Turkey: The Competition Board Concluded Its Preliminary Investigation Concerning Excessive Pricing Allegations and Did Not Find It Necessary to Initiate a Full-Fledged Investigation Against Soda Sanayii A.Ş.

The Turkish Competition Board ("Board") published its reasoned decision¹ on the preliminary investigation concerning allegations that Soda Sanayii A.Ş. ("Soda") violated (i) Article 6 of the Law on the Protection of Competition ("Law No. 4054") by abusing its dominant position in the basic chromium sulphate market by way of excessive pricing, and (ii) Article 4 of the Law No. 4054 by engaging in vertical restrictive agreements. 

Soda, incorporated under the Şişecam Group, is a leading global manufacturer of sodium bichromate and basic chromium sulphate. In determining the relevant product market, the Board held that basic chromium sulphate differs from other chemical substances, as (i) it is used as an ingredient in leather manufacturing, and (ii) the quality of the chemical improves the results of the graining and dressing of leather and affects the quality and value of the product. In this respect, the Board defined a separate relevant product market for basic chromium sulphate.

The Board initially assessed the allegations against Soda from the abuse of dominance perspective. In its assessment, the Board first evaluated whether Soda held a dominant position in the relevant product market, before moving on to its substantive assessment under Article 6 of the Law No. 4054. Considering Soda's market shares for the previous years, the Board found Soda to be a global and European leader in terms of the chromium chemicals industry, which includes basic chromium sulphate. Within this framework, the Board assumed that Soda held a dominant position in the relevant product market and proceeded to analyse whether there had been an abuse of dominant position by way of excessive pricing at Soda's end, based on this assumption.

The Board defined "excessive price" as "the price determined consistently and significantly above the competitive level as a result of the undertaking's market power." The Board also discussed the concept of excessive pricing through conceptual and practical aspects, indicating that —from a conceptual perspective—prohibiting excessive pricing may restrict the ability of undertakings (with a certain level of market power) to determine prices for the purposes of profit maximization. Also, from a practical perspective, it held that competition authorities may be unable to efficiently analyze whether the relevant undertakings' prices are determined consistently and significantly above the competitive level.

The Board then examined the US antitrust practice and the EU competition law approach regarding excessive pricing and found that, in both jurisdictions, competition authorities tend not to interfere with excessive prices in cases where the market is expected to recover on its own in the short or medium term. However, the need for interference is expected to rise in several certain markets where there are major barriers to entry and a competitive structure is not expected to be established in the long term. In this regard, the Board concluded that market conditions, such as market shares and concentration levels within the relevant markets, barriers to entry and expansion, and buying power, should also be assessed in order to determine the merit of allegations regarding the abuse of dominant position through excessive pricing.

Furthermore, the Board referred to its previous decisions and indicated that the Board interferes with excessive prices only under limited circumstances, since such interference may have a negative effect on the market's ordinary course of business and that there is a risk of misjudgement with respect to competition authorities' assessment and interference methods.

In excessive pricing cases, echoing the practice of the European Commission, the Board evaluates the relationship between the economic value and the price of a product and applies a two-step test comprising (i) a price/cost comparison, and (ii) a comparison between the undertaking's own prices along with (iii) a comparison with the prices of competitors. Accordingly, the Board conducted a price comparison of Soda's (i) basic chromium sulphate products and those of its competitors, (ii) domestic sales prices and export prices, (iii) domestic sales prices and the consequent profit margin ratios, and (iv) export sales prices and

The Board found that Soda's products generally cost more than those of its competitors, and that Soda generally has a high profit margin with respect to its domestic and export sales. Further, the Board determined that Soda's domestic prices and the consequent profits were higher than its export prices and profits and held that this was due to the fact that (i) Soda focused its sales and marketing strategy mainly on exports, and (ii) the purchase price of the foreign manufacturers would be higher than the purchase price of the domestic manufacturers due to transportation costs and other costs which domestic manufacturers do not have to bear. The Board also stated that, even though there were no barriers to entry to the basic chromium sulphate market, Soda has been maintaining its market power throughout the years.

The Board also evaluated the allegation that Soda had violated Article 4 of the Law No. 4054 by determining its distributors' resale prices. No evidence was found that Soda had engaged in practices that lead to resale price maintenance. On the contrary, several authorized Soda distributors indicated that they were completely independent in determining their own sales terms and conditions.

In sum, the Board concluded that there were no legal grounds to initiate a full-fledged investigation of the allegation that Soda had abused its dominant position by way of excessive pricing, as Soda's prices in question can be related to and sufficiently explained by the quality and indispensability of Soda's products.

As for the Board's reasoning in constructing its decision, due to the fact that its assessment of the framework of excessive pricing is in line with its previous case law, the present decision can be considered to conform to the Board's well-established decisional practice concerning excessive pricing.

^{(1)The Board's reasoned decision numbered 16-14/205-89 and dated April 20, 2016.}

This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in June 2017. A link to the full Legal Insight Quarterly may be found here.

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