Turkey: The Board published the reasoned decision on the preliminary investigation conducted against the water manufacturers that are members of Packaged Water Manufacturers Association

Last Updated: 22 March 2018

The Board published the reasoned decision on the preliminary investigation conducted against the water manufacturers that are members of Packaged Water Manufacturers Association (17-38/610-266, 23.11.2017).

The Turkish Competition Board (“Board”) published its reasoned decision on the preliminary investigation conducted against the water manufacturers that are members of the Packaged Water Manufacturers Association (“PWMA”), based on the allegations that the relevant undertakings have violated the Articles 4 and 6 of Law No. 4054 on the Protection of Competition (“Law No. 4054”) by way of jointly determining water prices.

PWMA brings together packaged water producers and supplier organizations active in packaged water industry and has 36 institutional members representing approximately 70% of packaged water production in Turkey. Some of the members of PWMA, such as ERİKLİ, PURE LIFE, HAYAT, SIRMA, DAMLA, PINAR and SAKA, are the leading brands in the market for dispenser size bottled water

Information on the Sector and the Relevant Market

The Board initially provided information on the overview of the sector and indicated that the packaged water may be grouped under two categories as (i) dispenser size bottled water, marketed within large packages greater than 10 liters, where most of the sales volume consists of polycarbonate carboys and (ii) bottled water which is usually sold within packaged with smaller volumes ranging from 0,5 lt, 1 lt and 5 lt. 

In addition, the Board explained the difference between the dispenser size bottled water and the plastic bottled water in order to define the relevant product market. The Board stated that while the dispenser size bottled waters are delivered directly to consumers’ houses or offices, the plastic bottled water is sold to consumers through retailers. Furthermore, the Board considered that the prices of the plastic bottled water are much higher when compared to the prices of the polycarbonate carboys. In light of the abovementioned factors, the Board defined the relevant product market as “dispenser sized bottled water” and the relevant geographical market as “Turkey”.

The Board’s Assessment

The Board initially grouped the allegations that may be evaluated under Law No. 4054 under three categories:

  1. Firstly, the Board evaluated the following allegations within the framework of horizontal relations between undertakings under the Article 4 of Law No. 4054: (i) there is a cartelization in water market, (ii) the prices of dispense sized bottled waters are jointly determined by the producers, (iii) the undertakings jointly render strategies and decisions since water prices are parallel to one another. 
  2. Secondly, the Board evaluated the following allegations in scope of the vertical relationship between ERİKLİ and its distributors under Article 4 of Law No. 4054:  (i) ERİKLİ restricted competition between distributors by way of the agreements signed with the distributors, it prevented distributors from conducting sales (i) outside their territories, (ii) of products that belong to other brands and (iii) with prices other than the determined.
  3. In addition, the Board decided to evaluate the following allegations under Article 6 of Law No. 4054: (i) ERİKLİ transferred DANONE’s and other brands’ distributors by using its dominant position in the market, (i) ERİKLİ forced other distributors and brands to cease commercial activities by way of using its dominance.

Assessments in scope of the Article 4 of Law No. 4054

The Allegation that the Competitors jointly determine the water prices

Firstly, the Board stated that, the information obtained during on-site inspections do not support the allegations that the producers jointly determine prices of dispenser sized bottled waters, which were derived from the fact that prices obtained via telephone calls appear to be similar to each other. The Board indicated that, during the on-site inspections carried out within the scope of the case file, no information or document has been obtained that could indicate that the water producers collectively determine prices.

The Board stated that, on the contrary, the documents and e-mail correspondences obtained from the computers of the undertaking’s employees indicate that the competitors' prices and campaigns are monitored within the market and the information collected is used for competing with other competitors in the market. In this context, the Board found that the only argument the complainant has put forward in support of the claim is based on the similarity of the prices obtained via telephone calls.

Furthermore, the Board highlighted that in scope of the investigations, the researches show that the highest priced product compared to the lowest priced product is approximately 28% more expensive. In addition, a price difference of 30% for natural spring water, a seemingly homogeneous product in the consumer's eyes, does not support the claim that these products are priced on the same levels. Thus, based on the information obtained, the Board concluded that there are no arguments to support the allegations that the water producers jointly determine the prices.

Assessment on the ERİKLİ’s distribution agreements

Regarding the allegations concerning ERİKLİ’s distribution agreements, the Board firstly stated that pursuant to the Article 4 of Law No. 4054, “Agreements and concerted practices between undertakings, and decisions and practices of associations of undertakings which have as their object or effect or likely effect the prevention, distortion or restriction of competition directly or indirectly in a particular market for goods or services are illegal and prohibited.”

In addition, the Board indicated that, pursuant to the Article 2 of Block Exemption Communiqué on Vertical Agreements (“Communique No. 2002/2”), the agreements concluded between two or more undertakings operating at different levels of the production or distribution chain, with the aim of purchase, sale or resale of particular goods or services -vertical agreements- are exempt from the prohibition in the Article 4 of Law No. 4054 if they bear the conditions mentioned in the relevant Communiqué.

The Board stated that in order for the vertical agreements between ERİKLİ and its distributors to benefit from the block exemption provided by the Communique No. 2002/2, the market share of ERİKLİ or its’ parent NESTLE group, should be below the 40% threshold in the relevant market. In this regard, the Board indicated that the market shares of ERİKLİ and NESTLE fall well below %40 in the relevant market. Therefore, the Board indicated that the first condition provided in the Communique No. 2002/2 for benefiting from the block exemption is fulfilled.

In addition, the Board stated that other conditions regulated under the Article 4 of the Communique No. 2002/2 should also be met to benefit from the block exemption.  The Board indicated that pursuant to the Article 4(a) of Communique No. 2002/2, the supplier may determine the maximum sales price or recommend the sales price, on the condition that it does not transform into a fixed or minimum sales price. In addition, pursuant to the Article 4(b) of the Communique No. 2002/2, the allocation of exclusive regions to the distributors and restricting the distributors from conducting active sales (and not passives sales) outside of the allocated territories do not obstruct the application of the Communique No. 2002/2.

Furthermore, regarding the non-compete obligation the Board stated that, pursuant to the Article 3 of the Communique No. 2002/2, non-compete obligation should not be imposed on the purchaser for an indefinite period or for a duration that exceeds five years. In addition, the Board indicated that non-compete obligations may be imposed on the purchaser provided that it does not exceed one year as of the expiry of the agreement, on the conditions that it is compulsory for protecting the know-how transferred by the supplier to the purchaser.

In light of the foregoing, the Board stated that, the allegations that ERİKLİ has violated the Article 4 of Law No. 4054 (i) by preventing the distributors from selling water outside of their own territories and (ii) preventing the distributors from marketing other brands active in the sector are not in violation of the Communique No. 2002. However the allegation that ERİKLİ is preventing the distributors from conducting sales with prices other than those determined by ERİKLİ is explicitly in violation of Article 4(a) of the Communique No. 2002/2.

As a result, after evaluating the provisions of the relevant distribution agreement, the Board concluded that since the agreement does not contain any provisions that may be interpreted as the determination of resale prices and fully compliant with the regulations of the Communique 2002/2. Therefore, the Board decided that the agreement fulfills all the conditions for benefitting from the block exemption under the Communique No. 2002.

Assessments in scope of the Article 6 of Law No. 4054

The Board also evaluated the allegations that ERİKLİ (i) transferred DANONE’s and other brands’ distributors by using its dominant position in the market, (i) forced other distributors and brands to cease commercial activities by way of using its dominance. The Board stated that in order for a conduct to be considered as an abuse of dominant position under Article 6 of the Law No. 4054, two cumulative conditions must be satisfied: (i) the undertaking that has engaged in the conduct must be in a dominant position in the relevant market, and (ii) the conduct itself must be abusive in nature.

In this regard, in order to understand whether ERİKLİ has abused its dominant position, firstly, the Board determined the market share of NESTLE group and as a result, by considering the market share and the number of competitors in the market,  the Board stated that ERİKLİ is not in dominant position in the market.

In addition, the Board stated that during the on-site inspections, no information or document has been obtained that may support the allegations that ERİKLİ has impeded the activities of its competitors or engaged in any abusive conduct in the market. 

Ultimately, in light of the above, pursuant to the Article 41 of Law No. 4054, the Board decided not to initiate full-fledged investigation.

This document is not intended to create an attorney-client relationship. You should not act or rely on any information in this document without first seeking legal advice. This material is intended for general information purposes only and does not constitute legal advice. If you have any specific questions on any legal matter, you should consult a professional legal services provider.

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