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On the explanations of the Competition Council concerning the establishment of a dominant position

The Resolution published in Official Gazette, 2000, No. 52-1516
Consolidated version effective as of 12 February 2005

COMPETITION COUNCIL OF THE REPUBLIC OF LITHUANIA
RESOLUTION No. 52
17 May 2000, Vilnius
ON THE EXPLANATIONS OF THE COMPETITION COUNCIL CONCERNING THE ESTABLISHMENT OF A DOMINANT POSITION

The Competition Council of the Republic of Lithuania acting in accordance with Art. 19(1)(2) of the Law on Competition of the Republic of Lithuania and seeking the harmonization of the competition law of the Republic of Lithuania and the European Communities, and having regard to the Commission Notice “Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings” (2004/C 31/03) the accumulated practice in the application of the Law on Competition of the Republic of Lithuania has resolved:

Amendments to the preamble:

No. 1S-15, 03 02 05, Official Gazette, No. 20-648 (11 02 2005)

  1. Approve „The Explanations of the Competition Council concerning the establishment of a dominant position” (attached).
  2. Repeal Resolution No. 21 of 7 April 1994 of the State Competition and Consumer Protection Office under the Government of the Republic of Lithuania “On the explanation and the procedure for supervision of abuse of a dominant position prohibited by the Law on Competition of the Republic of Lithuania” (Official Gazette, 1994, No. 32-582”).

CHAIRMAN R. STANIKŪNAS

APPROVED
by Resolution No. 52 of 17 May 2000
of the Competition Council of the Republic of Lithuania

EXPLANATIONS OF THE COMPETITION COUNCIL CONCERNING THE ESTABLISHMENT OF A DOMINANT POSITION

CHAPTER I

GENERAL PROVISIONS

  1. The purpose of the present document is to explain the procedure whereby the Competition Council establishes a dominant position of undertakings and a significant impediment to competition (i.e., whether or not competition will be significantly restrained) in a relevant market for the purpose of implementation of the State competition policy and enforcement of the Law on Competition (Official Gazette, 1999, No. 30-856; 2004, No. 63-2244) (further - the Law on Competition) including cases of abuse of a dominant position (Section 2 of Chapter 2 of the Law on Competition) and of concentration control (Section 3 of Chapter 2 of the Law on Competition).

The Explanations may also be used for guidance purposes by undertakings while establishing the presence of a dominant position in cases referred to above.

Amendments to the item:

No. 1S-15, 03 02 2005, Official Gazette, No. 20-648 (11 02 2005)

  1. The concept of a dominant position is defined in Art. 3(11) of the Law on Competition. The Competition Council explains the concept based on the criteria and principles defined below. The explanations have been drawn up having regard to the practice in the enforcement of the Law on Competition and the competition law practice of the European Community and other States.

The concepts for the purpose of the present document are used in the same meaning as defined in the Law on Competition and regulations of the Competition Council.

  1. A dominant position shall be established in a relevant market as defined in accordance with the “Explanations of the Competition Council concerning the definition of the relevant market” (Resolution No. 17 of 24 February 2000 of the Competition Council, Official Gazette, 2000, No. 19-487).
  2. In the present document the Competition Council explains the criteria and the procedure for the establishment of a dominant position in respect of an undertaking operating as a seller in the relevant market. The Competition Council on the basis of the same principles, as of a dominant seller, shall establish the dominant position of a buyer; however, the buyer shall be assessed instead of the seller, sellers instead of the buyers, purchases instead of sales and price reductions instead of price increases.
  3. A dominant position is understood as a situation in the relevant market where one or more undertakings:
    1. face no direct competition, or
    2. are enabled to make unilateral decisive influence in a relevant market by effectively restricting competition.
  4. Further in this document the case of dominance by a single undertaking shall be examined in Chapters I and II, and that by several undertakings shall be analyzed in Chapter III.
  5. An undertaking does not face direct competition in case it is a sole seller in the relevant market. Such situation may evolve in the market where, for instance, law or other legal acts establish the monopoly or an undertaking is granted exclusive rights to operate in the market.

In other cases the dominant position shall be established by demonstrating that the undertaking is able to exercise a unilateral decisive influence in the relevant market.

  1. The unilateral decisive influence is understood as an ability of the undertaking to operate in the relevant market sufficiently independently from competitors, suppliers or buyers and eventually from consumers by exercising an influence upon the product prices, market entry possibilities or other operating terms whereby competition in the market is significantly restricted.
  2. For the purpose of the establishment of a dominant position the Competition Council shall be guided by criteria defined in Chapter II. The significance of such criteria may vary depending on the sector of economy, characteristics and features of products, therefore the Competition Council, when establishing the dominant position of the undertaking shall evaluate the criteria and the significant thereof on a case-by-case basis. This does not imply a detailed examination of each individual case in accordance with all criteria. Frequently analysis under several selected criteria provides sufficient evidence for the establishment of a dominant position exercised by an undertaking.

The Competition Council for the purposes of the establishment of the dominant position shall normally request the sellers operating in the relevant market to submit the factual information, which in the opinion of the Competition Council is necessary for arriving at a conclusion regarding the dominant position. In addition, the Competition Council may seek the opinion of such undertakings concerning the possibilities of the undertaking to exercise a unilateral decisive influence in the market, including entry possibilities for potential rivals.

The Competition Council will use all the information available and potentially relevant in the case concerned disregarding the principle of strict hierarchy of information obtained from different sources.

  1. Since the possibilities of an undertaking to exercise a decisive unilateral influence are to a largest extent dependant upon the size of its share in the relevant market, the Competition Council shall, in the first place, define the market share1 (see item 11). The undertaking normally is not capable of exercising a unilateral decisive influence and will not be dominant in the market where its share in that market is relatively small.

The market share, however, is not the only and indisputable criterion demonstrating the dominance of the undertaking. The Competition Council will seek to assess and other factors potentially impeding the undertaking from operating in the market sufficiently independently from competitors, suppliers or buyers even when the market share of the undertaking concerned in relatively large, or would enable an undertaking enjoying a relatively small market share to exercise a unilateral decisive influence. Such factors shall include shares in the market held by other competitors, distribution and stability of market shares, possibilities for the increase of market shares of the competitors (see Section I of Chapter II), or barriers to market entry impeding potential competition (see Section II of Chapter II).

In addition, the Competition Council will take other factors into account for the purpose of assessment of an undertaking’s ability to exercise a unilateral decisive influence (see Section IV of Chapter II). The behavior of the undertaking in the market or its good financial standing may, next to other criteria, serve as an evidence of a dominant position enjoyed by the undertaking. On the other hand, a strong buyer purchasing a large share of products marketed may offset the seller’s possibilities to increase the prices, or exercise a unilateral decisive influence upon other terms of operation in the market, i.e., prevent the undertaking from dominating in the market.

CHAPTER II

CRITERIA FOR THE ESTABLISHMENT OF A DOMINANT POSITION

SECTION I

Market shares

  1. The size of the market share is one of the most important criteria for the establishment of a dominant position of an undertaking (see Art. 3(11) of the Law on Competition). When assessing the market share the Competition Council shall first define the relevant market and identify the undertakings operating therein (see “Explanations of the Competition Council on the definition of a relevant market” - Resolution No. 17 of 24 February 2000, Official Gazette, No. 19-487).

Art. 3(11) of the Law on Competition stipulates that the undertaking with the market share of not less than 40% shall be considered to have a dominant position in the relevant market, unless proved otherwise.

There is a high probability that an undertaking is dominant where it steadily holds at least a 40 % of market share. Conversely, an undertaking with a market share less than 40% will be unlikely to be dominant in the market. However, other possibilities are not discounted either in the presence of all other substantial evidence under other criteria specified in items 12-27 of the present Explanations.

  1. Distribution of market shares among competitors is an important indicator of the existing competition intensity. Even with a market share in excess of 40% the undertaking may not be dominant provided there are one or more undertakings in the market holding a relatively large market share and capable of effectively constraining the undertaking’s ability to exercise a unilateral decisive influence.
  2. In addition to the analysis of the structure of existing market another important factor is the changing of distribution of market shares over a period of time, - the market share stability. In respect of the markets characterized by large-scale, long-term and irregular contracts the Competition Council may choose to analyze the change in the market share for a longer period of 4-5 years. In respect of other markets an analysis of data drawn from a relatively shorter period of time may suffice.

As a rule, more dynamic markets, i.e., the markets showing unstable shares of undertakings, successful new entries or expansion of smaller undertakings, are characterized by more efficient competition; therefore dominance in such markets is less probable.

  1. The Competition Council will assess the probable changes in the market structure. It is important to assess not only the data on market shares of a previous period, but also possibilities available in the future - both for the existing undertakings’ possibilities to increase their market shares and competitive impact, and for the potential rivals2 to enter the market and take over a share of the market from the incumbents.

The possibility of the existing rivals to increase their market share will to a large extent depend on whether the market participants have extensive unused production capacities, whether the capacities may be rapidly increased, also on whether the capacities used for supplies into one market may be readily transformed for supplies into another market.

Furthermore, those possibilities shall also depend on the presence of any competitive advantages of the undertaking operating in the market in respect of the existing rivals. For instance, technological advantages of an undertaking through the use of the intellectual property rights; a well-known trade mark or company name and the buyers’ habit to them; favorable conditions for access to sources of raw materials by concluding long-term supply contracts; efficient and well organized distribution system; high degree of vertical integration (operating of proprietary distribution network or transport fleet, etc.); extensive financial resources and possibility to spread risk to other areas of business and other advantages may facilitate the undertaking’s to maintain and increase its market share, at the same time limiting the other undertakings’ possibilities to increase their market shares (for advantages of the undertakings see also item 18).

Furthermore, outstanding behavior of undertaking may prevent the existing competitors from increasing their market shares. For instance, vertical agreements with distributors may limit possibilities of other competitors to expand in the market by increasing their production sales (on outstanding behavior see also item 20).

Possibilities of market entry by potential rivals depend on barriers to market entry. In case of evidence of entry barriers being low increased prices could facilitate the entry into the market for new participants, i.e., potential competition may prevent the undertaking from exercising a unilateral decisive influence in the relevant market.

SECTION II

MARKET ENTRY BARRIERS

Even holding a significant share of the market an undertaking is not necessarily dominant if no barriers exist (or they are insignificant) for other undertakings to enter the market and efficiently compete with the incumbent undertakings. And conversely, where the barriers are significant, the incumbent undertaking may be protected from competition of other undertakings and be capable of exercising a unilateral decisive influence even where its market share is relatively not large (e.g., less than 40%), but still much larger than that of competitors.

  1. The Competition Council will seek to establish the presence of barriers to market entry (see items 17-20) and assess the scope of such as well as possibilities of entering the market (see items 21-25).
  2. Barriers to market entry may be the following:
    1. absolute advantages of the undertaking;
    2. strategic advantages of the undertaking;
    3. outstanding behavior of the undertaking.
  3. Absolute advantages. The undertaking has an absolute advantage over other undertakings where it has a right or a possibility to use certain assets or resources, while its potential rivals do not have such right or possibility, have no access at all to such or have a possibility of obtaining them for a price much higher that such resource or assets are acquired by the incumbent undertaking. Among factors attributed to this group are the following:
    1. State regulation. Laws, Government resolution and other legal acts impede the entry into the market whereby directly or indirectly limiting the number of competitors in the market. For example, licenses are granted only to a limited number of applicants while preventing others from obtaining them. Even application of technical norms and standards (e.g., related to health and safety) in respect of all undertakings may impede the entry where the application of such has been established on the initiative or requirement of the incumbent market participants and protects from potential competition.
    2. Essential production resourses. An undertaking enjoy absolute advantage in respect of other undertaking where it has at its disposal (or it owns) essential resources (assets or equipment) required for the production or provision of a specific product or service (e.g., port or part of it - for shipping services, or fixed telephone lines - for telecommunications services, etc.) while the potential rivals do not have a right to use such or their right to use them is restricted. Furthermore, to develop (install) such production resource for the potential rival would be not feasible, overly expensive or inexpedient.
    3. Intellectual property right. Patents, trademarks, know-how, copyrights, etc. may also grant the holders thereof absolute advantage in respect of other undertakings. First, potential competitors are not entitled to produce or sell products by using the intellectual property owned by others. Besides, where an undertaking uses the intellectual property rights protecting the most state-of-the-art and efficient technological process enabling production at lower costs than are available to potential competitors, such undertaking obtains absolute advantage in respect of other undertakings.
  4. Strategic advantages. Another group of market entry barriers is related to the strategic advantages enjoyed by an undertaking, which it acquires due to having launched its operations in the relevant market way before others. By having done that the undertaking may acquire ability to affect the development of the market, by, for example, reducing or entirely eliminating the possibility for others to enter the market. The Competition Council shall assign to this group factors as follows:
    1. Sunk costs. Sunk costs represent the share of costs to be incurred when entering the market but which cannot be recovered by the undertaking when withdrawing from the market or selling, leasing or using elsewhere certain production resources necessary for the type of activity at issue. Such costs may be represented by investment into trademark, goodwill, reputation, etc. The amount of the sunk costs depends, on the one hand, on technologies of the sector of economy and extremely narrow specialization of the physical capital (e.g., an undertaking may produce a product only upon having bought a plant or a machine, which is subsequently impossible to sell or use for the production of other products), on the other hand, sunk costs will be determined by the behavior of the existing market participants (e.g., expenses for advertising or R&D). The latter costs are required for the existing market participant in order to enhance demand for its production. Thus by increasing sunk costs the existing market participant enhance the risk related to the entry to the market and secures better possibilities of competing with other undertakings. The mere existence of the sunk costs does not necessarily imply the presence of significant barriers to market entry.
    2. Funding possibilities. The incumbent market operator may have better financing possibilities than a potential entrant. High repute of the undertaking operating in the market reduces the risk related to investment into such undertaking and allows to secure better funding conditions. Such undertaking may also have more market information and, as a result, be able to develop a better business plan. Furthermore, the smaller is the potential market participant; the relatively larger is the burden of costs incurred in relation to the financing of the entry into the market. Higher financing costs (related to borrowing or issuing securities) may make the entry by potential rival more difficult even when the costs of attracting funding are not sunk costs. However, the financing possibilities do not necessarily constitute a barrier to the entry of the market, where the potential participants are relatively large or produces a large range of products and has a possibility to distribute the risk to other business areas, also, where possible, rent the necessary equipment.
    3. Scale economies. Scale economies imply the reduction of the average production costs through the increase of the production volumes. Where economies of scale are characteristic of a certain type of economic activity, a new market participant would immediately seek a large market share. However, this at the same time implies an enhanced entry risk as in this case more abundant resources are required in particular, when the sunk costs are extensive. Besides, it is more likely, that the response of the existing market participants to the market entry attempts will be more aggressive. These factors may impede the entry into the market.
    4. Lack of information. The undertaking operating in the market will normally have more abundant information about the existing production costs than the potential rival, and this, in the presence of sunk costs, may make the entry more difficult. Lack of information by itself may become the barrier in cases where the production technology is complex, and collection of information may be related to extensive sunk costs for R&D or acquisition of practical expertise.
    5. Time costs. Another entry barrier may be the time needed to collect the relevant information, to attract capital, to construct production premises or install equipment, also to develop the goodwill, to promote trademark or company name, or to develop an efficient distribution system, etc. Even where the market is attractive to new participants, the incumbent market participant may maintain its position for a sufficient period of time. The same especially holds true of the types of economic activities characterised by scale economies, - where entry into the market is a lasting process due to the high costs in view of the abundant production resources.
  5. Outstanding behaviour. The Competition Council attributes to samples of outstanding behaviour such factors as:
    1. Vertical restrains. Vertical agreements, for example, between the producer operating in the relevant market and distributors or retailers may impede the entry of a new producer in a certain geographical area even in the absence of any essential barriers from the production viewpoint. Where the existing producer concludes numerous exclusive purchasing agreements with distributors or retailers, the new producer may find itself deprived of a possibility to market its production in view of significant barriers for the producer itself to start distributing its production. Besides, the new producer may be impeded from entering into the market by, for instance, an exclusive sale agreement of raw material suppliers with the incumbent market operator. Similar restrictive effect may result in cases of vertical integration, where, for example, one supplier holds control over a larger share of production and distribution stages.
    2. "Predatory” actions. An undertaking may attempt to maintain its position by employing “predatory” actions3 Where previously cases have been recorded when the existing market participant attempted to foreclose the competitor from the market by decreasing its production prices below the level of the average variable costs with a view to forcing the competitor to suffer losses such existing market participant is already known as aggressive participant. In this case the reputation of the existing market participant may constitute a barrier for new producers to enter the market.
    3. Refusal to supply products. Refusal to supply products may also constitute a barrier for market entry. For instance, where a producer of raw materials or resources that are used for the production of another product, refuses to supply its production to new producers of that particular product, and the alternative raw material or resource sources do not exists or the launching of the production of such raw material or resources is not possible, then the new producers will be precluded from entering the product market concerned even where no other barriers to enter the market concerned exist.

III SECTION

ASSESSMENT OF MARKET ENTRY BARRIERS

  1. In each individual case there may be several rather than one barrier of entry into the market. For example, an aggressive “predatory” behaviour of the undertaking operating in the market in respect of potential rivals may only strengthen the effect of the already existing absolute or strategic advantages.

The Competition Council will seek not only to establish the existence of a range of barriers and the advantages of the existing market participants acquired on the basis thereof in respect of the potential market participants, but shall also seek to assess the size of such barriers and the objective possibilities of market entry. The market entry barriers would be low and the undertaking would not be in a position to exercise a unilateral decisive influence in the market where the entry into the market, as a response to the undertaking taking advantage of its market position, would be effective.

  1. The entry may be effective, where the new participants are able to readily and significantly affect the product price in the relevant market. Undertakings operating in the neighbouring markets4 could enter the market sufficiently rapidly by adjusting the already available equipment to the new market. This possibility shall be regarded as supply substitutability when defining the relevant market (see “Explanations of the Competition Council on the definition of the relevant market”, Resolution No. 17 of 24 February 2000 of the Competition Council, Official Gazette, 2000, No. 19-487).

An entirely new entry will normally be more lengthy than entering from the neighbouring market for a number of reasons: the need to obtain design and construction permits, to design and construct buildings, order equipment, hire and train the employees, appoint distributors, etc.

Where innovations are fairly quickly introduced in the market, the new participants may be expected to overcome the entry barriers comparatively rapidly and the entry will be more likely.

  1. The efficiency of the entry will also depend on whether or not the new market participants would successfully take over a share of sales and the market from the existing market participants. When considering the possibilities of entering the market an undertaking compares the expected revenues to be made upon entering the market with expected costs of entering the market and the sunk costs, related to the exit from the market (which may turn necessary in case the entry proves unsuccessful).

The market growth perspectives are also important when assessing the success of entering the market. For new market participants the growing rather than static or shrinking markets are more attractive, since the absence of sharp price or profit declines shall facilitate adjustment to the market conditions.

Besides, while assessing the efficiency of entering the market it is important to determine whether the new participants with their capacities will be able to enter the market at the scale sufficient to restrict the possibilities of the undertaking to behave in the market unilaterally.

  1. When assessing whether the entry into them market may be efficient, exact and detailed information may be difficult or impossible to obtain. The Competition Council will base its assessment on every available evidence. The Competition Council may ask the undertakings operating in the market and potential rivals to express their views on the market entry barriers and possibilities, to assess the duration of the entry and costs, etc. For example, to assess the costs necessary to take over a 5% of market share, or costs required to produce as effectively as the existing market undertaking.

Potential competitors may be represented by: undertakings in other sectors of economy using a similar production technology; undertakings using similar distribution methods and which could launch the production or purchase of the relevant product; undertakings manufacturing the relevant product in other geographical markets provided the transportation costs are not high.

  1. When assessing the entry possibilities the Competition Council shall also take into account the facts related to the market entry (whether successful or not) within the recent period of time, such as: facts evidencing the entry into or the withdrawal from the relevant market (or a market close to it), documented plans to enter the market and the documents providing evidence on the duration or method of entering the market. While analysing the facts related to market entry it will be important to clarify whether the entry has been affected by investing into new capacities, or acquiring a supplier already present in the market, or it was an entry of companies producing similar products into the new product or geographic market.

The absence of the new market participants does not necessarily mean that the entry is comparatively difficult. It may be the case that the market is highly competitive and there is no excess profit to attract any new producers to enter the market.

SECTION IV

OTHER FACTORS

  1. The behaviour of the undertaking in the market or its good financial standing may, under other evidence, serve as an implication that the undertaking is capable to make a unilateral decisive influence in the market. Such conclusion may be drawn from the facts, for example, that in the recent past the undertaking has, by “predatory” actions sought and is currently seeking to limit the number of competitors or perform other actions that normally are not used under the normal market conditions and that may be considered as an abuse of the dominant position, or regularly fixed prices by large exceeding the costs and constantly made high profit as compared to the profit that would be made in a competitive market with a comparable level of risk and innovations. Such behaviour may constitute the basis for the assumption that the undertaking may exercise a unilateral decisive influence in the market, in particular where the high profits deter the new market participants from entering the market or introducing innovations.

On the other hand high profit may imply the successful introduction of innovations or that such profit has been generated by a sharply increased demand. This may be considered compatible with the competitive market, i.e., undertakings take advantage of profitable possibilities whenever they become available.

  1. On the contrary, actions of the undertaking may be restricted by a strong buyer who will limit the potential possibilities of the seller to exercise a unilateral decisive influence and prevent such undertaking from taking a dominant position. A strong buyer may significantly affect the price and quality of the product, or its supply terms where it purchases a large share of the products supplied to the market, is well informed about the alternative supply sources and may substitute such supply sources immediately and at low costs or even start self supply of the relevant product.

CHAPTER III

COLLECTIVE DOMINANCE

  1. Art. 3(11) of the Law on Competition also provide for a case when not one, but several undertakings together hold a dominant position (further - a collective dominant position).

Several undertakings shall be deemed to hold a collective dominant position where they as an entirety may exercise a unilateral decisive influence in the relevant market by effectively impeding competition. Such possibility evolves where; first, there is no efficient competition between the group and the remaining undertakings in the market operating outside the group, and, second, where the members of such group do not compete efficiently among themselves.

Where two or three undertakings hold the largest shares of the relevant market and such shares jointly account for more than 70%, and the market shares of other undertakings are relatively significantly smaller, there is a fairly large probability that such undertakings, when assessed as an entirety, may operate in the market sufficiently independently in respect of other undertakings and they do not compete among themselves efficiently.

Other possible cases of collective dominance include cases where the largest shares of the market are held by more than three undertakings, or where a group of undertakings hold less than 70 % of the market, in the presence of strong evidence in accordance with the factors referred to in Chapter II that such group of undertakings is capable of exercising a unilateral decisive influence in the market.

  1. While examining the presence of an efficient competition between the group as a whole and the remaining undertakings, the Competition Council shall be guided by the same criteria specified in Chapter II as in its analysis of a dominant position of a single undertaking, however, the criteria shall be applied in respect of a group of several undertakings as a whole, and in respect of other undertakings operating outside the group.
  2. While examining whether the members of the group of undertakings are not competing efficiently among themselves the Competition Council will seek to establish whether such undertakings are operating in a parallel manner, i.e., whether they follow each other by acting in the same manner and avoiding competition between themselves, in particular - by performing analogous and similar restrictive actions in respect of other undertakings.

The Competition Council holds that the parallel behaviour of undertakings is more likely when the smaller number of undertakings together holds a 70% or larger market share, where there are no significant differences between (asymmetry) between market leaders, the product is homogeneous, the market is transparent and interfaces between undertakings allow obtaining information from competitors and monitor their actions in the market. When analysing the possibilities of a parallel behaviour the Competition Council shall analyse factors, like:

Group symmetry. When market leaders are asymmetrical, i.e., where market sharing among such undertakings is uneven, or when they enjoy different conditions in the supply and sale markets, different level of vertical integration, the level capacity utilisation, costs structure, etc., - such situation may obstruct parallel behaviour since the undertakings are seeking different interests, - an undertaking holding a smaller market share or suffering from worse operating conditions may seek to improve its position at the expense of its competitors.

Nature of the product. When homogeneous products are marketed (identical by their material characteristics or very similar), prices of such products become easily comparable that facilitates the undertakings to opt to parallel pricing. This is in particular characteristic of the markets in which innovations are not being implemented or they are implemented with a certain delay. The larger is the range of products of different characteristics sold by the undertaking (i.e., heterogeneous or differentiated), the more difficult they find it to take parallel pricing decisions.

Besides, the more speedily the products are renewed, the more difficult it is to predict possible changes in the market, since the advantage obtained due to the new improvement may quickly change the positions that the undertakings hold, which prevents the undertakings from behaving in a parallel manner.

Market transparency. Market transparency shall be established by analysing to what extent the information on the prices of competitors’ products and their sales volumes is accessible to the undertakings. Where the prices are established individually in respect of each transaction, for example, by manufacturing ordered products with a range of different technical specifications, access to such information for other undertakings may be difficult. And conversely, where the information on individual transactions, production volumes of the competitors and prices is easily accessible to undertakings (e.g., by making the pricelists public, etc.), the market transparency is sufficiently high.

The transparent market provide favourable conditions for undertakings to monitor each other’s actions and behave in a parallel manner, by avoiding mutual competition also enables them to determine whether or not competitors seek, by individual aggressive actions, to increase their sales at the expense of others, while ignoring collective general interests. Where the market is not transparent and the effective mutual monitoring is not possible, the anticompetitive parallel behaviour will not remain sustainable since each undertaking will seek its individual objectives unilaterally.

Links between undertakings. Links between undertakings may increase the market transparency, alleviate the uncertainty when predicting the behaviour of competitors and facilitate a parallel behaviour and (or) action coordination. For example, if undertakings have established a joint venture for product distribution and provision of production facilities, then parent companies, by use of the latter, may easily monitor each other’s operations (production plans, trade policy, pricing). Besides, where the undertakings have concluded cooperation agreements concerning the distribution of their products (for example, one undertaking distributes the products of its competitor), or concerning joint export, or members of supervisory council or the management board of one undertaking are members of the supervisory council or management board of another undertaking, etc., such links between undertakings may also increase market transparency, facilitate one market leader to monitor the actions of other leaders in the market, and alleviate uncertainty in forecasting actions of the competitors, therefore the undertakings may find it easier to behave in a parallel manner and (or) coordinate their actions.

Other factors. Other factors may also produce an impact upon the possibilities of undertakings to behave in a parallel manner, for example:

Where a product demand is not increasing, the undertaking may increase the sale volumes only at the expense of its competitors, which strengthens the inclination of the undertakings to behave in a parallel manner.

On the other hand, major buyers may inhibit the market leaders from behaving in a parallel manner. In the presence of a major buyer, each undertaking will seek to submit the most favourable offer, seeking to surpass its competitors, and thus, may be enforced to compete among themselves.

Amendments of the item:

No. 1S-15, 03 02 2005, Official gazette, No 20-648 (11 02 2005)

  1. When assessing the probability of a collective dominance the Competition Council shall be guided by the criteria specified in items 29-30. The significance of such criteria may vary from case to case, since such criteria are related, and the role of one criteria in a specific market shall depend on the presence or absence of other criteria.

CHAPTER IV

SIGNIFICANT restriction of competition in cases of concentration

  1. In accordance with Art. 14(1) of the Law on Competition the Competition Council refuses to grant an authorisation to implement concentration and imposes obligations on undertakings involved or controlling persons to perform actions specified in the Law, where concentration will establish or strengthen a dominant position or substantially restrict competition in a relevant market. The dominance of a single undertaking created or strengthened as a result of the merger5 is one of the reasons the presence whereof provides sufficient grounds to believe that the concentration may substantially restrict competition in the market. The concept of the dominant position includes the case of the collective dominance; therefore very often the assessment of the consequences of the concentration is based on the establishment of the dominant position.
  2. Where market participants are not very numerous and where they produce (sell) products that are close substitutes, the implemented concentration may significantly impede competition in the relevant market by removing important competitive restrictions in respect of one or several market participants, even where the merged undertaking does not enjoy the largest share of the market and there are no grounds to presume that following the implementation of concentration it will be easier to behave in a parallel manner and (or) coordinate actions. Elimination of competition between undertakings participating in the concentration would be the most direct consequence of the concentration. For example, where prior to concentration one of the undertakings would have increased prices; it would have lost part of its sales to another undertaking participating in the concentration. Concentration eliminates this specific restriction. Nevertheless, the implemented concentration may affect other undertakings operating in the same market but not participating in the concentration, because, once the participants of the concentration increase prices, part of the lost demand would be taken over by the competing undertakings that in their turn may find it profitable to increase the prices. In view of such weakening of competitive restrictions in the relevant market prices of undertakings not participating in the concentration may significantly increase, even though no dominant position of a single undertaking is being created or strengthened. By anticipating such behaviour of the competitors the undertakings involved in the concentration may be more motivated to increase prices.
  3. In establishing whether the competition restriction will be significant, the Competition Council will have regard of the following factors: whether the undertakings participating in the concentration hold large market shares, are they close competitors, whether the buyers have limited possibilities to shift to another supplier, whether the merged undertaking is capable of impeding the development of competitors, whether the concentration in question forecloses a major competitor in the market, and other factors.
  4. The merged undertaking will normally possess better production capacity, larger market share and extended possibilities to avoid any competitive pressure and raise prices than any other undertaking participating in the concentration. However, when assessing the consequences of the concentration in question upon the relevant market, the Competition Council will also take into account the well-grounded explanations of the undertakings concerning the efficiencies that are beneficial to consumers, are integral part of the merger and are verifiable. Among other proofs facilitating the assessment of the impact of efficiencies inseparable from the concentration to the relevant market the Competition Council may consider the properly performed simulation of merger impacts.

Supplemented by a new Chapter:

No. 1S-15, 03 02 2005, Official Gazette, No. 20-648 (11 02 2005)

CHAIRMAN RIMANTAS STANIKŪNAS

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1Acting in accordance with Art. 3(12) of the Law on Competition a group of associated undertakings is considered as one undertaking when calculating the market share thereof.

2"Potential rivals" means undertakings, which currently do not operate in the market, however could enter the market after certain period of time and to take over the market share from any present undertaking, if the latter would increase prices.

3"Predatory" means actions, when undertaking deliberately seeking to eliminate a rival from the market, incurs losses setting very low prices, for instance lower than average variable costs.

4"Neighbouring markets" here means the markets, products of which are produced or distributed using the similar technology or distribution means, also geographic neighbouring markets.

5"Merger" in these explanations is understood as a synonym of a term "concentration".

Last updated: 26 07 2017