Public and private businesses clash in the competition arena
When public entities get involved in business, private companies may face an unequal contest. The rules of combat are affected by advantages enjoyed by public entities or companies that they establish ‒ advantages that private companies do not enjoy.
Some indicators of how to recognise a public entity that distorts competition and the unfair behaviour involved:
Distortion of competition (non-exhaustive list):
Discrimination between market participants through unequal conditions of competition (eg, a public entity enters a market that already has numbers of private participants; the public entity sells its services or goods at a price that is below cost, is excessively low, or otherwise violates principles of market prices).
Creating benefits for the public entity (eg, the public entity enjoys financial, procedural, or regulative advantages ‒advantages that are unavailable to private market participants, who are thus placed in a less favourable position).
Operations that force other market participants to exit a particular market or that cause obstacles for a potential market participant to enter the market or operate there (eg, the public entity gets exclusive rights to operate in the market).
On 28.03.2019, the Latvian Parliament amended the Competition Law to allow certain limitations on public entities entering business. They will be prohibited from delaying, restricting or distorting competition by their operations. We ask you to consider whether your business might be exposed to unfair competition from public entities. Now, it is possible to protect one’s interests by applying to the Competition Council for relief. The Law has vested rights in the Competition Council to try to resolve problems, initially by negotiation. If no solution can be reached, the Competition Council may impose a fine on the public entity of up to three per cent of the last financial year’s net turnover.
Distortion of competition caused by public entities results from various advantages that are not available to private companies. Some Latvian examples for illustration:
Conflict between Latvian municipalities and the Latvian Rural Tourism Association “Lauku ceļotājs”. The worst adverse effect on competition is caused by expenses. For example, to pay employees’ salaries or maintain an area in order, a company must earn its own funds, whereas municipalities cover a part of their tourist company expenses from the state budget.
Municipalities’ actions, while adversely affecting competition in the market of water meter installation or replacement services, vesting monopoly rights in municipal companies to provide water meter installation and sealing services to residents.
Riga municipality attempted to enter the market for production and distribution of bottled water. Although the Latvian market for bottled drinking water is represented by a large number of producers, Riga municipal company Rīgas ūdens established a subsidiary, Aqua Riga, expressing the intention to capture at least 30 % of the market.
For a long time, Riga municipal company Rīgas ĢeoMetrs enjoyed the exclusive right to provide a range of services in Riga (including geodesic testing of engineering communications and transport infrastructure), although many private companies offered the same services. The Competition Council found that prices in the market for exclusive services were higher by as much as 50% than prices in the rest of Latvia, where the same services were provided by private companies.