Competition Authority driven to action by businesses' monopolizing schemes
The Competition Authority is seeking a legislative change that would better help eliminate the risk of monopolization. The sought-after changes have been motivated by transactions that have taken place in recent years in which business owners have finagled their way past the Competition Authority.
When it was announced late last year that Coca-Cola Plaza, a movie theater in Central Tallinn, would be closing its doors for the month of December, not everyone found the owner's justifications for the move convincing. Kristjan Kongo, the majority stakeholder in Forum Cinemas, then-parent company of the Tallinn movie theater, explained that it wasn't economically sound to keep Coca-Cola Plaza open due to the COVID-19 pandemic-related drop in attendance.
Skeptics, however, considered this a strategic move to ensure that Forum Cinemas' 2021 turnover would remain below the €2 million mark — which would allow its competitor, Apollo Cinema parent group MM Grupp, to acquire Forum Cinemas without interference from the Competition Authority.
Namely, the law requires the authority to review a concentration, or merger, in cases where the aggregate turnover in Estonia of the parties to the concentration exceeded €6 million and the aggregate turnover in Estonia of each of at least two parties to the concentrations exceeded €2 million during the previous financial year.
Last year, Forum Cinemas' turnover totaled €1.9 million, and as of June 1, the movie theater located on Tallinn's Hobujaama tänav bears the name Apollo Cinema Coca-Cola Plaza. Thus, a monopoly has essentially been created on Estonia's movie theater market.
The aforementioned transaction was just one reason in a series of many why the Competition Authority decided to draw up a proposal to the Ministry of Justice to amend the Competition Act. The authority wants to impose stricter rules in order to improve controls over those mergers involving economic indicators that remain within established legal limits, explained Külliki Lugenberg, director of the Competition Authority's Merger Control Department.
"The Competition Authority wants to be given the opportunity to also require the filing of a notice of concentration in cases where the turnover rates of parties to the concentration don't exceed the criteria set out by law but there are grounds to assume that this merger could distort competition," Lugenberg said. "For example, the type of markets where company turnovers may be smaller, but a merger could still result in the creation of a monopoly."
Cited in the bill as problematic examples in addition to the movie theater market are mergers in the towing service provider sector, the news agency services sector, cash-in-transit (CIT) as well as in the parking services sector.
Changes resulting from the creation of a monopoly may not always be immediately apparent; its impact generally materializes over a longer period of time, the department director said.
"For example, a monopoly might not be as innovative; consumers may not get the types of services that they otherwise might in a competitive situation," she explained. "On the other hand, increases in price and decreases in quality..."
No retroactive changes
The Competition Authority had proposed something similar in 2015 already, when the authority was under the remit of the Ministry of Economic Affairs, however it never got as far as a legislative amendment at the time.
Part of the reason another shot is being taken at amending the law is because several EU actmember states have since introduced such an opportunity. The need for this instrument exists in Estonia, but it would no longer apply to transactions that have already entered into force.
"Such changes cannot be made retroactively, but with the future in mind, I believe this is needed pretty quickly, actually," Lugenberg said.
Another major area in in which changes are expected is the acquisition of minority shareholdings.
"For example, in a situation where the Competition Authority has prohibited a merger, but a business acquires a 49 percent share in the other party to the merger, i.e. a very big share in a competing business," the official said.
"This raises the question for the Competition Authority of whether these are still in fact independently operating businesses competing with one another or not," she explained. "It would be clearer in any case if a competitor didn't own a stake in the competition."
Kärt Nemvalts, director of the Intellectual Property and Competition Law Division of the Ministry of Justice's Legislative Policy Department, said that the ministry plans to move forward with the Competition Authority's proposal. This will mean drawing up first a legislative intent, and thereafter the bill itself.
Nemvalts added that the handling of proposals will presumably be added to next year's agenda.
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Editor: Aili Vahtla