Increased competition and diversity are good for the consumer

Competition in Sweden is not working satisfactorily, and consumers are paying a heavy price as a result, says the Swedish Competition Authority. Recently, however, competition has improved in a number of markets, including telecommunications, where Swedish prices are low by international standards.

The improvements in the competitive situation are partly due to the arrival of foreign actors in the Swedish market. But much more can be done to further enhance efficiency and consumer benefit, says the Swedish Competition Authority in its report, ‘Competition in Sweden 2005’, which has now been delivered to the Government.

The competitive situation in Sweden is being affected by new consumption patterns and greater international competition. New markets have arisen as Swedes have developed new travel habits and used the Internet more widely. Private imports of goods and a higher volume of imports from countries such as China and India and from the countries of Eastern Europe have forced prices down, to the benefit of consumers.

Differences in price levels are an indicator of competitive pressure in one country compared to other countries. The price level in Sweden is about 15 per cent higher than the EU average. This means that consumers in Sweden have to pay more for their purchases than consumers in a number of other comparable countries. If the Swedish price gap vis-à-vis the EU15 (the 15 EU member states prior to the latest enlargement phase) were to be halved, this would give Swedish families with children an average of SEK 30,000 more per year in disposable income. Increased competition leads not only to lower prices but also to a wider selection of goods and services, and to better quality.

“The Swedish price level could be reduced if competition worked better in certain areas,” comments Director-General Claes Norgren. “Much of the high Swedish level is due to inadequate competition.”

In the report conclusions, recommendations and assessments are presented.

”The purpose of the measures we have recommended is to boost purchaser power by creating more efficient markets to the benefit of consumers,” says Claes Norgren.

Conclusions and assessments

In its report, ‘Competition in Sweden 2005’, the Swedish Competition Authority presents a couple of dozen conclusions, recommendations and assessments, including the following:

• Internationalisation spells greater purchaser power as it enables consumers to compare prices in other countries, shop over the Internet and have services performed on their behalf abroad. This benefits the Swedish consumer.
   
• Review the regulations governing Sweden’s state monopolies for pharmaceuticals, alcohol and gaming.
   
• Give supervisory authorities the right to take those suspected of grave violations of the procurement rules to court. Also, the procurement rules should be changed to enable small businesses to take part in the public procurement process.
   
• Municipalities tend to favour the big domestic construction companies when distributing development land. If a larger share of the land were distributed to small or foreign-based construction companies, this would benefit competition and force down building prices.
   
• Co-ownership of hydroelectric and nuclear power plants by the country’s largest competing energy groups should be restricted.
   
• More frequent readings of electricity consumption would strengthen the position of consumers in the market.
   
• Make it easier for consumers to switch banks and insurance companies. Today, customers are finding such a procedure complicated. Administrative and legal obstacles should be eliminated.
   
• A committee of inquiry should examine developments in the health care sector from a consumer perspective.
   

Exchanges of information on prices (future and past) between competitors, e.g. within the framework of a trade organisation, may have an anti-competitive effect. If such exchanges of information are not made public, they should in principle be prohibited.

In compiling the report, the Swedish Competition Authority made a special study of a number of industries from a competitive and consumer viewpoint.

Construction and civil engineering

This industry is distinguished by many features that increase the likelihood of unlawful cartel building. Restricting or prohibiting internal communication between enterprises, therefore, effectively makes it harder for them to establish anti-competitive collusion or to maintain such a practice.

A new trend, however, is that the market has become slightly more open, which means it is now easier to import construction materials. Also, there are signs that foreign construction companies are increasingly entering the Swedish market.

The convenience goods trade

The convenience goods trade is dominated by three vertically integrated blocs. In recent years, new low-price actors have established a presence in the market, which has had a favourable effect on competition. In recent years, price increases in the convenience goods trade have been lower than the increase in the CPI (Consumer Price Index).

A significant obstacle to competition is the way municipalities apply the Planning and Building Act, as a result of which new actors are having difficulty finding new sites on which to build stores.

Markets exposed to regulatory reform

Consumers stand to gain considerably when monopoly markets are opened up to competition. But no market can function properly without active regulatory authorities. When markets are opened to competition, rules must be in place to protect consumers and facilitate mobility in the market.

The energy market is characterised by high concentration, both domestically and in the Nordic market. Co-ownership of both nuclear power and hydroelectric power plants means there is a risk that sensitive information will be exchanged between rival companies.

In the market for electronic communication (telecom and the Internet), prices are being forced down by technical advances and the arrival of new actors. Uncertainty over how the rules are to be interpreted has led to numerous court proceedings, which have negative effects on the willingness to invest and progress in the market.

Experience shows that it takes time for new airlines to gain a foothold in the domestic aviation market, particularly when established companies have significant competitive advantages. In recent years, competitors have arrived to challenge SAS, which has given travellers a wider range of options. Also, a number of airlines have cut the price of their cheapest air fares.

The financial sector

A distinguishing feature of most financial markets in Sweden is high concentration. Various locking-in effects and a labyrinthine system of charges have contributed to this. If the administrative and legal constraints were fewer, more consumers would be able to switch banks and insurance companies, which would force down fees and lead to a better conditions of services in these markets.

Health and medical care

The proportion of private care providers has increased in recent years. In addition, the EU’s internal market is having a greater impact on Swedish health care. Consumers now have greater freedom of choice following rulings by the Swedish Administrative Court that give Swedish citizens the right to retroactive reimbursement from the Swedish health insurance system for treatment in other EU countries.

For further information please contact:
Kristian Viidas, Project Manager, tel +46 8-700 15 88 or +46 73-773 15 88
Jimmy Dominius, Press Officer, tel +46 8-700 15 18 or +46 73-773 15 80