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The Competition Council: Tighten up regulation for public players on commercial markets

26. maj 2016

The Danish Competition Council publishes recommendations on how to avoid public commercial activities distorting competition with private businesses on commercial markets.

On May 26th 2016 the Danish Competition Council publishes an analysis of public activities on commercial markets. The purpose of the analysis is to examine public sector activities in commercial markets and to assess whether existing regulation is sufficient to ensure that public sector commercial activities do not unnecessarily distort competition.

The main focus of this analysis is on revenue-funded activities which may be carried out by government institutions and by government-funded, self-governing institutions and on municipal commercial activities under the authority of written legislation or the municipal authority rules (kommunalfuldmagten).

The overall scope of these activities is difficult to determine. Government players carry out revenue-funded activities worth approx. DKK 2.4 billion annually. Most of these activities are carried out in commercial markets, mainly within the areas of knowledge services and education. However, no information is available about the total commercial activities of Danish municipalities, and the assessment is that most municipalities do not have a total overview of the scope.

The analysis focuses on three areas: 1) pricing of revenue-funded activities and municipal commercial activities, 2) enforcement of the rules on revenue-funded activities and municipal commercial activities; and 3) the right to carry out revenue-funded activities and municipal commercial activities.

As far as pricing is concerned, the Danish rules do not fully comply with OECD recommendations. Thus, there is no consistent adjustment for the advantages that may be associated with public ownership. As a case in point, Danish authorities etc. are not obliged to include commercial profit in the price of their commercial services. The analysis also finds significant differences in the amount of profit included by government players in their pricing.

The Danish Competition Council recommends that the Danish rules to prevent distortion of competition be clarified and, in particular, that centralised guidelines be prepared to implement the OECD recommendations in this area and ensure that prices are set to a greater extent according to so-called competitive neutrality principles.

Enforcement of the rules on revenue-funded activities and municipal commercial activities is characterised by sets of complex rules, managed in interaction between various authorities, including the State Administration, responsible ministries and the Danish Competition and Consumer Authority. This may weaken compliance. Enterprises are reluctant to complain when faced with unfair competition from revenue-funded activities or municipal commercial activities, and the complaints system is often perceived as opaque and inefficient.

Therefore, the Danish Competition Council recommends that supervision of revenue-funded activities and municipal commercial activities be strengthened and harmonised and that the complaints process and the right to complain be simplified. Among other initiatives, the Competition Council suggests that a centralised, single entry point for complaints be established to process any questions relating to public sector commercial activities that distort competition.

The right to carry out revenue-funded activities and municipal commercial activities is determined politically under the authority of legislation or, as far as the municipal authority rules are concerned, developed based on the practices of the supervisory authorities. Such right may, for instance, be justified by the consideration to avoid wasting assets, whether tangible or intangible, or so-called co-production advantages associated with the fact that the main activities of public institutions could make them especially suited to produce certain consequential services. However, if the price of these services is not set correctly, government players' access to carry out revenue-funded activities could have negative effects on effective competition in the market. Moreover, in some instances, it is difficult to justify activities by waste of assets or other socio-economic considerations.

Therefore, the Danish Competition Council recommends that a committee be appointed to define clearer criteria for the activities that government players should have the right to carry out as revenue-funded activities.

See summary (chapter one) of the analysis of public activities on commercial markets
Last updated: 26. maj 2016