| Summary: | Iceland׳s fishing industry has outperformed fishing industries in neighboring countries in recent years. This paper identifies key factors in market structure in recent decades that contribute to long run profitability of the Icelandic fishing (and fish processing) industry using semi-structured interviews with industry participants, and compares those with similar results from Norway. Further, the development of profitability in the Icelandic and Norwegian demersal fishing industries is used to assess the long run effects of different management systems on quality, product focus and profitability. The results indicate that three key changes in Icelandic regulation during the 1980s were important to the development of long run profitability within the fishing industry: the abolition of export barriers, the introduction of an individual transferable quota (ITQ) system and the establishment of fish auctions. A large and growing literature supports the role of ITQs in ensuring long run profitability. The importance of market structure for profitability has only recently been identified, affecting the ability of value chains to become market oriented and supply homogenous product flow from heterogeneous raw material. Comparison with Norway indicates that while individual transferable quota management does improve profitability in fishing to a certain extent, management systems must facilitate a strong market connection from consumers, through the stages of retail and processing, to fishers for the full realization of profit potential in the fishing industry. Demersal fishing; Profitability; Iceland; Norway ITQ; Market structure;
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