Incoming Director General of the Estonian Competition Authority Evelin Pärn-Lee says in an interview to ERR that it is her task to determine whether prices develop fairly and bring proceedings when that might not be the case. She says that competition supervision needs to be ramped up in Estonia in which field Latvia and Lithuania have taken more forceful steps in recent decades.
Every time the competition watchdog comes up, drivers point their fingers at filling stations' price signs and complain how all companies hike prices simultaneously, while it always takes forever for lower world market price to manifest at the pump. How would you comment as the new head of the watchdog?
Such claims or suspicions are hardly anything new. Nor are they common only in Estonia. For example, Germany's watchdog conducted a thorough analysis of possible cartel agreements in 2011. Not a single illegal agreement was found. The German competition authority concluded that the gasoline retail market is oligopolistic, or that it only has a few players and a high entry threshold.
If I'm not mistaken, the Estonian Competition Authority carried out a similar analysis years ago and also found no anti-competition agreements. The fuel market has a phenomenon that we could describe as taking after the market leader. The latter hiking or lowering prices sees the others follow suit. Nothing about that is illegal. What would make it illegal is if the change in price was agreed between sellers.
The expectation placed on me is to determine whether price changes happen fairly or unfairly. My focus as the new director and expert of competition law is to protect the interests of consumers and ensure the market's functioning. I have given this matter some thought and knew it would be one of your questions. It is the task of the authority to monitor competition on the fuel market and make sure it is fair.
Do you feel there is fair competition on the fuel market?
We can once again seek parallels from other countries. Germany is dealing with the same questions, and I glanced at their watchdog's website. The German government recently lowered the excise duty on fuel. The price of fuel went down by 27 percent. But what happened next? The prices are back where they were before the cut and consumers are furious.
The German competition authority said they are keeping a close eye on the market. The main problem of the Estonian fuel market is that everyone pretty much relies on the same refineries in Finland and Lithuania. That is likely what's hampering competition. Which is not to say we are not paying the matter attention. I believe that if there are suspicions, they need to be investigated.
Are things complicated by the fact that we are a small and highly connected society? Even with five, six or more sellers on the market, the people in charge still have regular contact, which is why it is always possible to make sure the consumer draws the short stick?
That is a good question. The Estonian economy is open and closely integrated with the EU economy… There could be several factors at play, although I would like to believe our small size is the main problem.
I have analyzed this as part of my academic work. Allow me to give a simple example: clothes tend to cost a lot more in Estonia than they do in Germany or Poland. But it is an interesting question, and I believe I will have a better answer for you six months from now.
Does Estonia have the problem of oligarchs creating monopolies? I would give the example of a newspaper owner who also has a lot of other business, ranging from selling chicken nuggets to operating movie theaters. The Apollo movie theater chain is now the only one in Tartu. Should we be worried about too much economic power being concentrated in a single person or group's hands?
A matter of concentration proceedings. When the European Commission looks at major companies' mergers, they also make sure big and strong market participants do not become even bigger and stronger.
But it is also true that big and strong market participants should not be punished for their success. We also say that a dominant position or dominating the market isn't strictly prohibited. What is prohibited is misusing that position. That is what the competition authority should be focusing on.
We should be able to anticipate situations where a dominant position becomes stronger and could be taken advantage of to the detriment of the consumer. But let me stress again that a dominant market position as such is not prohibited. The creator of the innovation theory Joseph Schumpeter wrote that entrepreneurs innovate to be successful and turn a profit. Competition rules adjustments should not act as an economic impediment but quite the opposite. That is where I would like to point my focus.
That said, we need to exercise competition policy in a way that benefits consumers' prosperity.
However, consumer satisfaction could grow temporarily when a company striving for a monopoly initially offers a lower price… until it has taken care of the competition…
A keen observation. I look at it in the short perspective and in the long run. When a dominating company offers goods or services under cost price for a period of time, it is to the benefit of the consumer. However, they will lose in the long run because these cheap offerings work as a way to eliminate the competition. Once this happens, prices are hiked and the consumer loses at the end of the day.
The coming fall and winter will be extremely difficult as soaring energy prices are squeezing consumers. People are looking to what other countries are doing, and we can see that Hungary has capped fuel and staple foods prices. The Lithuanian competition authority is in charge of the price of electricity. Are you prepared for demands for a Competition Authority price ceiling also in Estonia?
This question should be directed at politicians. The Competition Authority executes policy. I hope Estonian governments and politicians are giving this matter thought today, as opposed to once fall arrives.
How would you describe yourself? Are you a market liberal or do you feel the government needs to intervene in certain situations?
I am a believer in liberal economy. I believe the state should intervene as little as possible and as much as absolutely necessary. That said, I do not feel the government should stay out of the economy altogether. Those two things are not mutually exclusive. But yes, I am a proponent of very liberal economic approach.
What will you do differently from your predecessor Märt Ots?
The ministry expects me to ramp up competition supervision. We have a capable regulatory side, while the focus should be on supervision.
Can you give a few examples of things that deserve more attention?
The justice minister has said via a press release that there are suspicions of cartel agreements in society? We need to investigate whether there are any and launch proceedings where necessary. That is the ministry's expectation today. But we also need to make sure established businesses do not become even more powerful through mergers that would give them the chance to misuse their dominant position.
Will you be needing more staff to cater to the ministry's expectations?
It is difficult for me to comment on that today. It would not be fair to tell you one thing today and something else three months down the line. I will take office on August 8.
My understanding today is that resources have been allocated, and I see no reason why supervision couldn't become more active. I would refrain from criticizing anyone. But comparing our competition watchdog with its Latvian and Lithuanian counterparts, their supervision activity has been more active in recent decades. This gives me reason to believe there is room for development.
Editor: Marcus Turovski