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The Competition Council Fines Retail Chain for Abuse of its Market Power



On 14 December 2012, the Competition Council adopted a decision to fine AS Drogas which is the largest retail chain in the sector of health, beauty and household goods retail in Latvia. It was established that AS Drogas had abused its dominant position in retail trade against a dependant wholesaler SIA Euro Cosmetics and thus had contributed to the latter's insolvency.

The fine was set at the amount of EUR 26 987.61 (0.05% of net turnover for the previous year), this being the highest possible fine provided in the Competition Law for this type of infringement. AS Drogas is also obliged to exclude unfair provisions from contracts with other suppliers.

The dominant position in retail trade as a special rule was introduced in the Competition Law in 2008 and differs from the classical dominant position by the required level of market power – in order to have a dominant position in retail trade, the enterprise does not have to possess significant market power over consumers and competitors, it is sufficient to establish market power over suppliers.

During the investigation, the Competition Council established the following infringements of the rule above:

  • AS Drogas without justification returned unsold goods to the wholesaler, thus avoiding consequences of its own errors in sale forecasts and causing losses to SIA Euro Cosmetics, which had to pay its suppliers for the goods initially intended for AS Drogas.
  • AS Drogas imposed unjustified discounts and payments for promotional activities, e.g., SIA Euro Cosmetics had to provide volume discounts for the same goods twice – for the period of one month and the second time for a year. The volume discounts were also required in situations where AS Drogas had ordered large amount of goods and later returned the unsold goods to the wholesaler.
  • AS Drogas required payments from its supplier if a new retail store was opened.
  • AS Drogas imposed unfair and unjustified fines for violations of contract, e.g., the wholesaler had to pay a fine in the amount of EUR 285, although the value of goods that were not delivered in time was EUR 33.

According to information provided by SIA Euro Cosmetics, during the period from the beginning of 2008 to mid-2009 AS Drogas had paid for 66% of the delivered goods – rest of the value was covered by fines, credit notes, discount payments, as well as by returning unsold goods.

SIA Euro Cosmetics was a wholesaler of make-up and body care products. The investigation was initiated on the basis of SIA Euro Cosmetics insolvency trustee's complaint.