On 31 August, the Competition Council of Latvia (the CC) adopted a decision regarding prohibited agreements between construction materials retailers and imposed a fine in the amount of 5.8 million euro to SIA DEPO DIY, AS Kesko Senukai Latvia, and SIA Tirdzniecības nams Kurši. Before this decision administrative agreements were concluded with SIA Knauf and SIA Norgips as well as SIA Krūza, which provided for termination of the legal dispute and payment of a fine in the total amount of 1.6 million euro.

The essence and implementation of the prohibited agreement

During the case investigation, the CC evaluated the existence of prohibited agreements between SIA Knauf and SIA Norgips as well as the biggest construction materials retailers SIA DEPO KIY, AS Kesko Senukai Latvia, SIA Tirdzniecības nams Kurši and SIA Krūza. In accordance with the facts established in the decision, the agreements were implemented in the form of vertical restrictions, when SIA Knauf and SIA Norgips determined the retail prices and level thereof for each of retailers, as well as in the form of horizontal cartel agreement – when retailers achieved mutual understanding and maintained the agreed pricing level for products of SIA Knauf and SIA Norgips on retail.

It was established that compliance with instructions of SIA Knauf and SIA Norgips was ensured by active activities of retailers, upon supervising the prices of competitors and notifying SIA Knauf and SIA Norgips on certain price deviations, requesting the producers to intervene and requesting to make pricing adjustments on the set pricing level. From the other part – the above mentioned retailers were aware of the sense of keeping of the pricing level and the needs of involvement of other competitors and remaining as a part of a prohibited agreement.

The analysed e-mail correspondence and communication form indicate that SIA Knauf actually acted like an agent for adjustment of the mutual pricing level of retailers in both, by recommending the prices as well as participating in the information exchange regarding maintenance thereof. SIA DEPO DIY was involved in the resale pricing control in the most active way from the retailers and it performed not only an active supervision of the pricing discipline of other retailers, but also affected the formation of the resale pricing level.

The purpose of all involved participants of the case was the agreed determination of retail prices, according to the common interests of all retailers. As a result of the prohibited agreement retailers excluded or significantly reduced the mutual competition pressure, making the retail pricing transparent and mutually predictable as well as artificial increase. Besides, the retailers had facilitated possibilities to provide the preferred profitability as well as predictable and set mark-ups.

The CC, when examining also the pricing during the period of infringement, established that actually also the price adjustment has been performed in accordance with the recommendations provided by SIA Knauf. Besides, it was established that SIA Knauf has developed a motivation system, when bonuses or discounts were granted to retailers for the compliance with the agreed resale pricing level.

Harm to competition and consumers

When companies agree on the prices, the possibility is excluded or significantly reduced for consumers to receive actually competing pricing offers, because in cases of such infringements the prices are necessarily artificially increased. Such an agreement significantly reduces or excludes the competition pressure from the part of a retailer to the wholesale prices of the relevant supplier. The agreement assessed in the case, when the guaranteed retail price increase exists, facilitated SIA Knauf and SIA Norgips to increase also the wholesale prices.

The economic interest of retailers to distribute the products of SIA Knauf and SIA Norgips, obtaining bigger income from them, most probably had a negative impact to introduction of other current or potential competitors on the market or determination of retail prices for products thereof.

Thus, as a result of a prohibited agreement, consumers were forced to acquire the products of SIA Knauf and SIA Norgips for the price, which was determined as a result of coordinated activities of participants of the agreement rather than for the price independently determined by each retailer on the basis of the principles of fair competition.

It should be noted that according to the sales results of product groups assessed in the case, which are subject to the infringement, SIA Knauf and SIA Norgips were the biggest or one of the biggest construction materials suppliers in Latvia for retailers involved in the case. Product volume of SIA Knauf and SIA Norgips, sold through retailers involved in the case, constituted a very significant part of the total volume of these products distributed in Latvia on the specific markets.

Settlements with SIA Knauf, SIA Norgips and SIA Krūza

During investigation, the CC received a request from SIA Knauf and SIA Norgips to enter into the administrative agreement. In order to terminate the legal dispute in this administrative case, the companies undertook to pay a fine in the amount of 1 524 549 euro. Besides, the settlement in the case was concluded also with one of the retailers SIA Krūza, which undertook not to permit similar infringements and to pay a fine in the amount of 104 949 euro to the state budget.

At the same time an administrative agreement was concluded with SIA Knauf and SIA Norgips regarding termination of the legal dispute in relation to the decision adopted by the CC last year regarding abuse of dominant position by applying anti-competitive loyalty rebates system. SIA Knauf and SIA Norgips have paid fines to the state budget in both cases – in total amount of 2.7 million euro. SIA Krūza has paid the fine in the case in a part, but it shall pay it until the end of November 2017 in full.

Sanctions applied

The CC determined the following fines in the decision for other companies involved in the infringement, considering the total turnover thereof and turnover on the markets covered by them, severity and impact of the infringement, the role of market participants as well as circumstances mitigating liability: 3 718 323 euro to SIA DEPO DIY, 1 145 077 euro to SIA Tirdzniecības nams Kurši and 920 618 to AS Kesko Senukai Latvia. As far as the fine was calculated separately for infringement within the framework of the vertical agreement and for infringement withing the framework of horizontal cartel agreement, in accordance with the regulatory enactments, the final fine was determined on the basis of the most severe infringement.