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The Competition Council Assessed an Influence of Franchise Agreements to the Competition into the Fuel Market



The Competition Council (CC) of Latvia concluded a sector inquiry into the market of fuel franchise agreements. The aim of the sector inquiry was to obtain the information on franchise agreements of the largest fuel dealers in Latvia, to assess the cooperation and its influence on the competition between a franchisor and a franchisee into the fuel market.

Although during recent years there has been a consolidation of smaller businesses, the overall structure of the fuel retail market in Latvia has not radically changed. Last year in the fuel retail and wholesale there were three largest undertakings – StatoilNeste and Lukoil. As franchisors operate only two of them – Statoil and Lukoil –, and one smaller fuel dealer Virši-ANeste has not expanded its trade network by means of franchise cooperation.

Franchise agreements for Statoil and Virši-A correspond with a model of business franchise; they are used for expansion of the market and the franchisor and the franchisee do not compete at the same territory. While Lukoil franchise model corresponds with franchise of distribution of goods and the franchisor and the franchisee operates at the same territory.

During the sector inquiry the CC did not establish that any of franchisors have a decisive influence over the franchisees and they would be considered as one market participant. Franchise agreements by Statoil, Lukoil and Virši-A do not contain prohibited agreements and cooperation conditions are eligible to block exemption.

Also, during the sector inquiry discussions with the Fuel Retail Association of Latvia (LDTA) about the impact to the competition of franchise agreements were held, wherein a question if the franchisor and the franchisee can be de factoconsidered as one market participant was highlighted.

Given the highly concentrated market of the fuel distribution, in future, while assessing a market concentration and alleged infringements of the Competition Law into the fuel market, the CC may take into consideration that the intensity of the competition between the franchisor and the franchisee within the same brand is diminished – franchisees can influence the market power of the franchisor and vice versa.

The results of the sector inquiry will be presented to the LDTA in order to introduce fuel retailers with the influence of franchise agreements on the market power within the sector.

The CC carried out an investigation on such vertical agreements into the fuel market for the first time.