Latvia’s Competition Council (CC) completed a market surveillance study assessing vertical integration and competitive dynamics in the country’s pharmaceutical sector. The watchdog concluded that while market concentration is steadily increasing, strict regulatory and administrative barriers—rather than vertical integration itself—represent the primary bottleneck limiting competition and preventing new entrants from establishing a presence.
Initiated at the request of the Cabinet of Ministers, the surveillance examined supply chain structures, price formation, and concentration levels. Findings reveal that the four largest vertically integrated corporate groups control a growing majority of the Latvian retail pharmacy market. Their share of total turnover rose from roughly 60 percent in 2020 to 72 percent in 2024, with pharmaceutical-specific turnover increasing from 62 percent to 70 percent. While over 700 pharmacies operate nationwide, stringent regulations heavily restrict the establishment of new locations. Consequently, expansion typically occurs via the acquisition of existing pharmacies, shrinking the proportion of independent operators.
This consolidation trend is not unique to Latvia. Similar market dynamics exist across the Baltic region, with the five largest pharmacy chains controlling approximately 83 percent of the market in Lithuania, and four franchise networks managing around 93 percent in Estonia. Beyond direct acquisitions, the CC highlighted that vertical integration is frequently reinforced through indirect mechanisms, including franchise arrangements and commercial cooperation models.
Vertical integration offers clear operational efficiencies, such as streamlined supply chains, reduced overhead, and enhanced supply security. However, it simultaneously poses risks regarding economic dependence and the long-term viability of independent pharmacies. Despite these structural concerns, the regulator found no evidence that vertical integration currently restricts competition to a degree that harms consumers, partly due to existing price regulations, supply mandates, and transparency requirements.
The report noted that price competition remains far more active in the over-the-counter (OTC) segment than in prescription drugs. This price transparency is primarily driven by online pharmacies, which consistently offer lower OTC prices than brick-and-mortar storefronts. In contrast, strict price controls severely limit price competition for prescription medications.
Ultimately, the CC concluded that banning vertical integration would be an ineffective and disproportionate remedy. Instead, the authority advocated for lowering regulatory market entry barriers and enhancing transparency. The watchdog welcomed a new measure requiring major pharmacy owners to publish real-time medicine availability and pricing data, urging the Ministry of Health to prioritize competition-friendly reforms in future healthcare policy evaluations.