Introduction
Draft guidelines
Abusive conduct
One of the most significant developments with respect to Turkish competition law over the past two months has been the opening of public consultation in relation to the Draft Guidelines on the Abusive Exclusionary Conduct by Dominant Undertakings. Although the guidelines are still in draft form and have not yet been enacted by the Competition Authority, they aim to address the lack of competition legislation on the behaviour of dominant undertakings.
The announcement points towards the authority's growing willingness to increase predictability and transparency with respect to the definition and analysis of the concept of dominance and abuse thereof, and to fill the absence of legislative framework on the subject. The scope of the draft guidelines is limited to exclusionary conduct by dominant undertakings. The draft guidelines detail the authority's guiding enforcement priorities and focus on various forms of exclusionary conduct.
The release of the draft guidelines is also in keeping with the authority's past practice of paying close attention to developments in EU competition law and harmonising the Turkish competition regime with EU law. As a result, the draft guidelines largely resemble the European Commission's guidance on its enforcement priorities in applying Article 102 of the EC Treaty to abusive exclusionary conduct by dominant undertakings.
The draft guidelines explain the concepts of 'dominant position', 'exclusionary conduct' and 'justified cases' of exclusionary conduct in order to determine whether an undertaking is engaging in abusive exclusionary conduct.
Dominant position
The draft guidelines place emphasis on the definition of the relevant market for the assessment of whether an undertaking is in a dominant position, with reference to the Guidelines on the Market Definition. Further, the determinative factors in the analysis of dominant position under the draft guidelines include:
- the market position of the undertaking and its competitors;
- the barriers to entry and expansion on the market; and
- the buyer power in the market.
The characteristics of each case will be taken into consideration for this assessment.
Exclusionary conduct
The draft guidelines link analysis of the existence of exclusionary conduct with 'anti-competitive foreclosure', a term used to describe a situation in which effective access of actual or potential competitors to supplies or markets is hampered or eliminated as a result of the conduct of the dominant undertaking, to the detriment of consumers. According to the draft guidelines, the Competition Board will also consider:
- the position of the dominant undertaking;
- the conditions on the relevant market;
- the position of the dominant undertaking's competitors;
- the position of the customers or input suppliers;
- the extent and duration of the allegedly abusive conduct;
- possible evidence of actual foreclosure; and
- direct or indirect evidence of any exclusionary strategy in its analysis.
Justified cases
According to the draft guidelines, the board will also take into account the claims put forward by a dominant undertaking that its conduct is justified by either:
- being objectively necessary; or
- producing substantial efficiencies that outweigh any anti-competitive effect on consumers.
The text also provides for particular criteria of justification for each form of abusive conduct listed below.
Refusal to deal
The draft guidelines start from the position that any undertaking, whether dominant or not, should have the right to choose its trading partners and to dispose freely of its property. However, intervention on competition law grounds will prove necessary in exceptional cases where a dominant undertaking's refusal to deal has had restrictive effects on competition. The draft guidelines also emphasise that while imposing an obligation to deal, the board should consider carefully both the short-term and long-term consequences of such an obligation. The Competition Board can impose an obligation to deal on a dominant undertaking only if all of the following conditions are met:
- The refusal relates to a product or service that is objectively necessary to be able to compete effectively on a downstream market.
- The refusal is likely to lead to the elimination of effective competition on the downstream market.
- The refusal is likely to lead to consumer harm.
The conditions set out in the draft guidelines closely resemble the conditions for commission intervention, set out in the corresponding section of the commission guidance.
Predation
'Predation' is defined as an anti-competitive pricing strategy by which a dominant undertaking sets its sales prices below the production cost in the short term and deliberately incurs losses (referred to as 'sacrifice') in order to foreclose or to discipline or impede the competitive conduct of one or more actual or potential competitors, with the intention of strengthening or maintaining its market power. When determining whether such a sacrifice has occurred, the draft guidelines take the 'average avoidable cost' criterion as the starting point and analyse whether the dominant undertaking sets its prices below this cost for the whole or a part of its production (as is the case in the commission guidance). Pricing below the average avoidable cost will be considered a strong indication of predatory conduct, although it is not the sole indicator.
Furthermore, the Competition Board may use, in exceptional cases, the 'long-run average incremental cost' criteria or resort to other direct evidence in order to determine the existence of predatory conduct. Again, the guidelines closely resemble the section on predation in the commission guidance.
In earlier decisions(1) the Competition Board has also given effect to the intent factor (ie, the intent of the dominant undertaking), but this is not referred to in either the draft guidelines or the commission guidance.
Price/margin squeeze
The draft guidelines provide that in order to evaluate whether there is an anti-competitive margin squeeze, the board will take into account:
- the undertaking's structure;
- the characteristics of the product;
- the position of the undertaking in the relevant markets; and
- the margin between the prices (using the long-run average incremental cost as the appropriate starting point).
Furthermore, following a different strategy from that of the commission, the Competition Authority has scrutinised the margin squeeze process separately from other types of exclusionary conduct, giving a more detailed analysis of the nature of this type of pricing (the commission merely mentioned this form of exclusionary behaviour alongside the refusal to supply).
Exclusive dealing
According to the draft guidelines, exclusive dealing agreements are considered to be abuse of dominance only if the undertaking is in a dominant position. Although the guidelines accept the pro-competitive effects of such exclusive dealing agreements (ie, regular product flow to the buyer and increased willingness of the provider to invest more in the commercial relationship), the risk of foreclosure of product or service markets as a result of such agreements require careful analysis. The relevant criteria for such analysis include:
- the extent of the conduct;
- the levels of the supply chain on which the undertakings are operating;
- the barriers to entry to the relevant market;
- the dominant undertaking's significance from the viewpoint of the buyers; and
- the duration of the agreement.
In particular, similar to the commission guidance, the draft guidelines emphasise that if the dominant undertaking is an 'unavoidable trading partner' for a significant part of the customer's demand, even a short-term exclusive dealing agreement is likely to result in anti-competitive foreclosure.
Rebate systems
The draft guidelines divide the rebate systems into:
- single product rebate systems, which require the purchase of a certain product in order to receive the discount and are typically imposed for a pre-determined reference period (according to the draft guidelines, in cases where the single product rebate is not applied for a certain reference period, the board will analyse the rebate system using the criteria set for predatory pricing); and
- multi product (package) rebate systems, which cover more than one type of product or market and are not deemed anti-competitive when competitors of the dominant undertaking are able to offer feasible alternative packages to the buyer.
The draft guidelines also touch on two alternative types of rebate system – retroactive rebates and incremental rebates. Retroactive rebates, as provided under the draft guidelines, are expected to result in anti-competitive foreclosure in cases where the rebate targets are personalised, particularly when the competitors of the dominant undertaking are not capable of competing on equal grounds for the totality of each customer's demand. This is also in line with the relevant sections of the commission guidance on rebate schemes.
Tying
According to the draft guidelines, in most cases tying aims at providing better products to customers in the most cost-effective way. When determining whether these practices are in violation of the law, the Competition Board (and the commission) will take account of whether:
- the tying and tied products are distinct products; and
- the tying practice is likely to lead to anti-competitive foreclosure.
Unlike under the commission guidance, bundling (another type of exclusionary conduct) is not referred in the draft guidelines.
