The Competition Council (the CC) has identified online platform practices in its market surveillance investigations that may pose a risk of restricting competition, while concluding that online platforms promote competition between the companies using their services, as well as bring benefits to consumers.
Given the development of e-commerce in recent years and the impact of the COVID-19 pandemic, online platforms have become an increasingly important sales channel, encouraging companies to sell online. In order to gain a deeper understanding of the principles how online platforms operate, the Latvian and Lithuanian competition authorities carried out parallel market studies to identify situations that could have a negative impact on competition in digital markets.
Despite the convenience of online platforms for both consumers and businesses, brick-and-mortar shops remain an important sales channel for businesses in Latvia, driven by consumers’ face-to-face shopping habits. At the same time, the CC found that online platforms foster competition between companies by giving them the opportunity to compare competitors’ offers and prices in one place. Online platforms also offer other benefits to businesses, such as saving their resources otherwise needed for developing their own online trading solution or online shop, offering logistics or marketing services.
Potential for online platforms to restrict competition
The CC stresses that online platforms are also subject to the Competition Law, despite the specific nature of their activities. Juris Gaiķis, Chairman of the CC, states: “Given the network effects and the unequal market power between platforms and the companies that use their services, online platforms are not exempt from the Competition Law. Our role is to prevent activities that could risk restricting competition, allowing the industry to develop in a fair and transparent way.”
There are several online platforms in Latvia with hybrid function, namely, these platforms are also selling their own products on the platform, thus competing with companies that use the intermediary services offered by this platform to sell their products. The CC found that hybrid platforms have the potential, especially given the data available to them about their sellers, to apply various advantages to their products, such as better price or ranking among other products. In the CC’s survey, companies also pointed to different situations where the products offered by platforms are given an advantage compared to companies that use the intermediation services offered by these platforms to sell their goods.
The CC’s study also shows that the retail parity obligations in the contracts between online platforms and companies, under which they can distribute products via other channels, may pose a risk of restricting competition. Consequently, the CC invites online platforms that have set “narrow” retail parity obligations in their contracts with commercial customers to assess whether they are necessary and not too excessive, effectively creating the effects of the broad retail parity obligations. For platforms that have set broad retail parity obligations in their contracts with companies, the CC invites to amend such contracts to exclude them.
The CC’s study also points to the risk of price increase for consumers if online platform charges companies high and economically unjustified commission fees. Given the retail parity obligations in the contracts, the companies may pass on such commission fees to their consumers. This issue has been highlighted in particular by companies using meal delivery platforms.
Online platforms’ practices of self-preferencing or imposing broad retail parity obligations in certain cases can weaken competition in the market and have a negative impact on consumers. Therefore, the CC invites online platforms to ensure that the principles of fair competition are not infringed.
Given the conclusions of the market study, the CC supports discussion about increasing the transparency of commission fees for end consumers, thus encouraging consumers to make clear and informed decisions.
Similar competitive conditions in Lithuania
The Lithuanian competition watchdog has also recognised the positive effects of online platforms on competition. At the same time, companies in Lithuania have also drawn authorities’ attention to similar issues identified by the CC in relation to parity obligations and self-preferencing. However, similarly to the CC, the Lithuanian Competition Council has concluded that there are no significant competition restrictions in the market where online platforms operate, recognising that online platforms still have to comply with a number of conditions to ensure that their activities do not restrict fair competition.
As part of its market surveillance, the CC obtained information from online platforms operating in Latvia in various sectors, e.g., offering intermediation services for meal delivery, tickets, gifts and vouchers sales. The CC also surveyed 84 companies that interact with these online platforms, exploring, among other things, their motivation to cooperate with platforms, the factors influencing their pricing policy and whether there are any signals that indicates competition infringements.
The Latvian Competition Council’s market surveillance is available HERE (in Latvian).