Lithuanian Transition: Competition Law
by Cory Silken, April 2001
When Lithuania was part of the Soviet Union, its economic system was socialist command economy. In this type of economy, monopoly was not a problem because companies could not increase prices. They were set by the government. After the breakup of the Soviet Union in 1990, Lithuania ceased using this economic system and instituted a democracy with a free market economy. In a free market situation it is important to prevent monopolization in order to maximize producer and consumer surpluses which achieves efficiency.
On September 15, 1992, Lithuania instituted the Competition Law (similar to the anti-trust laws in the United States and Europe) to prevent monopolization. In addition to creating efficiency, this law also boosts international confidence in Lithuania's stability and makes their production more internationally competitive, important for developing trade.
The Competition Law in Lithuania set up the State Competition and Consumer Protection Office to enforce the law. This office has a sub-body, called the Competition Council, which analyzes legal cases when the law is violated. The law defines a company as having a dominant position on the market if its market share exceeds 40%, and also prohibits collusion.
In order to promote better prices and quality, alleged violations sometimes get overlooked. It is hard for the office to enforce the law because, "As in other countries of the former Soviet Union, government bureaucracy, corruption and organized crime are often cited as the most significant hurdles..." (Competition Law). This is a reflection on the mentality which still remains as a residual from socialism. With the slow bureaucratic speed of the court rulings, the effectiveness of the law is limited, but it is dynamic and can be amended.
When the Economic Competition Law does work, however, it aids the transition process by allowing Lithuania to take full advantage of their factor endowments through trade. A focus of change in Lithuania is their movement to increase foreign trade. This is so fundamental because, as with all nations in the former Soviet Union (FSU), trade was previously restricted to FSU nations and they are now opening to trade with Western countries. This decreases their reliance on the countries of the FSU.
Lithuania has had some advantages in this new trade as a result of its proximity to the west. Transportation is less costly and Lithuanians have greater access to western markets, allowing a first-hand view of western market activities and products. One exception to the competition law is in the agricultural sector where there is a large production subsidy. This subsidy is necessary because agriculture employs 21% of the workforce and requires restructuring before it can compete internationally. Currently, these subsidies are being replaced by income support. There are some additional sectors, such as railroads, electricity, telecommunications, and oil refining, which do not fall under the competition law because they have not been privatized (Joint Assessment).
Competition Law in Lithuania http://www.patstreeter.com/Resources/Papers___Articles/Competition_Law_in_Lithuania/competition_law_in_lithuania.htm
Joint Assessment of Lithuania's Economic Policy Priorities http://users.skynet.be/lt-mission-eu/MissionEC/accession/000529jointassesment.html
Lithuanian Development Agency Competition Law, 1999 http://www.lda.lt/invest.law.competition.html
Lithuania: Economic Freedom http://www.rferl.org/bd/li/info/li-ec.html