Competition Council (KP) develops a self-assessment tool for entrepreneurs to independently assess whether they have engaged in a prohibited vertical agreement due to their negligence or lack of knowledge, for example by agreeing to sell a product at a fixed supplier price, reports the institution’s communication department.
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KP recalls that involvement in an agreement on the application of a minimum or fixed resale price to a product or service is a serious infringement of competition law, for which a fine of up to 5% of the company’s turnover is due.
Vertical agreements entered into by two or more independent operators, each carrying on an economic activity at a different level of production or distribution, are not prohibited, but operators are required to assess independently whether the agreement does not restrict competition and are therefore not prohibited.
KP representative Zane Gorškova explains that one of the most common restrictions on competition included in a vertical agreement is the fixing of a fixed resale price for a product or service. This restriction of competition may be either explicitly set out in the contract as a fixed resale price or may be implemented indirectly, for example by providing a profit margin, fixed or maximum discounts, sanctions for non-compliance with the recommended price level, such as refusal to supply, etc.
The supplier is prohibited from setting a fixed or minimum resale price, as this restricts competition between retailers of a particular brand, deprives them of the opportunity to freely set the price of the product and fight for the lowest price, and deprives the end consumer of the product.
However, as KP recalls, there are no restrictions on the distributor informing the retailer of the maximum or recommended or recommended prices for his products, as long as they are in fact only recommended and not mandatory.
Short-term price recommendations may be necessary for a manufacturer to enter a new market, but long-term and regular resale price recommendations without objective justification may help maintain a single retail price, stabilize the minimum price threshold or fix the market price, thus adversely affecting competition.
Situations where the recommended prices are controlled and sanctions are applied for non-compliance with the recommendations are prohibited. In addition, the maintenance of such a system by a manufacturer or distributor between a number of independent sellers of its products, whether wholesalers or retailers, also effectively constitutes a cartel.
‘Where an operator has identified the elements of a prohibited vertical agreement, it is important to dissociate itself clearly and unambiguously from such the proposed agreement, for example by informing its business partner in writing. By complying with the rules affecting competition, as well as without showing clear signals that such an agreement is not acceptable to the entrepreneur, it can be held liable for involvement in the prohibited agreement, points out the head of the CC Juris Gaiķis.
In order to facilitate the assessment of vertical agreements by market participants, the CC has prepared guidelines aimed at providing an explanation of how to recognize vertical agreements on resale prices of goods and services, as well as an explanation of permitted and prohibited terms in contracts.
The draft guidelines also include a self-assessment tool to assess whether there are risks that an agreement may adversely affect competition and therefore be considered unlawful.
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