Government Watch. Restrictions on Business Negotiation May Raise Consumer Prices

LFMI examined proposed amendments to the Law on Prohibition of Unfair Practices of Retailers. In its position paper LFMI notes that the proposed regulation stipulates unjustified restrictions on negotiation and may result in higher consumer prices.

On consumer prices
The newly revised bill prohibits any agreements between the supplier and the dealer. This implies a complete prohibition of contractual provisions related to the relationships between third parties and the supplier. Such a ban on negotiations between companies would probably embrace a prohibition of discounts since they are negotiated between sellers and suppliers. To put it simply, if sellers have the opportunity to negotiate discounts with the suppliers, they will be forced to sell goods at higher prices, and this will hurt consumers.

On restrictions on negotiations
The proposed regulation stipulates unjustified and discriminatory restrictions on negotiating. Negotiating is an essential component of business relationships and there is no reason to prohibit discount negotiation on the basis of possible relationships with a third party. To add, the proposed restrictions would apply to retailers only and thereby would restrict their opportunities for negotiation. This would violate the principle of free competition.

On the concept of unfair practices
Article 3 of the Law on Prohibition of Unfair Practices of Retailers defines actions that are qualified as unfair competition, thus limiting the opportunities of retailers to negotiate with suppliers. It should be noted that the law defines certain criteria under which retail trade entities are considered to have a greater market power, but in terms of contracts both parties are considered to be equal and have equal rights to conclude contracts. It means that both parties should be allowed to negotiate the terms of contracts and restricting the freedom of decision of contractual parties is excessive.

On the dominant position
If the draft law is aimed at limiting the actions of a market player that is considered to have the dominant position, it should be noted that this objective is already fully covered by the Law on Competition. Therefore, the draft law would introduce overregulation, meaning that no separate law is needed.

In light of the abovesaid the proposed amendments should be declined.

The full position paper (in Lithuanian) is available at