Latvia: economist perspective

The focus on economic analysis in Latvian competition cases continues to increase. The Competition Council of Latvia (CC) has hired additional competition economists and has recently expanded its toolbox for economic analysis by conducting its own consumer surveys in complex cases. In the past year, the CC has adopted decisions in a variety of cases including mergers, anticompetitive agreements and abuse of dominance. The use of economics has been particularly prominent in larger merger cases.

In this article, we discuss the use of competition economics in Latvia. We focus on the most notable cases from the past year and discuss expected trends identified in a sequence of interviews with the CC and the most prominent Latvian competition lawyers.

The article is based on interviews with the law firms COBALT, Ellex, Poga.Legal, Sorainen and TGS Baltic and the economist team of the CC, conducted in July and August 2021.

Economic analysis plays an increasingly important role in Latvian competition cases

Economic analysis continues to play an increasingly important role in Latvian competition case investigations. In line with this trend, the CC is planning to hire more economists. The CC increased the number of economists from two in 2019 to four in 2021.

The CC has received increased funding and has recently started conducting consumer surveys in complex merger investigations. This allows the CC to gather relevant data to inform the definition of relevant markets and assess the closeness of competition. So far, the CC has mainly relied on survey results to calculate diversion ratios to assess the closeness of competition. However, the CC is open to expanding the use of survey data to conduct critical loss analysis and to assess unilateral effects through different price pressure tests, if relevant, in future cases.

Lawyers in Latvia generally appreciate that the CC has increased its openness to, and focus on, economic analysis in recent years. However, some lawyers perceive that the CC has adopted a more formalistic approach in its investigations. When structural factors such as market shares are prioritised over qualitative arguments and effects analysis, it can become more challenging to present economic analyses and arguments.

The parties in mergers and other competition investigations now more commonly hire economists. Typically, they hire economic consultants in large merger cases; while it is still quite rare that economists are involved in cartel investigations, they are often involved in cases concerning abuse of dominance.

Two Latvian merger investigations in the past year involved in-depth economic analysis

In 2020, the CC cleared 11 mergers, two of which were subject to in-depth investigations.

One of the more complex merger cases is the acquisition of OÜ Forum Cinemas Latvia (Forum Cinemas) by OÜ MM Grupp (Apollo Cinema). In this merger in the film screening and distribution markets, the CC conducted one of its largest consumer surveys, in terms of the number of respondents. The survey covered several thousand respondents, and the CC used the data to inform the relevant market definition, in which, for example, it concluded that (home) video streaming services do not belong to the same market as cinemas. The CC used the survey data to assess the closeness of competition between the parties and found that the parties were each other’s closest competitors. The survey marks a new trend whereby the CC collects primary data using consumer surveys more actively.

The merger had a vertical aspect since the CC considered Apollo Cinema to have a large influence in the film distribution market in Latvia. The CC was worried that competing cinemas outside the Apollo group would be unable to achieve equal treatment in film distribution post-merger, and as a result, would struggle to compete.[1] While the investigation included a vertical theory of harm, no significant economic analysis was applied in the assessment of this theory.

Eventually, the CC found that the merger would significantly restrict competition in the film screening and distribution markets in Latvia but cleared the merger in June 2021 subject to structural remedies. Forum Cinemas had to divest the assets of its cinema ‘Citadele’, including employees and property, to an unrelated third party.[2]

Another merger that involved in-depth economic analysis by the CC was SIA Coffee Address’s acquisition of SIA KAFE SERVISS. The merger affected the coffee machine rental and servicing market in offices and the HoReCa sector. The CC’s investigation included an assessment of how actively clients change their suppliers. It assessed the closeness of competition by analysing the overlap between the merging parties’ clients. In the end, the CC cleared the merger without remedies since it found a significant number of firms on the market, so customers could easily switch between service providers.[3]

The CC closed two investigations of abuse of dominance in the past year

The general view among the interviewed lawyers is that the CC has not prioritised abuse of dominance cases in recent years. One reason for this might be that the CC currently does not have an economist who is specialised in this topic. Despite the common use of economic analysis in abuse cases in general, of the two abuse of dominance cases in the past year, neither involved any substantial economic analysis.

In the first investigation, at the end of 2020, the CC imposed a fine of around €5.7 million on SIA LDZ CARGO (LDZ CARGO), a subsidiary of the state joint-stock company Latvijas dzelzceļš, for abusing its dominant position. The CC established that LDZ CARGO had constituted an inevitable trading partner in the areas around the border to Belarus and Russia for clients who wanted to carry rail freight through Latvia, crossing the border of Russia and Belarus. The CC found that LDZ CARGO had abused this position by offering discounts and other advantages to clients who chose to use its services for the entire route, not only in the border areas. The company thus applied different prices for its own customers and the customers of its three competitors. According to the CC, this practice made it disadvantageous for clients to use the services of LDZ CARGO’s competitors, which in turn dampened competition in the market and impeded new entry.[4]

The second investigation was an alleged abuse of dominance by Riga City Municipality and SIA Getlini EKO (Getlini EKO), which started in 2019 and continued during 2020. The CC objected to a concession agreement between Riga City municipality, municipality-owned Getlini EKO and the private partner AS Tīrīga that enabled the introduction of a new waste management system. The new system implied that the four companies that had previously managed the waste collection and transport in Riga would be replaced by one service provider, appointed for 20 years. The concession agreement was considered to impact competition in related markets since the household waste collected can be sold as secondary raw material to recyclers after sorting.[5]

In 2019, the CC initiated an investigation and adopted an interim decision to suspend the agreement. As half of the total waste in Latvia is collected in Riga, the monopolisation of the market for 20 years was considered to harm both competition and consumers. Economic analysis was applied to assess whether the market in question had the characteristics of a natural monopoly, but no such conclusion was reached. The CC ended its investigation in July 2021 after a settlement was reached, whereby Riga municipality will create a model to promote competition in waste management. The settlement involved the payment of a fine of around €885,000 in total.[6]

Private enforcement activity in the field of competition is expected to remain low

In November 2017, amendments to the Competition Law and Civil Procedure Law entered into force, facilitating the claim for compensation for damages caused by violations of competition law.[7] Nonetheless, very few private antitrust cases have resulted in Latvia.

Latvian law currently does not allow collective compensatory actions.[8] However, this may change soon due to a new EU directive that grants consumers the right to sue collectively in cases of mass harm.[9] Nevertheless, most lawyers do not expect any significant increase in private litigation in the next few years, considering the small size of the Latvian markets and the perceived low willingness of Latvian consumers to enter into court processes.

The low number of cases makes some lawyers question whether the courts are prepared to assess private antitrust cases. In March 2021, a new Economic Court was established in Latvia.[10] However, this economic specialisation currently only exists in the first instance.

[1] https://www.kp.gov.lv/en/article/cc-allows-owner-apollo-kino-buy-ou-forum-cinemas-latvia-0.

[2] Ibid.

[3] https://lemumi.kp.gov.lv/en/posts/kp-atlauj-kafijas-automatu-iznomataju-apvienosanos.

[4] https://www.kp.gov.lv/en/article/cc-imposes-fine-public-capital-company-ldz-cargo-abuse-dominant-position.

[5] https://www.kp.gov.lv/en/article/cc-concludes-settlement-riga-municipality-and-sia-getlini-eko-committed-competition-distortion-waste-management-area-so-called-tiriga-case.

[6] Ibid.

[7] https://www.kp.gov.lv/lv/media/655/download.

[8] https://www.complianceweek.com/data-privacy/companies-face-greater-risk-as-gdpr-class-actions-emerge/29512.article.

[9] https://data.consilium.europa.eu/doc/document/ST-9223-2020-INIT/en/pdf.

[10] https://www.oecd.org/about/secretary-general/oecd-sg-remarks-at-economic-court-of-latvia-opening-event-31-march-2021.htm.  

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