Telia as a mobile operator have been regulated, but in 2004 the National Post and Telecom Agency decided, on the basis of the Electronic Com-munications Act, that Tele2 and Vodafone must also apply cost-oriented pricing in their mobile networks. The two operators have appealed against the decision and the matter will be now considered by the County Administrative Court.

MOBILE TELEPHONYSince the mid-1990s, the Swedish mobile tele-communications market has grown substanti-

ally. In recent years, the growth rate for mobile subscriptions has stabilised at around ten per cent, and the number of subscriptions on 31 December 2003 was just over 8.8 million.

At the end of 2003, some 20 mobile opera-tors were actively offering mobile services in Sweden, of which three had their own GSM networks: Telia, Tele2 and Vodafone. Mobile operators that lacked networks of their own were active service providers. The service pro-viders’ share of the market is small, however, amounting to little more than three per cent, calculated on the number of subscriptions.

In 2000, the National Post and Telecom Agency allocated UMTS licences for 3G mobile telephony to four operators: Tele2, Hi3G (Tre), Orange and Vodafone. Telia and Tele2 have since agreed to jointly develop and operate a UMTS network. The Competition Authority has examined this agreement under the Com-petition Act. The key point was to ensure that Telia and Tele2 remained competitors, and after a number of changes – concerning for instance

10 000

8 000

6 000

4 000

2 000

0

FIGURE 24: Mobile call services – number of subscriptions and call cards (thousands)

a

b

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003a

bb

b

bb

bb

bb

aa a aa aa a


Thousands

a) NMT subscriptionsb) GSM descriptions (incl. call cards)


80

6070

5040

2030

100

FIGURE 25: Average number of SMS messages sent per GSM customer and month

DenmarkNorway

Sweden

2000 2001 2002 2003

On the basis of these graphs, no conclusions may be drawn as to why the price gaps are so great. Probably, they are due not just to differences in investment costs and other costs between countries but also to differences in competitive pressure in the various markets.

Antal


Telia (Denmark)Telia Cash

NetCom (Norway)Kontant

Telia (Sweden)Refill cards

1.40

1.001.20

0.80

0.400.60

0.200

FIGURE 25b: Examples of SMS prices in Sweden, Norway and Denmark (TeliaSonera's prices refer to cash cards), SEK

0.24 a0.75 1.25 c e

SEK

“ The fact that Telia still enjoys a strong position in the fi xed-line market is due mainly to its control of the only

access network – in the form of copper cable from the telecommunications station to the customer – reaching the

vast majority of households and businesses in Sweden.”



the provisions relating to investment decisions and the distribution of network capacity – the Authority concluded that there were grounds for exempting the operators from the prohibi-tion against anti-competitive co-operation. Tre, Vodafone and Orange have also signed UMTS infrastructure cooperation agreements that have been examined by the Competition Authority and cleared. Orange, however, has made it clear that it does not plan to establish a UMTS network in Sweden.

The market for mobile telephony is cha-racterised by infrastructure-based competi-tion. For a long period, there were only three network operators in the market, which gave rise to some competitive concerns. However, the market is showing a tendency to exert more price pressure on the end-customer market, due in part to the arrival of a fourth operator in 2003, Tre. A fi fth operator, Djuice, which has some infrastructure of its own, has also contri-buted to the price pressure. This suggests that infrastructure-based competition has a stronger impact on established operators than service-based competition from undertakings lacking their own infrastructure.

Lower prices for mobile calls may cause larger numbers of consumers to abandon their fi xed-line call service subscriptions and thus reduce their total costs for telephony. Greater substitution between fi xed-line and mobile telephony would increase the competitive pres-sure on fi xed-line telephony.

INTERNET SERVICES The Internet access market may be roughly divided into two main parts: access via dial-up and fi xed-line connections respectively. Some 120 undertakings provide Internet access in Sweden today, the majority of them via dial-up connections.

The proportion of customers with dial-up access is diminishing although the number of fi xed-line connections is growing rapidly. The gradual transition to fi xed-line connections has meant that control of the access network has become increasingly important, as the most common form of broadband connection – va-rious types of DSL links – use Telia’s copper access network. In terms of DSL connection, Telia had almost 70 per cent of the country’s customers. The second most popular form of connection was via cable TV networks, with LAN links in third place.

Other operators are able to offer DSL connections via Telia’s access network. They can do so either as dealers selling Telia pro-ducts, or via the LLUB regulation. The LLUB regulation allows operators to use their own equipment, which means they are better placed to differentiate their offerings. Although the regulation was introduced in January 2001, growth did not pick up until the second half of 2003. Between mid-2003 and mid-2004, DSL connections based on LLUB increased from a relatively small number to around 15 per cent of all DSL links. Although competitors use the same access network as Telia, their increased application of LLUB represents a step towards infrastructure-based competition, compared with a situation in which they simply act as dealers selling Telia products.

The transition to fi xed-line Internet connec-tion will also improve prospects for IP telepho-ny, as customers then connect their ordinary fi xed-line telephones to the broadband net-work or to their DSL access lines via a fi lter.


Further reading about electronic communication:Broadband Access in the EU: The Situation on 1 January 2004 (European Commission)Konkurrensen i accessnätet, Tredje rapporten 2004 (Swedish National Post and Telecom Agency Monopoly Markets in Transition (Swedish Competition Authority 2004:3)Svensk telemarknad 2003 (National Post and Telecom Agency)Telecompetition – Towards single Nordic market for telecommunication services? (The Nordic competition authorities)

20 Local Loop UnBundling, Europaparlamentets och Rådets förord-ning (EG) nr 2887/2000 av den 18 december 2000 om tillträde till accessnät.


A word of introductionFinancial activities


Financial activities

Finance – a sector in transition

Over the past year, Sweden’s banks lost their exclu-

sive right to deposits covered by the state deposit

guarantee, which may mean that they will encoun-

ter stiffer competition for customers in this area. In

the insurance fi eld, the Government has proposed

introducing a mandatory right that would enable

life insurance policy holders to switch companies

more easily. This may promote greater competi-

tion, as the problems that consumers encounter

when trying to switch suppliers is a key reason why

concentration is so high for banking and insurance

services to both private customers and small and

medium-sized businesses.

Sektorn för fi nansiell verksamhet svarade 2003 In 2003, the fi nance sector accounted for ap-proximately three per cent of Sweden’s GDP, but this does not refl ect its importance to the Swedish economy. A large number of actors operate in this sector, with totally or largely different types of activity. They include credit companies (banks and credit market institu-tions), investors (mutual fund companies, insurance companies and pension funds), and securities companies.

CREDIT INSTITUTIONSThe banks have long held a prominent

position among credit institutions (banking, mortgage and fi nance). Besides being major actors in this sphere, they have traditionally enjoyed a monopoly on deposits covered by the state deposit guarantee.

1997

Totalt 124 Totalt 121 Totalt 123 Totalt 126 Totalt 128 Totalt 128 Totalt 125

1998 1999 2000 2001 2002 2003

150

120

90

60

30

0

FIGURE 26: Number of banks in Swedena) Swedish joint-stocks banksb) Foreign joint-stocks banksc) Saving banksd) Member banks (2)

b

c

a

b

c

a

b

c

a

b

c

a

b

c

a

b

c

a

b

c

a

d d d d d d d

Antal

Source: Swedish Riksbank (Den svenska finansmarknaden 1997-2003).


On 1 July 2004, however, the new Ban-king and Financing Business Act entered into force, depriving the banks of their monopoly. This law is the latest step in a process that will enable all credit market companies to accept deposits covered by the state deposit guarantee not exceeding SEK 250,000. Hitherto, at least two credit market companies have exercised their right to accept such deposits without be-ing a bank. At present, however, it is diffi cult to foresee whether this development will increase market competition in the long term.

At the end of 2003, Sweden had about 125 banks. These may be roughly divided into major banks (Handelsbanken, SEB, Förenings-sparbanken and Nordea), independent savings banks, and newcomers such as foreign bank branches and niche banks. In 1986, foreign

FIGURE 27: The largest banks and banking branches at the end of 2003 (total assets)

Source: Sveriges Riksbank (Den svenska finansmarknaden 2004), processed by the Swedish Competition Authority.

Förenings-sparbanken 15%

Nordea

Bank 15%

Handels-banken 29%

SEB 24%Others 1

8%

20

Procent

16

12

8

4

0

FIGURE 28: Returns of equity*

Business sector, total

Joint-stock banks

Savings banks

1999 2000 2001 2002 2003**

Returns on equity, for joint-stock banks in particular, are higher than for the business sector in general. This should make market entry an attractive proposition for newcomers. *) Calculated as the ratio of operating income to the sum of equity plus 72 per cent of untaxed reserves. **) The figures for 2003 are preliminary.

Source: Statistics Sweden.



banks were given the right to establish a pre-sence in Sweden via subsidiaries. Since then, a number of foreign banks have become active here, of which Danske Bank (following the purchase of Östgöta Enskilda Bank) is easily the largest. Initially, the niche banks did not provide a full range of services, but a number have subsequently begun to do so. A feature of niche banks is that they mainly communicate with their customers via the Internet or telep-hone.

Despite the arrival of newcomers in the banking market, the four major banks account for a combined total of more than 80 per cent of all banking assets. Nor has their share of household loans and deposits declined to any great extent.

To establish a banking operation, an undertaking must in principle have access to the banks’ payments systems (e.g. Bankgiro-centralen, Dataclearingen and CEKAB, and

Riksbanken’s RIX system). The entry terms are important to competitors, and if they are applied in such a way that they put newcomers and smaller actors at a disadvantage, they make market access more diffi cult.

The apparent reluctance of customers to switch banks is an important reason why concentration for both lending and deposits re-mains high, as a low level of customer mobility means new actors fi nd it diffi cult to increase their customer base. Lack of mobility is due to such factors as long tie-in periods for loans, a complicated range of services that makes com-parison diffi cult, and direct costs for switching banks, which in turn may be both due to the structure of banking charges and to tax rules. Also, services in the fi nancial market are often combined in a package. By offering customers discounts of various kinds related to the extent of their involvement with the company, under-takings encourage customer loyalty.

Dec -98 Dec -99 Dec -00 Dec -01 Dec -02 Dec -03

100Procent

80

60

40

20

0

FIGURE 29: The major banks’ share of total household lending/deposits

a) FSPb) Nordeac) SEBd) SHBe) Others

b

a

c

d

e

b

a

c

d

e

b

a

c

d

e

b

a

c

d

e

b

a

c

d

e

b

a

c

d

e

Source: Statistics Sweden


Source: Swedish Bankers’ Association (Bank och finansstatistik 2000–2003) and the Swedish Insurance Federation.

AMF Pension 18%

Handelsbanken

Liv (SPP Liv) 11%

Others 24

%

SEB Trygg Liv

20%

Skandia 27%

FIGURE 31: Financial portfolios of Swedish households, December 1991 and 2003

Individual

insuran

cesav

ings 17%

Notes, coins

and loans to

the finance

sector 7%

Shares 14%

Unit trusts 9%

Bonds 8%

Bank

deposits 45%

Individual

insurance

savings 4

0%Notes, coins and loans to

the financesector 4%

Shares 15%

Unit

trusts 15%

Bonds 4%

Bank

deposits 23%

Source: Swedish Financial Supervisory Authority (Sparbarometer, Fjärde kvartalet 2003).

FIGURE 30: The largest life insurance and unit-linked insurance companies in 2003, market shares



MUTUAL FUND COMPANIES AND INSURANCE COMPANIES

Actors not primarily involved with lending include insurance companies, mutual fund companies and pension funds.

Some 440 insurance companies operate in Sweden, but the market is confi ned to a few major undertakings. In the case of insurance savings, too, lack of consumer mobility is a competitive barrier, even if insurance company customers are more inclined to switch their loyalties than bank customers.

In the spring of 2004, the Ministry of Fi-nance presented a memorandum on the right to transfer pensions savings. It proposed the introduction of a mandatory right of transfer giving life insurance policy holders the right to move their savings from one insurance company to another, at a reasonable charge. Hitherto, insurance companies have been al-lowed to introduce such a right on a voluntary basis. A more comprehensive right of transfer could militate against the locking-in of pension capital, which in turn could help boost compe-tition in the life insurance sector.

Mutual fund companies are another important group of investors. In December 2003, some 15 per cent of households’ fi nancial portfolios comprised mutual fund investment. Mutual funds are managed by mutual fund companies. The four largest, which account for 75 per cent of all unit trust investment, are owned by the four major banks. Recently, however, mutual fund companies owned by insurance undertakings have increased their share.

Via a parliamentary decision in 1998, a new national pension scheme has been introduced in Sweden under which pensioners themsel-ves choose how part of their pension money – known as the pre-funded pension – is to be invested. The fi rst such choice was made in

1999. The advent of the new system is one of the reasons why household investment in mu-tual funds has increased.

In the case of mutual fund savings, too, lack of mobility among consumers has presen-ted a barrier to effi cient competition. If capital gains tax could be postponed when customers transfer mutual fund savings, mobility would probably increase. No charge is payable when people switch mutual fund in the pre-funded pension system, and pension depositors have become considerably more active in this area in recent years. In 2003, some 359,000 switches were recorded, as against 232,000 in 2002.

FIGURE 32: The four largest actors on the Stockholm Stock Exchange, 2003/2004*

Source: Stockholm Stock Exchange and Swedish Financial Supervisory Authority.

Ensk

ilda

Secu

rities

AB

11%

Carnegie Investment

Bank AB 9%

Fisher PartnersFondkommission 7%

Handelsbanken 7%Others 66%

*) August 2003–July 2004.


SECURITIES COMPANIESThere are forty or so securities companies in Sweden. They deal primarily in securities on behalf of others in their own name. In contrast to the markets for lending and deposits and for mutual fund investment, customer mobility in securities companies is high and the market concentration is low.

THE CONSUMER PERSPECTIVE Over the past decade, the fi nancial services market in Sweden has developed signifi cantly. On the supply side, regulatory changes have been introduced to promote mobility. Mean-while, increasingly sophisticated technological solutions have been introduced, primarily in the shape of new forms of distribution. The range of services has increased in number, variety, and in some cases complexity. Esta-blished undertakings have broadened their activities, while newcomers have found a place in the market.

New questions have arisen, however, concerning the way in which consumers are responding to these new opportunities. Do consumers have the information, time and ability to avail themselves of the new choices offered to them?

Informed and active consumers who make rational choices on the basis of what the market offers are essential if competition and the necessary mechanisms pointing fi nancial undertakings towards more customer-friendly products and behaviour are to work properly. An important aspect of this is that consumers wishing to avail themselves of the best services from their own household viewpoint at any given time must constantly keep track both of new services and actors that come on the market and of any changes that may take place in the services they are currently using. If they

are unable to keep up with the various changes and developments, consumers risk missing new opportunities in the form of new actors offering attractive services. In such a situation, actors already well established in the market would not feel obliged to protect their market positions by introducing effi cient solutions or advantageous prices. Thus competition would suffer.

In this connection, it is worth noting that banks can make it more diffi cult and costly for consumers to switch fi nancial service suppliers as the design of the products offered and the structure of prices and charges are both in their hands.

HARMONISATION IN THE EU When the euro was introduced in 1999, the European Commission published a plan de-signed to hasten the emergence of an integra-ted market for fi nancial services in Europe, the Financial Services Action Plan (FSAP). It identifi ed a large number of measures aimed at ensuring that the advantages of a common currency were properly exploited and that a single European fi nancial market would func-tion smoothly. In the latest evaluation of the plan, published in June 2004, the Commission reports that 93 per cent of the measures have been implemented. At the same time, however, it notes that achievement of the harmonisation objective depends on how well each individual country implements and enforces all FSAP measures.




In 2003, the Swedish Insurance Federation applied for negative clearance/individual exemption for a recommendation to its members to not enter into agreements on remuneration to insurance brokers. The recommendation applied to non-life insurance. (case no. 727/2003). The Swedish Competition Authority decided that the recommendation restricted competition but not to an appreciable extent and, consequently, negative clearance was granted. The decision has been appealed to the Market Court by the Association of Insurance Brokers.In some another cases, Visa Sweden Förening and Visa International Service Association, Föreningen Europay Sweden and a number of banks respectively, applied for negative clearance/individual exemption from the non-discrimination rule (reg. no. 359/1995, 490/1995 and 784/1996). Under this rule, traders and other card recipients shall accept cards as a mean of payment for goods or services at the same price as for cash payments. In light of European Commission practice in this area, the Competition Authority decided that the rule in question is not covered by the prohibitions in the Swedish Competition Act. The application for negative clearance was granted.

Further reading about financial activities:Den svenska fi nansmarknaden 2004 (Sveriges Riksbank 2004)Finanssektorns stabilitet 2003 (Swedish Financial Supervisory Authority 2003)(Summary of) Competition in Sweden 2002 (Swedish Competition Authority 2002:4)Konsumentrörligheten på de fi nansiella marknaderna (Swedish Competition Authority 2001:5) Konkurrens på bankmarknaden – betalningsförmedling och villkor för nya aktörer (Swedish Competition Authority 1999:2)


A word of introductionElectricity and gas


Electricity and gas

The importance of the Nordic market for electricity price formation in Sweden Electricity production is highly concentrated in

Sweden. At the same time, the Swedish market has

become increasingly integrated with the markets

of other Nordic countries. Electricity trading in

the Nordic area has an important impact on price

formation in Sweden

The electricity sector in Sweden is in three parts: production, network activities (distribu-tion and transmission) and electricity trading. In 1996, both electricity production and elec-tricity trading were opened to competition. Network activities were viewed as a natural monopoly and were exempted from competi-tion.

PRODUCTIONElectricity production in Sweden has long been in the hands of a few leading actors. As the ma-jor producers have bought up numerous small and medium-sized producers over the past ten years, concentration has increased. The three largest producers, Vattenfall, Sydkraft and Fortum, account for a combined total of 85 per cent of all electricity production in Sweden.

The high concentration of electricity pro-duction in this country means that successful competition in the market depends principally on effi cient Nordic trading. Over the past de-cade, the Nordic market has been opened, and electricity is now traded on the Nordic power exchange, Nord Pool.

In order for inter-Nordic trading to work satisfactorily, transmission capacity between

the various countries must be suffi ciently high. At present, bottlenecks develop when there is insuffi cient capacity for the desired volume of trading. On such occasions, the market is divided into regions and inter-regional price differences arise. How the market is divided depends on where the bottleneck develops.

Much of the time, however, transmission capacity is not utilised to the full. For instance, between Sweden and Jutland (the region that

FIGURE: 33 The major Nordic* electricity producers in 2003, share of total production

The power supply offered by Nord Pool is less concentrated than electrical power production in Sweden. Source: Swedish Energy Agency (Elmarknaden 2004).

Vatte

nfall

17.0%

Fortum 14.0%

Statskraft SF 8.9%

Sydkraft 7.5%

Others 42.5%

Pohj

olan

Vo

ima O

y 5.0

%

Elsa

m 5

.0%

*) Excluding Iceland.


has shown the greatest deviation from sys-tem prices and other area prices), utilisation averages 50 per cent. When capacity is not fully utilised, power prices are the same in the different regions.

Sweden only constitutes a price area of its own for a very limited time. Mostly, it is part of a larger integrated price area, although this does not always comprise the whole of the Nordic zone.

In 2001, the Nordic region was a single price area for just over 50 per cent of the time, in 2002 for about 35 per cent of the time and in 2003 for just over 25 per cent of the time. These shifts from year to year largely refl ect varia-tions in the weather (precipitation and cold).

Given the shortage of transmission capa-city, encouraging the entry of newcomers to the electricity production market is also important. Entry barriers are high in this market, however. Today, plants that exploit renewable energy sources would seem to represent the most

promising area for new producers wishing to establish themselves in the market. Another in-teresting alternative is natural gas-fi red co-ge-neration plant (combined heating and power).

Just over a year ago, a new system was in-troduced in Sweden based on trading in green certifi cates, the aim being to encourage the production of renewable electricity. It is hoped that this system will stimulate market entry in this fi eld. Producers of renewable energy are awarded such certifi cates and electricity users are required to buy a certain number of them. This gives producers extra income and helps offset the fact that production costs for renewa-ble energy are normally higher than for other forms of electricity production. As yet, it is too early to say whether the system has worked in terms of attracting new undertakings/production, but estimates by the Swedish Energy Agency show that it has proved costlier to end-users than expected. Also, rather than purchasing green certifi cates, some under-

Oslo Tromsö Helsinki Århus Copenhagen Stockholm

50

Procent

40

30

20

10

FIGURE 34: Hours during which Nord Pool’s respective price areas have been isolated from all other price areas, share of total time

a) 2000b) 2001c) 2002d) 2003e) 2004*

ba c d eba cd

eba c d eba c d eba c d e ba c d e

In 2000, Sweden as a price area was totally isolated from all other price areas for 5 per cent of the time. In subsequent years, this figure fell to less than 1 per cent. During that period, however, transmission problems occurred vis-à-vis individual price areas. Source: ÅF-Energi & Miljö AB and TelgeKraft AB (Utredning av råkraftmarknaden 2004), and Nord Pool.*) Jan–April 2004.


Electricity and gas

a) 2002b) 2003

Sthlm–Oslo Sthlm–Helsinki

Sthlm–Århus Sthlm–Copenhagen

100Procent

80

60

40

20

0

FIGURE 35: Amount of time during which Sweden’s area prices coincided with other area prices in 2002 and 2003

ba ba ba ba

The figure shows the amount of time during which area prices coincided in different regions (price areas),i.e. when transmission capacity between Sweden and other regions was adequate. Of the various bilateral links between Sweden and other regions, the one between Stockholm and Århus (Jutland) was the least efficient in 2002 and 2003.Source: ÅF-Energi & Miljö AB and TelgeKraft AB (Utredning av råkraftmarknaden 2004), and Nord Pool.

0

20

40

60

80

100

Gas turbines

Oil-firedcondensing

Coal-firedcondensing

Co-generation

Nuclear Wind Hydro-electric

100

Flexible productions

costs, SEKöre/kWh

80

60

40

20

0

a) Low estimatea+b) High estimate

ba

b

a

b

a

b

a

b

a

b

a

b

a

Price trend for electricity is dependent among other things on the type of production used. Normally, the various production types are used in ascending order of marginal cost. Much of the time, electricity produced in Danish and Finnish oil-fired thermal heating plant governs prices in the Nordic electricity market. Rising oil prices, therefore, mean that electricity prices are pushed up. Fixed costs per unit are not included here.Source: Swedish Energy Agency (Energimarknad 2004).

FIGURE 36: Flexible electricity production costs in the Nordic area in 2003


takings have chosen to pay the special penalty charge that falls due when a producer fails to buy the requisite number.

NETWORK ACTIVITIESWhen the electricity sector underwent regula-tory reform, network activities were left as a monopoly, both in the case of local electricity networks (distribution) and in the case of high-voltage grids (transmission). Transmission is the responsibility of Svenska Kraftnät, a public enterprise. This monopoly position means that network companies do not need to compete with one another in their region, which in turn means there is a risk they may overcharge their customers. To preclude such a development, a special model has been introduced in Sweden for regulating network tariffs, known as the Performance Assessment Model. It is based on estimates of network companies’ performance, i.e. number of customers, amount of energy transmitted, and effi ciency etc. When compa-nies overcharge in relation to their estimated performance, they are further scrutinised and may be obliged to make repayment.

ELECTRICITY TRADINGElectricity trading companies supply electricity to end-customers that they have either produ-ced themselves, purchased directly from the electricity producer or purchased at Nord Pool. The Nord Pool price also determines prices in bilateral trading. Consequently, the electricity trade relies on Nord Pool working properly. A number of actors interviewed in a study21 expressed satisfaction with the way the system is working.

If newcomers are to successfully enter the market, customers must avail themselves of the opportunity to switch electricity suppliers. Ori-ginally, customer mobility was very low, but it has picked up signifi cantly over the past two

years.22 While some switching problems have been reported, most electricity traders fi nd that these are on the wane and that customers now fi nd switches are working fairly satisfactorily. Some problems remain, however, over the reporting of readings, etc, between network companies, electricity traders and the state utility, Svenska Kraftnät.

Another potential problem for independent electricity traders is that in vertically integrated energy groups there is a risk of subsidising the competitive electricity trade through high network prices. The new regulatory model for network charges, the Performance Assessment Model, is designed to militate against such a development.

A further problem is the poor correlation between spot prices for electricity and consu-mers’ electricity consumption. If consumption could be linked to the spot price, rather than a long-term average price as at present, this might result in more effi cient use of electricity production capacity, which in turn would re-duce the need to expand transmission capacity between the Nordic countries.

Almost ten years after the electricity sector underwent regulatory reform, some competi-tive problems remain, including bottlenecks. Since the market opened to competition, the price of electricity has varied from year to year, but taken as a whole prices have risen, for a number of reasons. To a certain extent, this price increase refl ects market conditions (high concentration, high entry barriers etc), but in-creased taxes have also contributed signifi cant-ly. Between 1996 and 2004, electricity tax rose from SEK 0.097 to 0.241 per kWh. In addition, hydrological conditions have a considerable impact on electricity price trend. Both falling prices between 1997 and 2000 and the sharp rise in price in 2003 can be partly explained by the weather conditions at the time.


Electricity and gas

600

SEK/MWh

500

400

300

200

100

FIGURE 37: Electricity spot prices in Sweden and household prices, SEK/mWh, annual mean value

FlatHouse without el. heatingHouse with el. heating

El. spot price (Sweden)

1996 1997 1998 1999 2000 2001 2002 2003 2004

Source: Statistics Sweden and Nord Pool.

160

120

80

40

0

FIGURE 38: Price trend for household electricity compared with the CPI* in 1980–2003, 1980=100

1980 1983 1986 1989 1992 1995 1998 2001

*) The price is calculated as the ratio of the subindex for household electricity to CPI overall, yearly average.Source: Swedish Competition Authority (Monopoly Markets in Transition) and Statistics Sweden, SCB.


THE NATURAL GAS MARKET

Something like 25 per cent of the EU countries’ total energy needs are met by natural gas. In Sweden, natural gas accounts for approx. 2 per cent of total energy use. In Swedish areas reached by the natural gas network, natural gas accounts for approx. 20 per cent of overall usage. Total usage of natural gas in Sweden amounts to approx. 1 billion m3 per annum.The main fi elds of application for natural gas are industrial processes and heating generation in district heating plant and co-generation plant, each of which accounts for about 40 per cent of Swedish usage. The remaining 20 per cent is used by households and for fuel.Today, the Swedish natural gas network covers only a small part of the country, but further extensions are planned. The newly completed extension to Stenungsund is the largest

since the network came into operation in the 1980s. Sydkraft is planning an extension to Jönköping and from there through the province of Östergötland to the Stockholm region (Mälardalen).The natural gas market is currently facing regulatory reform in a move aimed at making it competitive. The reform will be introduced by stages and will result in all customers being able to freely choose their natural gas supplier. At the same time, the reform will regulate the terms for entry to the gas network, as the European network is to a great extent owned by operators in the natural gas trading market. The Swedish Competition Authority takes a favourable view of this development. The agency has a special duty to uphold competition in markets undergoing regulatory reform.

Portugal Denmark Germany Spain Sweden Norway UK(London)

Finland

20Euro

16

12

8

4

0

Figure 39: Electricity prices for households with an annual consumption of 3500 KWh, relative prices in euros, 1 January 2004

a) Excl. taxb) Excl. VATc) Incl. tax

ba c ba c ba c ba c ba c ba c ba c ba c

Swedish electricity prices are far from the highest in Europe. Rather, for household electricity excluding tax, they are among the lowest of all the countries compared here. When prices including VAT and electricity tax are compared, however, a different picture emerges. Source: Eurostat (Electricity prices for EU Households on 1 January 2004).


Electricity and gas

In 2004, the Competition Authority reviewed the purchase of Nova Supply AB by Dong Naturgas A/S. Both companies sell natural gas in Sweden. The Competition Authority investigation showed that the merger could cause competitive problems as it would reduce the number of leading companies acting as gas wholesalers in the Danish-Swedish market from three to two. This could signifi cantly inhibit competition in the natural gas market. As a feature of the market is long contractual periods, the merger would preserve the existing market structure and reduce the potential for new fi rms in Sweden. Dong undertook to offer all Nova Supply customers the option of terminating their supply contracts prematurely, as a result of which a signifi cant share of Swedish natural gas consumption will become competitive when regulatory reform of the market is introduced in 2005. This commitment, which is subject to a fi ne of SEK 30 million, means that large customer volumes will be exposed to competition at one and the same time. Prospects for potential rivals entering the market will thus improve considerably.As a result of Dong’s undertaking, the Competition Authority decided that the merger would no longer create or reinforce a dominant position so as to signifi cantly inhibit the development or existence of effi cient competition. The merger was therefore approved.

Further reading about electricity and gas:A Powerful Competition Policy (The Nordic competition authorities)Konkurrensen på elmarknaden (SOU 2002:7)Competition in Sweden 2002 (Swedish Competition Authority )Hantering och begränsning i det svenska överföringssystemet för el (Swedish Energy Agency)Monopoly Markets in Transition (Swedish Competition Authority) Uppföljning av leverantörsbytesprocessen (ECON) Utredning av råkraftmarknaden (ÅF-Energi & Miljö AB and TelgeKraft AB)

21 ÅF-Energi & Miljö AB and TelgeKraft AB based their study on around 40 interviews with different actors (government agencies, power compa-nies, industrial manufacturers, electricity traders etc).22 According to an attitude measurement from the trade organization Svensk Energi which has been carried out by TEMO.


A word of introductionConstruction and engineering


Contruction and engineering

Construction and engineering

Table 5. Leading construction companies in Sweden, 2002

Some marginal changes may have occurred since the Swedish Construction Federation conducted its last survey of the leading construction companies in Sweden. Source: The Swedish Construction Federation, BI.

Turnover , Number construction of and civil works employees in Sweden, in Sweden SEKm

Skanska Sverige 25,510 15,014Peab 17,916 9,977NCC (ConstructionSweden) 17,562 11,654JM 7,342 2,301Vägverket Produktion 5,735 2,678Banverket Produktion 3,030 3,125PNB 2,327 1,523Arcona 901 200Midroc Construction 830 416Sbs Entreprenad 537 140

In the construction and civil engineering market,

only a handful of companies operating nationwide

are capable of undertaking major construction

projects. Entry barriers are high, one of them being

the difference in building standards within the EU,

which reduces import competition. A further pro-

blem is that tender documents are often formulated

in such a way that small construction companies

fi nd it diffi cult to join the bidding.

As a rule, the Swedish construction market is divided into a sector for housing construction and a sector for civil engineering (infrastruc-ture). The engineering sector includes land preparation, roads, bridges and tunnels. The asphalt surfacing market represents a signi-fi cant share of the engineering market, as the building of roads, bridge and runways, etc, often necessitates extensive asphalt work. The market for building materials is an important submarket which in turn may be subdivided into further markets according to the type of material involved.

Construction costs have increased faster than other costs in recent years. High, rapidly increasing prices may be a sign of inadequate competition in this sector, although other fac-tors may also have contributed, such as weak productivity growth or rising input costs.

HOUSING CONSTRUCTIONIn the Swedish housing construction sector, there are only a few companies operating on a national scale – primarily NCC Construc-tion Sverige AB, Skanska Sverige AB and Peab Sverige AB – and capable of undertaking major

construction projects. Their activities include both housing construction and infrastructural engineering. These companies operate throug-hout Sweden and are also active abroad. In ad-dition, there are a limited number of medium sized companies and a large number of com-panies with less than 50 employees. In 2003, companies employing more than 50 people comprised 1 per cent of the total number of companies in this sector but were responsible for 63 per cent of turnover and employed 55 per cent of the workforce.

There are substantial entry barriers in this sector. Construction activities require a sound grasp of local conditions, which makes matters


450

375

300

225

150

75

0

FIGURE 40: Price trend for construction, BPI (Building Price Index) and CPI (1980=100)

BPI, multiple dwellings (flats)BPI, private houses

CPI

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002

Housing construction costs have increased considerably since 1995, both for private houses and multiple dwellings (flats). Source: Statistics Sweden (Bostads- och byggnadsstatistisk årsbok 2004), processed by the Swedish Competition Authority.

60

Thousands

7080

50403020100

FIGURE 41: Number of built private houses and built flats in multiple dwellings, 1967–2003

FlatsHouses

1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003

Source: Statistics Sweden



diffi cult for non-Swedish actors. Accordingly, foreign companies often enter the Swedish market by buying up entrepreneurs already operating here. Another problem is that some purchasers lack the requisite purchasing skills.23 This may result in tender docu-ments being formulated in such a way that small actors have diffi culty joining the bidding.

CIVIL ENGINEERINGLike the housing construction sector, the civil engineering sector is dominated by a few major companies which are also vertically integrated. This means that the leading companies (NCC, Skanska, Peab and Vägverket Produktion) in each organisation manufacture the input goods that are strategically vital to the industry, such as ballast, concrete and asphalt, which gives them a competitive advantage over smaller actors in the market.

Ballast, for which access is required to a rock quarry or gravel pit and to crushing plant, is one of the inputs in the manufacture of concrete and raw asphalt. This activity is rated environmentally hazardous and involves both a time-consuming licence application process and heavy investment, while transport costs for ballast are very high. In the case of asphalt, the costs are so prohibitive that only asphalt plant situated within a radius of about 100 kilometre from the surfacing point can be used. Often, asphalt plant adjoins the rock quarry or gravel pit.

All this means that small undertakings, unable to afford the requisite investments in pits, quarries or asphalt plant, have no choice but to turn to their larger competitors for the input goods. Consequently, there is a risk that large actors may make it harder for smaller ones to compete, by regulating both the availa-bility and the price of inputs.

The principal buyers of surfacing work are public actors. The Swedish state (via the National Road Administration) accounts for 50 per cent and the municipalities for approx. 25 per cent of all contracts. In the case of public actors, the contracts are usually allocated via a procurement procedure under the Public Pro-curement Act (LOU, 1992:1528). The National Road Administration makes purchases every year, while the municipalities usually procure asphalt surfacing services every second or third year. (Read more about procurement in the chapter headed ‘Public procurement’.)

BUILDING MATERIALSThe building materials market comprises a lar-ge number of submarkets and may be roughly divided into categories such as shell materials, fi tting materials and working materials. The manufacturers are often large companies, some of which are dominant. Building material im-ports are limited in volume, and these are often supplied via the major domestic undertakings in the market.

The lack of import competition is partly due to the fact that construction companies like to buy well-tested goods. Also, though, a number of technical trade barriers remain bet-ween EU countries. Efforts are currently under way in the Union to harmonise standards. This work has been going on for over ten years, and is scheduled to be completed in 2007. Of the 500 material standards due to be harmonised, some 180 are now ready. Building products that meet the EU’s minimum requirements can be CE-marked and may then be sold freely in the EU zone. Although buyers are allowed to import products that are not CE-marked, they take a greater risk by doing so. It is hoped that joint CE-marking will boost import competi-tion in the market.


“Construction activities require a sound grasp of local conditions,

which makes matters diffi cult for non-Swedish actors. Accordingly, foreign companies often enter the

Swedish market by buying up entrepreneurs already

operating here.”

COMPETITIVE PROBLEMS IDENTIFIEDThe Swedish Government has drawn attention to the lack of competition in the construction sector both in its committee reports and in its directives over the past two years. In December 2002, the National Commission on Construc-tion presented a report, ‘Pull Up Your Socks, Lads!’ (SOU 2002:115), in which it described a sector with high concentration, high entry barriers and many areas in which competition is weak and facilitates cartels. The European Commission has proposed reviewing the prospects for taking competitive aspects into account when dealing with gravel and rock extraction applications.

The licensing of pits, quarries and asphalt plant, etc, has been examined by the Swe-dish Committee on the Environmental Code. Permission to open a new rock quarry and establish asphalt plant is subject to an envi-ronmental approval procedure, which makes it diffi cult for smaller competitors to operate in the market. Dealing with this procedure requires very extensive and time-consuming administrative input. In an interim report

(SOU 2003:124), the Swedish Committee on the Environmental Code suggests that the paper-work involved is excessive, and also notes that there is some uncertainty as to the legality of the licensing decisions and to the right of ap-peal.

In the autumn of 2002, the Government appointed a committee to review the Planning and Building Act and to report by 30 June 2005 at the latest. The committee is to consider how the competitive dimension may be brought into physical planning, and to examine whether and how planning can help enhance competition in such areas as the grocery retail trade and the construction sector. At present, effi cient competition is not specifi ed as a mat-ter of public interest in connection with the planning and siting of buildings under the Planning and Building Act. Nor are municipa-lities required by law to examine applications for planning modifi cations, which means that companies able to infl uence decision-makers are better placed to have their applications considered.



municipalities have sued the companies for damages. The competition authorities in Norway and Finland suspect that similar violations have occurred there as well.A question that has arisen in connection with the ‘Asphalt Cartel’ case is which rules and conditions should apply in the case of public authorities whose activities are organised in the form of a purchaser-provider arrangement. The National Road Administration (Vägverket) is one such agency. The companies under suspicion in the above case argue that no cartel can have been involved when the National Road Administration was the client as the agency, via


There are signifi cant competitive problems in the construction sector, and this has caused the Competition Authority to intervene on a number of occasions against anti-competitive practices. On 21 March 2003, for instance, the Authority applied for a summons against eleven companies in the civil engineering and asphalt surfacing industry (known as the ‘Asphalt Cartel’). The companies are suspected of having divided up the market between them and of having agreed on prices, at least since 1993. The Competition Authority demanded that the companies be given administrative fi nes totalling SEK 1.6 billion. Hitherto, nine

130

120

110

100

90

FIGURE 42: Trend for average indexed surfacing price* (2003=100)

2000 2001 2002 2003

In the autumn of 2001, the Competition Authority undertook a special investigation – a ‘dawn raid’ – at the premises of a number of actors in the civil engineering industry.Source: National Road Administration. *) Weighted average for 2000-2003.


one of the bidders, Vägverket Produktion, was a party to the alleged infringements. The companies felt that as the National Road Administration acted both as a purchaser and a provider, its actions did not violate the provisions of the Competition Act concerning collusion between undertakings. They also questioned whether the National Road Administration was in fact a business undertaking. The matter was settled by the Market Court in September 2004 through an intermediate judgement stating that the National Road Administration, taking into account the role played by Vägverket Produktion, had acted fi rst and foremost as a supplier. In light of this, the court could not rule out the possibility that the agency’s behaviour met the criteria for anti-competitive practices. The Market Court also ruled that in its role as supplier, the National Road Administration was in fact a business undertaking under competition law, and that it therefore could have taken part in the cartel. The case continues in the Stockholm City Court.Also, in early 2004, the Competition Authority raised the competitive problems associated with the purchaser-provider model in a memorandum (reg. no. 969/2004) to the Ministry of Finance. See the chapter on public procurement.

Further reading about construction and civil engineering:Swedish Ministry of Finance report, Skärpning gubbar! (SOU 2002:115)European Parliament and Council of Europe, Directive PE-CONS 3696/03 (MAP 23 CODEC 1760) on the coordination of procedures for the award of public works contracts, public supply contracts and public service contracts (European Commission)

23 See for instance the Swedish Government Report ‘Skärpning gubbar!’ (SOU 2002:115).


A word of introductionForestry


Forestry

Control of raw materials crucial in forestryVertical integration in the major forestry industries

and in some forest owners’ associations, in combi-

nation with high transport costs that limit import

opportunities, places companies that do not own

their own woodland at a disadvantage. Timber-

purchasing sawmills, for instance, are dependent on

their raw material suppliers, especially at times of

shortage.

The forestry industry incorporates a number of submarkets with differing competitive condi-tions, although the various actors often operate in more than one part of the industry. The processing stage mainly comprises pulp, paper, sawmills and joineries, with the paper industry as the largest single sector. The principal actors are forest owners, forest owners’ associations, wood-processing industries, purchasing saw-mills, and the state, via the National Property Board and Sveaskog AB. By means of vertical integration, some actors are able to operate in a number of different areas.

THE FORESTRY SECTOR HAS SEVERAL ELEMENTS THAT ENCOURAGE COLLUSION

Economists and other experts often seek to understand in what ways companies interact, and have long been studying how they come to coordinate their activities. These experts have developed an understanding of which types of markets are most conducive to collusive behaviour by determining which elements facilitate this kind of coordination between rival companies. Collusion may take the form either of outright cartels or of tacit collusion

whereby the companies coordinate their activi-ties without any direct exchange of information between them.

The wood-processing industry has a number of features that encourage collusion. In particular, several submarkets have a high degree of concentration. Furthermore, many of the products are homogenous (timber, pulp, paper etc). Oligopolies and homogenous products in a market can make it easier for companies to engage in collusive behaviour than in markets where there are a large number of companies offering heterogeneous products. High entry barriers, which make it harder for newcomers to enter the market even when the potential returns are high, are another element that encourages collusion. Also, collusion is more likely to develop in markets with a low level of innovation, which is typical of the forestry sector, as frequent innovations make the market less stable while at the same time it becomes increasingly important to gain market shares quickly. The fact that wood-processing companies interact in several markets makes it easier for them to coordinate their activities, as opportunities for communication are greater. The presence of these elements in the forest industry is a factor that must be taken into consideration when analysing the sector, even when there is no proof that tacit collusion has occurred. (Read more about collusion in the chapter headed ‘Trade organisations’.)

FOREST OWNERSHIPSome 50 per cent of all woodland in Sweden is owned by private individuals, about half of whom are organised in regional forest owners’ associations run as cooperatives. The state owns just under 20 per cent of the country’s


FIGURE 43: Owners of woodland at the beginning of 2004

Swed

ish

state*

18%

Other public

owners** 1%

Private companies 24%Other private

owners*** 6%

Privat

individuals 51%

*) Includes joint-stock forest industries owned by the state (e.g. Sveaskog AB) **) Includes the forest land owned by municipalities and county councils. ***) Includes common land and the forest land owned by the Church of Sweden.

Source: National Board of Forestry (Skogsstatistisk årsbok 2004)

Bo 1 Bo 2 Bo 3 Bo 4

100Procent

80

60

40

20

0

FIGURE 44: Forest ownership in Wood Balance Regions 1–4, 1998*

a) State*b) Joint-stock

company

d) Private

b

d

b

d

a b

d

b

d

c

aaa

c

c

c

Wood Balance Region 1 comprises northern Norrland, Jämtland and Västernorrland, Wood Balance Region 2 Gävleborgslän, Dalarna, Västmanland, Uppsala and Stockholm, Wood Balance Region 3 Örebro, Värmland and Västra Götalandslän, and Wood Balance Region 4 Halland, Skåne, Blekinge, Gotland, Kalmarlän, Kronobergslän, Jönköpingslän, Östergötland and Södermanland.

*) State-owned Sveaskog AB is included in the ‘joint-stock’ category

c) Multicipalities, conty councils

Source: National Board of Forestry (Skogsstatistisk årsbok 2004) and Statistics Sweden.


Forestry

woodland, most of it via the state-owned undertaking Sveaskog AB. Private joint-stock companies own about a quarter of all wo-odland in Sweden. The largest private forest industries are SCA Skog AB, Bergvik Skog AB (partly owned by StoraEnso) and Holmen Skog AB, each with over a million hectares. Other forest owners include the Church of Sweden, municipalities and county councils.

In offi cial statistics, forested land is often divided into ‘wood balance regions’, from Wood Balance Region 1 in the north to Wood Balance Region 4 in the south. Forest-owning interests vary from area to area – private indi-viduals own a larger share in the southern part of Sweden than in the northern part.

THE SAWMILL INDUSTRYSwedish sawmills are either owned by a fo-restry company or a forest owners’ association

or are what are termed purchasing sawmills. The latter vary in size, from small family fi rms to large groups, but a distinguishing feature of them all is that they do not own (enough) forest of their own to keep them supplied with raw materials. Company-owned sawmills often specialise in the bulk production of sawn wood, and are generally less profi table than purchasing mills, which tend to focus more on the further processing of sawn wood or on special markets. In all, Sweden has some 2,000 sawmills. In recent years, their number has diminished while at the same time manufac-turing has increased.

As purchasing sawmills do not as a rule possess their own woodland, they purchase sawn timber from forestry companies and other forest owners. This makes them depen-dent on their raw material suppliers, especially at times of shortage. Purchasing sawmills also

1999 2000 2001 2002 2003

100Procent

80

60

40

20

0

FIGURE 45: Import share of sawn timber consumption in Sweden

a) Consumption excl. importsb) Imports

b b b b b

a a a a a

Source: SDC, VMR Virkesmätning och redovisning (Skogsindustrins virkesförbrukning samt produktion av skogsprodukter 1999–2003).


“As purchasing sawmills do not possess their own woodland,

they purchase sawn timber from forestry companies and other

forest owners. This makes them dependent on their raw material

suppliers, especially at times of shortage.”

account for most of the sawn timber imported into Sweden. Sawn timber imports, however, are very limited, and are largely confi ned to the southern part of the country. The fact that imports are so limited is due principally to high transport costs and to the diffi culty of meeting quality requirements. To some extent, imports of raw materials are also affected by the growing tendency of export countries in Eastern Europe to engage in further processing themselves.

Purchasing sawmills account for about two thirds of Sweden’s production of sawn wood. When timber is sawn, wood chips are left as a by-product. As the purchasing sawmills use neither wood chips nor the pulpwood that is sometimes included when sawn timber is sold, they sell them to the forestry companies or to an agent.

PULP AND PAPERPaper pulp is made from pulpwood, wood chips and waste paper. In Sweden, the forestry companies and one of the forest owners’ asso-ciations, Södra, manufacture paper pulp. Many forestry companies use most of their paper pulp in their own paper-making processes, but there is also an extensive inter-company trade in ‘cash pulp’, as it is sometimes called. New investment in mills is extremely costly. In principle, therefore, no new mills are built in Sweden; instead, investment goes into existing facilities. Over the past two years, Swedish fo-restry companies have invested more than SEK 20 billion in their own pulp and paper mills.

Södra, which is a forest owners’ associa-tion in southern Sweden with more than 35,000 members, is the largest supplier of paper pulp in Europe, and sells all the paper pulp it produces. Besides the forestry companies, paper pulp buyers are paper manufacturers who make nothing else, such as Duni AB. Pa-per pulp imports are very limited. This is due primarily to the fact that Swedish companies are prominent in both the international and the Swedish markets and that the price differences between Sweden and the international market are very small. Some 30 per cent of Swedish paper pulp production is exported.

The largest suppliers of newsprint are the foresty companies StoraEnso, SCA and Hol-men Papper. Total Swedish production in 2003 was approx. 2.5 million tons, of which about 85 per cent was exported. The international trade in newsprint is very extensive.


Forestry

EXEMPTIONS IN THE SWEDISH COMPETITION ACT

The Competition Act contains special provisions exempting primary agriculture associations. The prohibitions in the Act do not apply to agreements within a primary agricultural association or its subsidiaries that concern co-operation between the members of the association on such matters as the production, processing and sale of agricultural, horticultural or forestry products. This means that forest owners’ associations are exempted from the Competition Act in certain important respects. On a number of occasions, the Competition Authority has argued that forestry products should not be exempted under the Act, as several of the grounds put forward in the case of other exempted products do not apply to these products.There is no corresponding exemption in Community law, and the EU has frequently expressed its desire to keep rules to a minimum. As of 1 May 2004, the Competition Authority and Swedish courts are required to enforce the EU’s competition laws. Therefore, in cases where trade between member states is affected, the same rules apply to the forestry industry as to other sectors.

Further reading about forestry:Skogsindustrin 2003 (Skogsindustrierna)Skogsstatistisk årsbok (National Board of Forestry)Sågfakta 2000 (Swedish University of Agricultural Sciences)


A word of introductionPublic procurement


Public procurement

Public procurement

Annual public purchasing of goods and services

in Sweden has been estimated at SEK 400 billion.

A number of factors in this area militate against

market entry, the growth of small undertakings and

effi cient competition. From a competition and con-

sumer viewpoint, companies must be able to com-

pete on equal terms for supply contracts at central

and local government level. This is essential in areas

where public bodies are the main purchasers and a

business start-up would involve considerable risk.

Government agencies, municipalities and county

councils often coordinate their purchases in order

to streamline the procurement process and reduce

costs. Taken too far, however, joint procurement

may have an adverse effect on the market’s struc-

ture and competitive conditions, resulting in poorer

purchasing terms for the public undertaking, and

ultimately for the citizen/consumer. The procure-

ment rules can help preserve the necessary balance

between buyers and sellers.

RULESThere are no fully comprehensive statistics on public purchasing. The Committee on Public Procurement estimated that public expenditure in this sphere in 1998 (by government agencies, municipalities, county councils and publicly-owned enterprises etc) amounted to approx-imately SEK 400 billion. The total annual cost of public procurement is a fi gure that needs

updating. According to the National Finan-cial Management Authority, purchasing by government agencies alone cost almost SEK 80 billion in 2003.

The key legislative instrument in this area is the Public Procurement Act, which is based on EU directives. The aim of the procurement rules is to help implement the single market and reduce public purchasing costs, by ensur-ing that purchases are subject to a competitive procurement procedure. The Swedish Public Procurement Act covers the purchase by a pro-curing entity of goods or services from another (independent) legal entity (supplier). The basic principles governing public procurement are fair and equal treatment and non-discrimi-nation of tenders, tenderers and candidates, irrespective of nationality. Other important principles are transparency or openness, i.e. procurement procedure must be stable and predictable, and there must be opportunities for external insight into and control of the pro-cess. The supervisory authority for the Public Procurement Act is the National Board for Public Procurement.

In early 2004, the EU presented new direc-tives (2004/17/EC and 2004/18/EC) concer-ning public procurement. Some changes are to be made, e.g. regarding joint procurement and what are termed framework contracts. A government committee (ToR 2004:47) has been assigned to propose changes to the Swedish procurement rules on the basis of the EU direc-tives.

BARRIERS TO ENTRY AND COMPETITION There are a number of factors relating to public procurement and the Public Procurement Act


that militate against market entry, the growth of small undertakings and effi cient competi-tion. Below, we look at the impact of unlawful direct public procurement, joint procurement by a group of agencies based on framework contracts, and interrupted procurement proce-dures. Effi cient competition is vital not least in areas where central and local government are the dominant buyers of goods and services. Here, the behaviour of the authorities when embarking on procurement exercises and awarding contracts has a powerful effect on structural relations, competitive relations and effi ciency in the market.

For various reasons, markets in which public procurement is a large component are considered more prone to cartel building in breach of competition rules, especially if the market features only a limited number of supp-liers. This is confi rmed by experience both at home and abroad.22 One of the ways in which purchasers might be able to improve competi-tion is by making it easier for small underta-kings to join the bidding. Measures to this end could include giving suppliers the chance to submit tenders for one or several parts of a contract, spreading procurement dates for a specifi c product area over a longer period, or

giving tenderers the opportunity to lease costly facilities of an infrastructural nature that they could not otherwise afford.

UNLAWFUL DIRECT PROCUREMENTOne of the most serious violations of the procurement rules is when government bodies contact suppliers of goods or services directly, instead of going via a competitive purchasing process. This is permitted – in a few exceptio-nal cases – if there are special grounds for such an approach and only a small sum is involved. Unlawful direct procurement, however, is pro-bably widespread. This view is supported by studies of procurement in individual product areas and the procurement practices of indi-vidual authorities.23 However, it is diffi cult to tackle such practices on the basis of the Public Procurement Act.24

Undertakings must be given the chance to compete on equal terms for contracts awar-ded by central and local government. Direct procurement renders competition inoperative, and the result may be that public agencies pay high prices and receive products of poor quality. Unlawful direct procurement makes it harder for newcomers to enter the market. As part of its efforts to broaden competition in the Swedish economy (Govt. bill 1999/2000:140), the Government should seek to reduce cases of unlawful direct procurement, which probably means amending the Public Procurement Act.

JOINT PROCUREMENT AND FRAMEWORK CONTRACTS

Municipalities, county councils and central government agencies often engage in joint procurement. Coordination of this kind

“Undertakings must be given the chance to compete on equal terms for contracts awarded by central and local government.”


Public procurement

between different authorities may make the procurement process more effi cient and lead to more favourable supply terms (lower prices etc). A genuinely competitive procurement process, however, is essential if central and local government want to be sure of obtaining favourable terms, whatever goods or services are involved. Another important prerequisite is the presence of clear and predictable rules that remain stable in the long term.

In addition, it should be borne in mind that joint procurement by public clients may in-volve major commitments that not all suppliers have the capacity to live up to. This may affect market structure and also encourage suppliers to step up their cooperation. In time, this may in turn lead to a decline in competition and unfavourable purchasing terms for the client. It is important, therefore, to achieve a proper balance between buyers and sellers, and the procurement rules have a vital part to play in this respect.

In the view of the Competition Authority, there are clear signs that public actors are increasingly coordinating their purchases. In 2003, joint procurement in central government administration alone was worth approx. SEK 7 billion (of which two billion comprised ‘subor-ders’ from municipalities and county councils). In most cases, procuring entities probably coordinate their activities via framework cont-racts. The agency responsible for the procu-rement often signs an agreement with several suppliers at once. These are known as parallel framework contracts.

Under present procedure, the agencies taking part in the joint procurement exercise usually order goods and services from one of these suppliers. Often, however, the suppliers are not ranked by the coordinating authority/joint procurer on the basis of the most favou-

rable tender but are chosen arbitrarily or for reasons that are not apparent. As a result, the supplier who submitted the most favourable tender may not be given precedence when the contract is awarded. The fact that tenderers are not properly ranked may be due to the client having failed to establish the various procure-ment terms (price, volume etc) fi rmly enough at the outset.

An additional factor that may limit compe-tition is the business risk that suppliers have to take when they build up a production, storage and supply capacity that is based on highly uncertain data concerning future sales. Such a situation may mean that undertakings, not least small businesses, choose not to – or dare not – bid for public contracts of this kind.25 This applies in particular to contracts that contain strict provisions on the imposition of fi nes should suppliers fail to deliver on time or back out. The Competition Authority has found over the years that such contracts are not unusual. The result may be a lack of proper competition and unnecessarily high prices for the purchaser.

In the case of procurement based on framework contracts, a distinction is made between procurement in the ‘classic sector’ and procurement in the ‘supply sectors’. The latter include water, energy and transport (primarily passenger services). Procuring entities in these sectors are mainly concerned with infrastruc-ture-related contracts. All other public procu-rement takes place in the classic sector. Here, parallel framework contracts are now allowed if these specify (fi rst and foremost) product, price and volume, and are ordinarily awar-ded on the basis of how suppliers are ranked. At present, according to the National Board for Public Procurement, suppliers cannot be exposed to a second competitive procurement


“One likely outcome is that more agencies will need to set up an

effi cient procurement operation to secure favourable purchasing terms.”

process in the event of further suborders from the public authority; instead, the original order of rank continues to apply.26

A new EU procurement directive for the classic sector (which is to be transposed into Swedish law) allows for the implementation either of framework contracts in which all the terms are specifi ed or framework contracts that provide for a second round of competitive bidding between the chosen suppliers. These rules pave the way for effi cient competition. In the supply sectors, the rules are more fl exible. Here, framework contracts do not have to specify the terms. These can be specifi ed later after negotiations with the selected suppliers, whereupon the authority places its order. The procurement rules currently pending do not represent any change in this respect.

The question is to what extent public actors will in future be able to engage in large-scale framework contract procurement in the classic sector without coming into confl ict with the procurement rules, which would reduce the chances of effi cient competition. Procuring en-tities will need to undertake additional bidding rounds of their own among suppliers. One likely outcome is that more agencies will need to set up effi cient procurement operations to secure favourable purchasing terms.

INTERRUPTED PROCUREMENTPublic actors (incl. central and local govern-ment authorities) frequently open their own activities to competition by means of a procure-ment procedure. In many cases, their activities were previously organised by entities applying the contractor-performer model. When public contracts are to be awarded, the providing en-tity often enters a bid (an internal tender) of its own. The purpose of this model is to make sure that the providing entity is an effi cient opera-tor. This is useful, of course, but experience has shown that the model entails problems that may cause it to fail.

Under the terms of the Public Procurement Act, the procuring entity, such as a municipa-lity or a government agency, has sometimes awarded a contract to its own providing entity even though this entity did not submit the most favourable tender. Such cases may be due to the purchaser having failed to make an ob-jective choice of provider. This procedure can be equated with an interrupted procurement, in that all tenders from external suppliers are discarded and the authority continues to con-duct its activities on its own account.

Cases of interrupted procurement do not only arise in connection with the opening of public activities to competition. They may also involve situations where, for instance, a muni-cipal department bids for a new activity or an expanded activity in its own municipality.

When a public authority awards a contract to one of its own production entities, this is an internal purchase within the same legal entity (e.g. a municipality or a government agency) and not a purchase under the Public Procure-ment Act. In principle, therefore, the internal bid is without legal validity. Two judgements by the Swedish Supreme Court show that a wronged tenderer cannot, pursuant to the Public Procurement Act, obtain redress or


Public procurement

24 This is clear from a ruling by the Supreme Court (Case No. T 2417-98) and one by the Supreme Administrative Court in early 2004 (Case No. 998-03). The implication of the latter ruling is that a procuring entity and a supplier may, without prior application of a procurement procedure, agree to renew a cont-ract without a court being able to alter the decision pursuant to the Public Procurement Act. 25 See the Competition Authority report, Vårda och skapa konkurrens – vad krävs för ökad konsumentnytta? (220:2, section 7.4).26 See the National Board for Public Procurement communication (reg. no. 2004-0046-29) to the Riksdag’s Standing Committee on the Constitution, in which the agency describes how framework contract procurement is to proceed on the basis of the procurement rules. 27 See the Competition Authority report, Vårda och skapa konkurrens – vad krävs för ökad konsumentnytta? (2002:2, section 7.4).28 Case C-92/00: Hospital Ingenieure Krankenhaustechnik Planungs-Gesellschaft mbH against the City of Vienna.

damages – such as compensation for the cost of producing the tender etc – in cases of interrup-ted procurement in the municipal fi eld.27 The European Court has since delivered a judge-ment28 which in essence means that a decision by a public authority to interrupt a procure-ment exercise may be triable. This judgement may necessitate a change in the Swedish Public Procurement Act.

Further reading about public procurement:Samordnad upphandling (Swedish Ministry of Finance, Ds 2004:37) Skrivelse och yttrande till Finansdepartementet om beställar- och utförarmodellen (Swedish Competition Authority, reg. no. 969/2003 and 737/2004)Vårda och skapa konkurrens – vad krävs för ökad konsumentnytta? (Swedish Competition Authority 2002:2)


A word of introductionAccess regulation


Access regulation

In many former monopoly markets, access to infras-

tructure and the terms under which this is granted

are crucial to the proper working of the market.

Electricity and telecommunications are examples of

industries that were opened to competition in the

1990s and where undertakings required access to

certain kinds of infrastructure in order to compete

at the next stage, i.e. service production, and to sell

their respective services. Technological develop-

ment, new demand patterns, greater internationali-

sation and a new interpretation of how this type of

market should be regulated have signifi cantly alte-

red market conditions, and markets can now under

certain circumstances be opened to competition.

In many network industries, access to infras-tructure is essential to production. Infrastructu-re works as a bottleneck – undertakings cannot operate in the market without access to it, and investment costs for establishing their own infrastructure are in many cases prohibitively high and therefore not a realistic alternative. There are different ways of dealing with this type of problem. One method that has become increasingly popular in both Europe and the US in recent years is to regulate the price for access to the bottleneck. An advantage of this approach, known as access regulation, is that it permits competition at production stages that do not involve bottlenecks, i.e. the service production stages.29

Access regulation

ADOPTING A POSITION ON ACCESS REGULATION

What makes it diffi cult to create effi cient competitive markets in network industries is that in the absence of access regulation it is not usually in the interests of those who own infrastructure to grant competitors access to it. Infrastructure owners may, for instance, choose to charge such a high price for the use of the infrastructure (bottleneck) that competitors already in the market are eliminated and po-tential market newcomers are prevented from entering. To avert such situations, the regulator must decide which principles should be app-lied to the provision of infrastructure access.30

Vertical separation, i.e. separating infras-tructure out of a former monopolist’s opera-tion, is a supplement to access regulation. A company dealing exclusively with infrastruc-ture is not as interested in limiting competition, a fact that reduces the need for regulation and control of the market and thus also reduces the supervisory costs.31

In principle, vertical separation can only be undertaken in Sweden if the infrastructure company is state-owned. The ownership and operation of the Swedish railway network, for instance, has been taken out of the hands of SJ through the establishment of the National Rail Administration, and the national power grid has been separated from state-owned Vatten-fall through the establishment of another state utility, Svenska Kraftnät. Should infrastructural activities become privatised, the introduction of effective access regulation will become even more important.

In a regulated market, it is harder for in-frastructure owners to charge fees that exceed


the actual cost of the service, as the size of the fee normally has to be justifi ed. Owners are, however, in a position to raise the cost to com-petitors by only offering a package of services (bundling) instead of offering the services individually. Competitors may then have to purchase more services than they need in order to compete, which would mean paying an un-necessarily high price. Another means of achie-ving the same end is to provide infrastructure services of poorer quality.

Questions that a regulator has to decide in-clude whether, and if so how, regulation might improve access for newcomers to the market, and whether there are other market interests present that need taking into account. One dif-fi culty in determining a fair access price is that the regulators normally do not have at their disposal all the information they need con-cerning the company’s costs or other market conditions. It is in the interests of the infras-tructure owner, on the other hand, to try and exaggerate these costs so as to increase benefi t.

Markets with one infrastructure owner (one-way access)

A basic principle is that producers and consu-mers must encounter prices that refl ect the al-ternative costs arising from their decisions. The alternative cost of providing competitors with access to infrastructure (bottleneck) controlled by a former monopolist (one-way access) has three components:32

1. The direct costs associated with access pro-vision.

2. The value of the former monopolist’s own production that is displaced as a result of competitors being granted access to the bott-leneck.

3. A possible fi nancing factor, should access revenue together with the surplus from the former monopolist’s own production not be enough to cover fi xed costs or costs associa-ted with special commitments undertaken by the former monopolist.

In most network industries, a substantial share of the total costs are fi xed and thus are not infl uenced by the extent of network usage. The direct costs for access provision, however, known as the marginal costs or supplementary costs, are often low. If the access price were to


Access regulation

be determined solely on the basis of the mar-ginal cost or supplementary cost, the infras-tructure owner would be left with a fi nancial defi cit, as the access price would not contribute to the owner’s fi xed costs. Effective pricing, then, must assume that this defi cit is offset in some other way, e.g. via subsidies fi nanced by taxes.

Another approach is to let the access price cover not only the costs of providing access but also the loss of earnings sustained by the provider as a result of increased competition and lower sales. This method is known as the Baumol Principle or the Effi cient Component Pricing Rule (ECPR), and it assumes that the infrastructure owner will also be competing at the forthcoming production stage. Loss of earnings – and thus the access price as well – is higher (lower) the more (less) substituta-ble the undertakings’ services are. When the undertakings’ services are perfectly substitu-table, the access price will equal the difference between the infrastructure owner’s consumer price and the costs foregone to the owner at the retail stage. This method encourages new undertakings to enter the market only if they are more effi cient as producers at the retailing stage, or the service production stage, than the infrastructure owner. A risk associated with the ECPR is that it gives infrastructure owners the incentive to ‘transfer’ costs from competitive production at the service production stage to its monopoly operation, as this would yield a higher access price.

Keeping access prices relatively low may sometimes be justifi ed as this reduces market entry barriers and creates scope for reduced consumer prices. On the other hand, access prices that are set too low may result in a disin-clination to invest in infrastructure, which in

turn may cause production to become less cost-effi cient. Were it possible to determine optimal production capacity, the value of increasing ca-pacity would correspond to the marginal cost of investment. Accordingly, the access price would equal the long-term cost of keeping production resources available. To stimulate investment, the access price could be allowed to refl ect the marginal cost for investment plus a mark-up factor to cover running costs and common costs, e.g. general overheads. This method is called the Long Run Incremental Cost (LRIC), and has won considerable backing in regulatory circles, especially in the telecom-munications sector.33 The disadvantage of this method is that it is totally cost-based, i.e. it ta-kes no account of demand when pricing access.

A more sophisticated way of calculating access prices, which takes demand aspects into consideration and allows for coverage of the infrastructure owner’s fi xed costs, is the method known as Ramsey Pricing. Under this model, the access price is allowed to vary ac-cording to the price sensitivity of the product. In other words, higher prices are allowed for products sold in price non-sensitive markets and lower ones for products sold in price sen-sitive markets. This makes it possible to limit falls in consumption, which is desirable from a socio-economic viewpoint. The usefulness of the model is restricted primarily by the fact that the regulatory authority must not only have access to cost data but also know how pri-ce-sensitive consumers are to various products and customer categories. Also, from a distribu-tion policy viewpoint and for other reasons, it may be diffi cult to enlist support for a method that allows entry charges to vary between un-dertakings, depending on how price-sensitive their services are.


“What makes it diffi cult to create effi cient competitive markets in network industries is that in the absence of access regulation it is

not usually in the interests of those who own infrastructure to grant

competitors access to it.”

As the undertaking that is to be regulated can be expected to have a better grasp of costs and the state of demand than the regulatory authority, it may be a good idea to allow the undertaking fl exibility regarding pricing subject to a price-cap for a basket of services. The undertaking can then change its prices for regulated services on the basis of changes in costs and demand for individual services. This approach frequently proceeds from an unchanged price level in real terms minus a given percentage, or a ‘rationalisation factor’. When determining the size of the rationalisa-tion factor, a number of other relations have to be taken into account, such as previous profi t levels and anticipated cost and demand trends. Cost reductions, due for instance to technologi-cal advance, would in combination with rising demand mean a substantial rationalisation factor if unit costs in production were falling. A price-ceiling rule of this kind would encourage the regulated undertaking to streamline pro-duction and reduce costs, as this would make for higher profi ts. This regulatory model has been applied in the telecommunications sector, for instance, in a number of countries around Europe.


Access regulation

Markets with several infrastructure owners (two-way access)

The risks for market foreclosure outlined above are not as evident in the case of more symme-trical situations, i.e. when two or more compe-ting undertakings own infrastructure of their own. Often, it is then in the interests of all con-cerned to utilise one another’s infrastructure, and none of the undertakings can (in principle) dictate the terms on their own.

One way of solving the bottleneck problem when two-way access is present is for the va-rious undertakings to establish infrastructure clubs and share ownership. Such a solution is applied in Sweden in the banking market for payment systems, for instance, and in the mo-bile telecommunications market for network capacity (3G). One advantage of this model is that it eliminates incentives to discriminate against one or other of the competitors in the club and thus reduces the need for regulation. One of the drawbacks is that club members may see fi t to exclude newcomers seeking entry to the market; another is the risk that club members may use their infrastructure as a means of developing coordinated prices in the next stage of production. In the latter case, the charge for using infrastructure is set at a fairly high level in order to push up consumer prices. Joint ownership also entails the risk of infor-mation exchange and insight into the activities

of competitors. This could damage market competition, as the agreements that the under-takings reach with one another may provide a basis for anti-competitive collusion, i.e. it may facilitate cartel building. This is not necessarily the case, however.

In certain cases, markets with two-way access and separate ownership of infrastruc-ture can also be self-regulating. This can best be illustrated by an example. In the mobile telecommunications market, higher termina-tion prices may give rise to higher prices in the end-customer market for calls to mobile phone customers, as the termination prices affect the undertaking’s marginal costs. But this is not the only conceivable effect of increased termi-nation prices. An increase in (already high) ter-mination charges encourage mobile operators to try and ensure that as many calls as possible terminate within their own networks. By redu-cing its end-customer prices, a mobile operator can acquire more customers, i.e. increase its market share, and than reduce its costs for the termination of calls terminated in other mobile operators’ networks. Which of these two effects dominate depends on such factors as the extent to which the termination charge differs from the marginal cost, and the degree of competi-tion in the market.34


Concluding observationsAccess regulation has proved a key element when markets are opened for competition, but it is also problematic and controversial. As seen above, the various models in use have both advantages and disadvantages.

In principle, market foreclosure – due to high access prices etc – does not arise when competitors enjoy the same market penetra-tion. This does not, of course, mean that regula-tion may not be needed to militate against car-tel-like developments in the market. However, economic theory in respect of two-way access is by no means as highly developed as theory in respect of one-way access. Factors that affect outcome include the relative size of underta-kings and the market’s degree of maturity.

Economic theory concerning access regula-tion is extensive in a static context. How access prices (over time) affect the incentive of under-takings to invest in networks and develop new products, i.e. the impact of dynamic effects, has not been properly analysed, however. Willing-ness to invest is infl uenced by the perceived or anticipated risk this would involve. Val-letti (2003) argues that uncertainty should be reduced by establishing principles for access pricing in advance as far as possible. Also, the relationship between end-customer prices and access prices has a signifi cant impact on under-takings’ willingness to invest in infrastructure. Valletti further emphasises the importance of

fl exibility. He argues that newcomers should have the opportunity to choose from a ‘menu’ of combinations of fi xed and variable charges, while at the same time vertically integrated and established undertakings should have the opportunity to charge different prices, below a given ceiling, for a range of services. In other words, they should be allowed a degree of fl exibility in their pricing of services subject to regulation.

When market conditions change, regula-tors are faced with a special set of problems and confl icting goals. Access regulation can be extremely complicated when it seeks to serve a number of different – and often confl icting – interests. To encourage market entry, access prices need to be kept low. But (excessively) low access prices reduce the incentive to invest in infrastructure, and without competitive infrastructure, regulation cannot (in principle) be abolished. Formulating a viable set of regu-lations, therefore, is a matter of creating both proper investment incentives and low entry barriers. In some cases, opportunities for deve-loping an effective regulatory framework for market access have suffered from the fact that experience gained in one industry, whether in Sweden or abroad, has not been adequately put to use in other industries that encounter the same types of problems.


Access regulation

29 Another way of dealing with bottleneck problems is to regulate consumer prices, either via price-cap regulation or by letting the undertaking‘s costs determine the highest permissible price level. The latter is known as cost-based regulation. (See for instance Expertgruppen för studier i offentlig ekonomi, ESO (2002) Lärobok för regelnissar.)30 For a detailed account of various theoretical principles for access regulation and of the practical problems and applications involved, see for instance OECD (2003), The Regulation of Access Services (with focus on telecommunications).31 One drawback is that potential synergy effects between the bott-leneck stage and other stages cannot be exploited. Nevertheless, splitting up an undertaking may still be justifi ed. This is the case, for instance, when the benefi cial effects of greater competition and lower supervisory costs outweigh the adverse effects of a higher production cost.32 See for instance Von der Fehr (1996) Telecompetition: Towards a single Nordic market for telecommunication services? (Nordic report).33 As the name implies, prices are determined on the basis of the forward-looking cost. As a rule, however, the basis is present cost.34 The economic literature refers to two mutually incompatible effects described as ”the raise-each-other’s-cost effect” and ”the endogenous-marginal-cost effect”. Laffont and Tirole (2000), Competition in Telecommunications, MIT Press.

Further reading about access regulation:Lärobok för regelnissar (Expertgruppen för studier i offentlig ekonomi, ESO, 2002)Svensk telemarknad 2003 (National Post and Telecom Agency, PTS)Monopoly Markets in Transition (Swedish Competition Authority, report series 2004:3)The Regulation of Access Services, with focus on telecommunications (OECD)Competition in Telecommunications (Laffont and Tirole, 2000)Telecompetition – Towards a single Nordic market for telecommunication services? (The Nordic competition authorities, 2004)


A word of introductionTrade organisations in Sweden


Trade organisations in Sweden

While in the great majority of cases trade organisa-

tions make a positive contribution to growth in a

given sector, some of their activities can have a cons-

training effect on competition. In many markets, for

instance, it can be damaging if undertakings obtain

access to detailed information about competitors’

costs, prices and other terms, as this may facilitate

collusion of one kind or another. In cases where

trade organisations help bring about such a situa-

tion, their contribution can be anti-competitive.

Organisations whose purpose is to safeguard the interests of their members and pursue industry-wide issues are to be found in most sectors. Their size, organisational set-up and activities vary considerably, however. Many of them have no full-time staff and could best be described as voluntary associations, while others have giant budgets and a large number of employees. Typically, the activities of trade organisations include professional guidance, education and training, the production of statistics, lobbying and the dissemination of information.

Competition authorities in various countries have frequently taken a closer look at trade organisations, particularly when these or-ganisations have sought to exchange informa-tion and offer guidance in connection with pri-cing. The Swedish Competition Authority, for instance, decided in March 2004 to prohibit the issuing of price lists by VVS-Installatörerna, the trade organisation for plumbing, heating, refrigeration, electrical and platework contrac-tors, on the grounds that this distorted com-

Trade organisations

petition. The issuing of such lists was viewed by the Authority as a case of horizontal price cooperation. The organisation was ordered to cease making such lists available on penalty of a fi ne of SEK 5 million. VVS-Installatörerna subsequently appealed against the Competi-tion Authority decision. The Market Court will rule on the case. Trade organisations are also targeted in cases elsewhere in the world. In the US, for instance, some 30 competition cases between 1998 and 2003 concerned trade organi-sations accused of establishing price lists or engaging in market-sharing or standardisation activities etc.

Despite this situation, no comprehensive survey appeared to be available of trade orga-nisations in Sweden. Consequently, the Com-petition Authority assigned Econ Analys AB (Econ) to study the presence of trade organisa-tions in the Swedish economy.35 The aim of the survey was to determine which industries the organisations work in and what their activities mainly involve. The present chapter is based exclusively on the Econ survey.



There are just over 400 business and trade organisations in Sweden.36 These range from national organisations whose principal task is to monitor developments in the industry con-cerned, to local associations looking after the interests of local undertakings.

The number of trade organisations in a given sector largely corresponds to the size of the industry in question, but there are excep-tions. Industries with strong local roots, for instance, such as retailing and property mana-gement, tend to have numerous trade organi-

sations. This is because their local orientation means they carry considerable weight . Trade organisations are also well represented in the food sector, in both agricultural and processing industries. This may be partly explained by the local nature of these activities, but it is also due to the fact that there are a large number of organisations that focus on specifi c types of foodstuffs. Construction is another sector with many trade organisations, due primarily to the presence of a large number of national organi-sations focusing on highly specifi c industries.

The activities of trade organisations Trade organisations in a number of different scientifi c disciplines have been analysed, but their impact on competition has been exa-mined primarily within the socio-economic framework. Information exchange between organisations has been a common focus of at-tention, but other types of activities have been studied as well.

INFORMATION ACTIVITIESInformation activities, in the form of the production, collection and dissemination of industry statistics etc, is one of the main areas of trade organisation activity. The effects of information exchange depend to a large extent

on what type of information is involved and the purpose of the exchange.

If the information makes it easier for undertakings to predict how competitors will act, this may lead to convergence in the vari-ous undertakings’ strategies. In cases where undertakings stand to benefi t from exchanging information37, stronger correlation between their strategies usually leads to weaker compe-tition and higher prices, which affects con-sumers adversely. The information may also facilitate collusion between undertakings as it makes it easier for them to observe and check on competitors’ actions. The risks of closer coo-peration and correlated company strategies are



often emphasised in cases where trade organi-sations provide detailed statistics on prices and quantities, or detailed cost statistics, especially where the actions of an individual undertaking may be deduced from the information. But other statistics, too, as well as the work of the trade organisation itself, may facilitate or lead to collusion between undertakings by creating forums where they can meet.

On the other hand, the competitive impact of information exchange designed to reduce uncertainty about market variations, such as demand variation and price variations for input goods, is less clear. Uncertainty may cause undertakings to seek higher compensa-tion for their products, for instance in the form of higher prices, than they would otherwise have done had the degree of uncertainty been less. This correlation, however, is by no means unequivocal.

Trade organisations also provide informa-tion aimed at making consumers aware of the current state of affairs in a given industry. If such information helps consumers make informed choices when buying products, this may result in lower market prices. For pre-cisely this reason, however, it is more com-mon for consumer organisations to convey this type of information to consumers. Trade organisations often prefer to concern themsel-ves with certifi cation or with the licensing of undertakings to show their different degrees of qualifi cation. Certifi cation could be regarded as a form of information to consumers, as by providing it the trade organisation is signalling that the undertaking concerned meets certain specifi c requirements. Certifi cation frequently helps enhance the average quality of market products, but as it also tends to raise consumer prices and reduce the number of products with the requisite qualifi cations, its overall effect on consumers is diffi cult to gauge. Also, certifi ca-

tion represents an entry barrier for new market actors, which helps to weaken competition.

Over 70 per cent of the trade organisations in the survey engage in some form of informa-tion exchange. Almost 60 per cent of the orga-nisations produce statistics, which is the area of activity that has attracted most attention from a competitive viewpoint. Aggregate sales statistics are the most popular fi gures, but both company-specifi c and product-specifi c sales statistics also occur fairly frequently. Statistics at the product and company level are found more often in trade organisations that repre-sent a large proportion of the undertakings in an industry. Often, undertakings have to be members of the organisation in order to have access to the statistics. Price statistics are also produced, but as a rule only at company level. The gathering of price statistics is more usual in the service sector than in goods retailing and production.

Information directed at members’ custo-mers principally involves data concerning quality and codes of behaviour in the industry. Only in the case of a few industries do trade organisations spend any length of time in disseminating this kind of information. The survey shows that such practices are mainly found in the pharmaceuticals industry and in industries featuring advanced technology.

LOBBYINGLobbying involves stakeholders such as trade organisations or consumer organisations see-king to persuade politicians or other decision-makers to act in a manner that benefi ts the organisation’s own members. What competi-tive impact such activities have depends on the areas involved and the extent to which the lob-byists succeed in their aims. Where lobbying by trade organisations is undertaken for the purpose of reducing competition in the market


“The risks of closer collaboration and correlated company strategies

are often emphasised in cases where trade organisations provide

detailed statistics on prices and quantities, or detailed cost fi gures, especially where the actions of an

individual undertaking may be deduced from the information.”

(introduction of import quotas, protective ta-riffs, subsidies and other types of trade barriers etc), there is a risk of anti-competitive impact.The great majority (90 per cent) of trade organi-sations in the survey engage in lobbying in one form or another, but it usually represents only a very small part of their overall activities. On average, trade organisations spend only fi ve per cent of their time on lobbying.

STANDARDISATION AND SUBSTITUTABILITY

Standardisation leads to a higher degree of compatibility between different products and services. Standardisation is of particular inte-rest when it comes to network effects. Network effects arise when consumer benefi t grows the larger the number of consumers of a given product. Telephony and telefax services are examples in point. By increasing their degree of standardisation, undertakings can offer their customers a larger network, which is a positive development in itself and which also enhan-ces competition between them. This benefi ts consumers, but may mean either higher or lower returns for the undertakings involved. The extent to which an undertaking’s profi ts are affected depends on its size and position in the market. A large undertaking has little to gain by extending the network and much to lose from stiffer competition, while the reverse is true for small undertakings. Like certifi ca-tion, standardisation risks reducing product variation, which may affect consumers adver-sely. Also, standardisation work may facilitate collusion between undertakings by creating forums where they can meet. Over 60 per cent of the trade organisations in the survey engage in some form of activity relating to standardi-sation matters.

RESEARCH AND DEVELOPMENT, R&DResearch and development (R&D) can be a very costly business, particularly as underta-kings may fi nd it hard to prevent competitors from reaping the benefi ts of the results, should they be easy to copy. This may cause underta-kings to engage in less R&D than is desirable from a socio-economic viewpoint. R&D can be increased through greater cooperation, for in-stance in trade organisations. But cooperation in the research fi eld may also cause underta-



kings to cooperate on other issues, which may adversely affect competition. Such cooperation may also represent an entry barrier for new actors. No clear conclusions may be drawn, therefore, as to whether the R&D engaged in by trade organisations is benefi cial or detri-mental to competition.38

About half of the trade organisations in the survey engage in R&D activities, usually consisting of the dissemination of information about research fi ndings. The organisations engage in little R&D of their own.

TRAINING AND GUIDANCETrade organisations also provide guidance and training. These areas of activity have not been discussed at any great length in the literature, but would appear to be relatively harmless from a competitive viewpoint if they lead to higher quality and lower company costs, and if the guidance does not concern pricing, dis-count terms or the like. Guidance and training

may be of particular value to small under-takings, as it gives them a better chance to compete with major undertakings. Virtually all the trade organisations in the survey engage in both guidance and training activities.

Guidance is the area of activity to which the trade organisations in the survey devote most time: on average, 26 per cent. Legal coun-selling is the most common form of guidance. Other popular types include guidance on trade ethics and technological and economic advice.

In the training fi eld, skills enhancement/professional development is by far the most common sphere of activity. Almost 75 per cent of the trade organisations in the survey offer this type of training. Other kinds of training made available by trade organisations include programmes focusing on certifi cation and on law and accounting. Undertakings normally have to belong to a trade organisation in order to have access to its training programmes.


The competitive impact of trade organisations

As the above shows, no general conclusions can be drawn on the basis of theory as to the impact of trade organisations on competition. Often, their activities have both benefi cial and adverse effects, depending on market condi-tions and what the activities involve. Some tentative conclusions may be drawn, however, on the basis of the above.

Lobbying does not appear to be a particu-larly important activity among trade organisa-tions. While it is true that 90 per cent of them engage in some form of lobbying, they only do so for fi ve per cent of the time on average. Where lobbying is undertaken in a bid to intro-duce entry barriers, trade barriers or the like, it risks having an adverse effect on competition.

Regarding information exchange, the com-petitive impact depends both on the type of information involved and the object of the ex-change. Detailed statistics concerning price and

costs etc, where the actions of individual actors can be deduced, make it easier for underta-kings to cooperate and predict one another’s strategies, which has a detrimental effect on competition. The effects of information ex-change at a more aggregated level, however, are unclear, as it may also reduce uncertainty among undertakings. Trade organisations quite often produce statistics at company and product level, although aggregate statistics are more common.

As regards R&D and standardisation, their competitive impact is diffi cult to determine on the basis of economic theory. Guidance and training, which is a highly important sphere of activity among trade organisations, are not specifi cally dealt with in the literature, but would appear to be fairly harmless from a competitive viewpoint, as long as they do not focus on pricing etc.

35 The study includes a survey of all trade organisations in Sweden, based on statistics from Statistics Sweden. As these statistics proved to be limited in certain respects, however, Econ made extensive revisions, but cannot guarantee that the fi nal list is exhaustive. In addition, the study included a survey based on questionnaires sent to 203 trade organisations. The selected group comprised all organisations with more than one employee. Eleven organisa-tions were removed from the survey, however, due to incorrect classifi cation. The overall response rate was 42 per cent, and Econ is of the opinion that the drop-out rate has not systematically affected the outcome. 36 Figures from Statistics Sweden. Cross-industry organisations are not included.37 It is only in such cases that undertakings can be expected to engage in information exchange. 38 Cooperation in the R&D fi eld in Sweden comes under Ordinance 2001:255 concerning block exemptions pursuant to Section 17 of the Competi-tion Act, and under the European Commission’s guidelines for the implementation of Article 81 in the EC Treaty to horizontal cooperation agreements (2001/C3/02).


A word of introductionSummary of conclusions


Summary of conclusions


The report deals with about a dozen industries that

differ in many respects. All, however, face competi-

tive problems of one kind or another. In most of the

industries, competition has improved. Certain types

of competitive problems persist, however, due to

such factors as increased import competition.

Concentration, for instance, where only a few undertakings operate extensively in the mar-ket, is high in most of the sectors studied. This restricts consumer choice and tends to generate higher prices than would otherwise have been the case.

Concentration is often due to entry bar-riers. Where high entry barriers are absent, new undertakings can enter profi table markets and reduce concentration. Thus entry barriers are more or less a root cause of competitive problems. Vertical integration may represent an entry barrier and thereby contribute to high concentration. The grocery retail sector and parts of the fi nancial and construction sectors are industries characterised by high concentra-tion as well as by strong vertical integration and substantial entry barriers.

It is clear from the report that the surroun-ding world signifi cantly infl uences competition in Sweden. In some cases, previously separate geographical markets are becoming increasing-ly integrated, leading to enhanced competi-tion. One of the clearest examples of this is the trade in electricity, where an integrated Nordic market has a major impact on Swedish price formation. In Sweden, the largest producer is responsible for almost half of the country’s

electricity output but only 17 per cent of sales on the Nordic power exchange, Nord Pool.

Another example is the aviation market, where the entry of large international low-price airlines has helped reduce costs for Swedish air travellers. In yet other sectors, there is clearly a considerable lack of import competition, despite the fact that Sweden is part of the EU’s single market. The building material market is another example of a market with relatively limited import competition.

A noticeable trend in several sectors is the steady growth in low-price competition. This is true of both the aviation and the grocery retail sectors, where new actors – often international ones – have entered the market. Their strong strategic focus on price competition has helped to increase competitive pressure and reduce prices.

The streamlining of regulatory frameworks has paved the way for competition in many sectors, including infrastructure markets such as telecommunications, electricity and gas. New competition-promoting rules have helped bring about a situation in which former monopolies are having to face competition and consumers are being given a wider choice. It is important to remember, however, that it may take some time for changes to have the desired effect. Also, rules inhibiting competition and entry remain in place in a number of areas. This applies for instance to the Planning and Building Act, and to other forms of licensing that attach too little weight to competitive is-sues and involve length administrative proce-dures. Such regulations can hamper the growth of small and medium-sized undertakings in particular.


Extensive harmonisation efforts have been under way in the EU for some time with a view to facilitating the exchange of goods and ser-vices. Sectors targeted for action in this respect include the railways, construction and fi nance.

Regulations that are more benefi cial to competition along with growing international integration have in many cases forced un-dertakings to revise their market strategies. Some undertakings have focused on price as a competitive tool, while others prefer to enhance consumer benefi t by focusing on

quality, service and product range. This is what competition authorities call ‘competition on the merits’, and there is every reason to encourage it. Sometimes, however, to cope with the new situation that has arisen, undertakings may try to use other methods that adversely affect the consumer, such as abuse of a dominant posi-tion in a bid to stop competition developing, anti-competitive collusion agreements, or mer-gers that seek to restrict competition or which have that effect.

The mission of the Competition Authority is to promote greater competition for the benefi t of consumers.

THE MAIN CONCLUSIONS OF THE REPORT ARE AS FOLLOWS:• In the grocery sector, concentration is high

at both the supply stage and the wholesale and retail stages. Horizontal cooperation and vertical integration in particular are preventing new actors from entering the market. Recently, however, competition has improved, due partly to the arrival of new low-price chains, and Swedish food prices have

risen more slowly than the Consumer Price Index (see Figure 6). They nevertheless remain high by international standards.

• The new car trade is experiencing strong inter-brand competition, while intra-brand competition is weak. There are still considerable differences in the price charged for various models in different EU countries, although the gaps have closed somewhat in recent years. Car purchases abroad by private



individuals have nevertheless been very limited, due to the fact that private imports are both time-consuming and associated with administrative costs. The European Commission’s new block exemption for motor vehicles has made it easier for repair shops to obtain authorisation, which may improve competition, although the authorisation requirements are still very demanding.

• The price of air travel has declined considerably during the period under review, which has worked to the benefi t of consumers fl ying in Sweden. The drop in prices is partly due to a general decline in passenger traffi c in recent years but also to the breakthrough of low-price airlines in the Swedish market. Access to slots (takeoff and landing times) at Arlanda has improved, due to capacity expansion and reduced traffi c, and is no longer a major entry barrier for newcomers.

• The price of rail travel has increased at a faster rate than the Consumer Price Index in recent years, and market concentration for both passenger and goods services is high. The lack of competition on routes that SJ considers profi table represents a major competitive problem in the passenger sphere. Another problem is the national discrepancies in features such as technical standards for signal systems. These make it harder for actors to operate in other countries.

• In the telecommunications market, competition has led to reduced prices for consumers. In some areas, however, competition is still inadequate, frequently as a result of TeliaSonera’s dominance of the fi xed-line access network. Prices and other terms differ signifi cantly between operators, both in the fi xed-line and the mobile markets.

This gives active consumers the opportunity to make savings but also complicates price comparisons.

• Regarding banking and insurance services to private individuals and to small and medium-sized undertakings, concentration is high. Competition is constrained by the fact that switching insurance companies or banks often entails a cost to the consumer, which in part is unavoidable but which is also due to the actions of the banks themselves and to such factors as tax regulations.

• Electricity prices in Sweden have risen in recent years. As there are only a few electricity producers within the country, price formation for electrical power is dependent on suffi cient transmission capacity being available and on price effi ciency in the Nordic power exchange. A new regulatory model for network charges has been introduced in order to reduce the scope for price increases in network activities, which are a monopoly.

• In large parts of the construction and civil engineering sector, only a handful of businesses are large enough to undertake major projects. High concentration, high entry barriers and little import competition have contributed to a rise in construction prices in recent years. Other signifi cant barriers impeding entry for newcomers include high investment costs, time-consuming licensing procedures for the production of input goods, such as ballast, and inadequate harmonisation of building standards in the Union. A lack of purchasing skills among procurement bodies also represents a signifi cant barrier to entry, as it sometimes leads to tender documents being formulated in such a way that smaller undertakings are unable to join the bidding.


• The control of raw materials is important in the forestry sector, particularly as high transport costs limit opportunities for importing timber. This is a problem for purchasing sawmills in particular, as they sometimes have diffi culty securing raw materials, especially at times of shortage, due to the fact that forest owners are more inclined to favour their own further-processing operations than supply timber to independent producers.

• Regarding public procurement, there are a number of factors militating against business start-ups, the growth of small undertakings and effi cient competition. One result of the new EU directive in the procurement fi eld could be that a greater number of public actors will have to set up effi cient purchasing operations in order to obtain favourable prices.

• Opportunities for developing an effective regulatory framework for market access have suffered from the fact that experience gained in one industry, whether in Sweden or abroad, has not been adequately put to use in other industries that encounter the same types of problems.


References

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Baumol, W. J. (1996), ”Predation and the Logic of the Average Variable Cost Test”, Journal of Law and Economics Bil Sweden (2003), Bilismen i Sverige 2002Bil Sweden, Pressmeddelanden 2003-01-10 samt 2004-01-12

Dagens industri, SAS lovar vinst för 2004, DI.se 2004-02-11Dagens industri, Biltullarna sänker hans försäljning, 2004-04-23Dagens industri, Hårdbantat SAS ser ljuset, DI.se 2004-08-12Dagens industri, Skogsbolag plöjer ner miljarder i egna bruk, DI.se 2004-08-25Dagens Nyheter, SAS delades upp som planerat, 2004-03-24Dagens Nyheter, Livbolag tvingas ge fl ytträtt, DN debatt 2004-05-29 Delfi Marknadspartner AB, statistik ur databasen Livs

Ecskert, A. och West, D. S., (2003), ”Testing for Predation by a Multi-product Retailer”, i Konkurrensverkets Pros and Cons of Low PricesEcon Analys AB, Uppföljning av leverantörsbytesprocessen m.m., maj 2004, rapport R-2004-066Econ Analys AB, Branschorganisationer och dess inverkan på konkur-rens, rapport 2004-093Europeiska kommissionen, Förordning (EG) nr 1400/2002 av den 31 juli 2002Europeiska kommissionen, Broadband access in the EU: situation at 1 January 2004Europeiska kommissionen, Study to assess the effects of different slot allocation schemes, a fi nal report for the European Commission, DG trend, NERA 2004Europaparlamentet och Europarådet, Samordning av förfarandena vid offentlig upphandling av byggentreprenader, varor och tjänster, direktiv PE-CONS 3696/03 (MAP 23 CODEC 1760) Eurostat, Eating, drinking, smoking – comparative price levels in EU, EFTA, and Candidate Countries for 2003Eurostat, Economy and fi nance – Statistics in focus 37, 2004Eurostat, Electricity prices for EU households in 1 January 2004Expertgruppen för studier i offentlig ekonomi, ESO (2002), Lärobok för regelnissar, Ds 2002:21, Fritzes offentliga publikationer, Edita Norstedts tryckeri AB, Stockholm

Finansdepartementet (2004), Promemoria om fl ytträtt för pensions-sparande, Finansmarknadsavdelningen juni 2004Finansinspektionen (2003), Finanssektorns stabilitet 2003, rapport 2003:3Finansinspektionen (2004), Sparbarometer, Fjärde kvartalet 2003Finansinspektionen (2004) Ny lag om bank- och fi nansieringsrörelse – hur företagen påverkas, promemoria 2004-06-03

Green Cargo, Kvartalsrapport januari–mars 2004Goldman Sachs, O’Neill J. et al., Growth and Development, The Path to 2050, The Goldman Sachs Group

Ica, Fri Köpenskap, april 2004Ica, Fri Köpenskap, augusti 2004

Kate, A. och Niels G., (2003), ”Below Cost Pricing in the Presence of Network Externalities”, i Konkurrensverkets Pros and Cons of Low Prices Keeler, E. B. (1992), ”Effects of Cost Sharing on Use of Medical Services and Health Care”. Medical Practice ManagementKonkurrensverket (2001), Konkurrensrörligheten på de fi nansiella marknaderna, rapport 2001:5 Konkurrensverket (2002), Vårda och skapa konkurrens, rapport 2002:2Konkurrensverket (2003), A Powerful Competition Policy. Towards a more coherent competition policy in the Nordic market for electric power. Report from the Nordic competition authorities, rapport 2003Konkurrensverket (2003), The Pros and Cons of Low Prices, rapport 2003 Konkurrensverket (2004), The Pros and Cons of Antitrust in Deregula-ted Markets, rapport 2004Konkurrensverket (2004), Årsredovisning 2003 Konkurrensverket (2002), Dagligvaruhandeln – struktur, ägarform och relation till leverantörer, rapport 2002:6 Konkurrensverket (2004), Konsumenterna, matpriserna och konkur-rensen, rapport 2004:2 Konkurrensverket (2004), Lilla konkurrensboken, en skrift från Konkurrensverket Konkurrensverket (2004), Monopolmarknader i förändring, rapport 2004:3Konkurrensverket, Ansökan om icke-ingripandebesked/undantag – rekommendation från Försäkringsförbundet, dnr 727/2003


Laffont och Tirole (2000), Competition in Telecommunications, MIT PressLuftfartsverket (LFV) (2004), Flygets utveckling 2003, sektorredovis-ning Luftfartsverket (LFV) (2004), Flygkrisen i Sverige, analys och förslag till åtgärder, rapport 2004:2Luftfartsverket (LFV) (2004), Luftfart 2003Luftfartsverket (LFV) (2004), Årsredovisning 2003

Motorbranschens riksförbund (MRF), Motorbranschen, februari 2004

Naturvårdsverket (2004), Marknaden för avfallshantering, rapport september 2004Nord Pool, Prisuppgifter från spotmarknaden, hemsida 2004-09-13

OECD, The Regulation of Access Services (with focus on tele-com-munications)

Post- och telestyrelsen (PTS) (2004), Svensk telemarknad 2003, rapport PTS-ER-2004:24

RingBilligt.nu, Prisuppgifter från hemsida 2004-07-07

SAS, SAS-koncernens delårsrapport januari–juni 2004 SCB (2004), Bostads- och byggnadsstatistisk årsbok 2004SDC, VMR, Virkesmätning och redovisning, Skogsindustrins virkes-förbrukning samt produktion av skogsprodukter 1999–2003Skogsindustrierna, Föreningen Sveriges Skogsindustrier (2004), Skogsindustrin 2003, en faktasamling, Media Express Förlag och Information, StockholmSkogsstyrelsen, Skogsstatistisk årsbok (2003 och 2004)SOU 1999:139, Effektivare offentlig upphandling för fortsatt välfärd, trygghet och tillväxt, FinansdepartementetSOU 2002:7, Konkurrens på elmarknaden, NäringsdepartementetSOU 2002:115, Skärpning gubbar! Om konkurrensen, kvaliteten, kostnaderna och kompetensen i byggsektorn, FinansdepartementetSOU 2003:104, Järnväg för resenärer och gods, Näringsdeparte-mentetSOU 2004:15, Tolkförmedling – kvalitet registrering tillsyn, Justitie-departementetStatens energimyndighet (STEM) (2004), Energimarknad 2004, ET 27:2004 Statens energimyndighet (STEM) (2004), Konsumenterna och den förnybara elen, ER 12:2004Statens energimyndighet (STEM) (2004), Hantering av begränsningar i det svenska överföringssystemet för el – Ett nordiskt perspektiv Statens Järnvägar (SJ), SJ:s årsredovisning 2003

Stockholmsbörsen, Statistikuppgifter från hemsida rörande värde-pappersbolagSvenska Bankföreningen, Bank och fi nansstatistik 2000–2003Svenska Dagbladet (SvD), Stödet till Ryanair avgörs inom kort, SvD.se 2004-08-19Svenska Kommunförbundet och Landstingsförbundet (2004), Utvecklingen i svensk hälso- och sjukvård – en redovisning av hur sjukvården använder sina resurser, 2004Sveriges Byggindustrier (BI), Statistikuppgifter från hemsida rörande byggmarknaden och de största aktörerna, 2004-08-20Sveriges Lantbruksuniversitet (SLU) (2001), Naurén M., Nylinder M. och Gustavsson R., Sågfakta 2000, resultat från sågverksinvente-ringen 2000Sveriges riksbank (2004), Den svenska fi nansmarknaden 2004

The Nordic competition authorities (2003), A Powerful competition policy, towards a more coherent competition policy in the Nordic market for electric power, rapport nr 1/2003The Nordic competition authorities (2004), Telecompetition – Towards a single Nordic market for telecommunication services?

Valetti, T. (2003), ”The theory of access pricing and its linkage with investment incentives”. Telecommunications Policy, Vol. 27, No 10–11Werden, G. J. (2003), The American Airlines Decision: Not with a Bang but with a Whimper, stencil

ÅF-Energi & Miljö AB och TelgeKraft AB (2004), El- och gasmarknads-utredningen, utredning av råkraftmarknaden, slutrapport 2004-06-30


Notes


Competition in Sw

eden 2004R

EP

OR

T 2004:5

Address SE-103 85 StockholmVisiting address Sveavägen 167Telephone +46 8 700 16 00Telefax +46 8 24 55 43 E-mail [email protected]

The report you are about to read gives an idea of the competitive situation in the Swedish economy in 2004. ‘Competition

in Sweden 2004’ is the third publication we have issued describing the state of competition in different sectors. For this year’s report we have chosen a dozen industries in seven sectors that the Swedish Competition Authority has dealt with in one way or another during 2003 and the fi rst half of 2004.

SWEDISH COMPETITION AUTHORITY, REPORT 2004:5

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