The Senate of the Republic of Latvia, having decided not to initiate cassation proceedings on August 30, has upheld the 2017 decision of the Competition Council (the CC) to prohibit SIA "Plesko Real Estate" from granting SIA "RIMI LATVIA" (RIMI) the right to use retail premises in the shopping centre "DOMINA Shopping ” in Riga, Ieriķu street 3.
In 2017, the CC determined that the entry of RIMI into the shopping centre "DOMINA Shopping" in the premises where SIA "Prisma Latvija" operated before, would increase and strengthen RIMI's market power and leading position both in the segment of multifunctional shopping centres and in the specific market of retail sales of daily consumer goods. At the same time, the transaction would increase RIMI's market power in the procurement market in Latvia, obtaining even more favourable conditions from suppliers than competitors. Also, the CC concluded that the deal would further reduce the competitors' ability to exert effective competitive pressure in the long term and thus the consumer's choices. Taking into account the significant reduction of competition in the markets identified during the evaluation of the transaction, the CC decided to prohibit the transaction.
The market affected by the transaction was determined to be the daily consumer goods retail stores, whose sales area is over 600 m2 and which are able to provide at least 6,000 assortment units per month in their premises. During the evaluation of the transaction, the CC was guided by the European practice in determining the geographical market, determining it at a 13-minute travel time distance (isochronous) around "DOMINA Shopping". To determine market shares, 62 daily consumer goods retail stores were included in the specific market (within a 13-minute drive), including stores located in multi-functional shopping centres. In 2017, RIMI was located in seven out of ten multifunctional shopping centres in the given market. Although SIA "MAXIMA Latvija" is considered RIMI's closest competitor, at the time of the evaluation of the merger transaction, the company had a significantly smaller market share than RIMI in the specific market.
SIA "Plesko Real Estate" appealed the 2017 decision of the CC to the court. On March 10 of this year, the Administrative Regional Court passed a verdict rejecting the company's application to recognize the decision of the Central Administrative Court as illegal. The company submitted a cassation complaint to the Senate of the Republic of Latvia, stating that the Administrative District Court did not check whether the specific market was methodologically correctly defined in the appealed decision, which allowed conclusions to be drawn about the negatively affected competition in the market. The Senate, evaluating the practice of the European Commission, confirmed that the CC is not limited in choosing a specific methodology and approach when defining the market for a specific product. On the other hand, regarding the definition of the specific geographic market, the Senate concludes in its decision that "there are no legally significant arguments in the cassation complaint that would cast doubt on the legality of the judgment by which the application of the isochronous method was recognized as correct." Thus, the considerations stated by the company in the cassation complaint do not raise doubts about the legality of the appealed judgment, which served as a basis for refusing to initiate cassation proceedings.
Ieva Lapiņa, the Chief legal advisor in legal proceedings of the CC’s Legal Department: "The decision of the Senate is important in two aspects. First of all, the Senate, evaluating the practice of the European Commission, has recognized that the economic methods used in defining a specific market depend on the individual circumstances of the specific case, the availability of data and the specifics of the situation. On the other hand, the market participant, arguing about the inadequacy of the methodology and economic analysis or the interpretation of the data used by the CC in a specific case, must specifically justify it and indicate why the market participant's approach is valid, but the methodology chosen by the CC in defining the specific market is invalid and could not lead to a reliable result. Secondly, although the institution has the burden of proof in case of a decision unfavourable to the addressee, the conclusions reached in the Senate decision confirm the obligation of the market participant to cooperate honestly during the investigation of the case, by timely submitting to the institution all the information and evidence at its disposal, including the data necessary for the economic analysis."
According to the Competition Law, cases where one retail network store is replaced by another retail network offering the same or similar assortment at the point of sale are considered a merger of companies and must be notified to the CC. State control of business mergers is necessary to prevent a significant decrease in competition as a result of business mergers, because when the driving force of competition is lost, prices may increase, choice and quality may decrease, and economic growth may decrease as a whole.