Turkey: Turkish Competition Authority's Approach to Competition in Aftersales Markets: "Siemens – Siemed II Decision"

Last Updated: 9 June 2015
Article by Şahin Ardiyok and Barış Yüksel

The reasoned decision of TCA, concerning Siemens's abuse of its dominant position in the markets for the service and spare parts for the Siemens brand medical diagnostics and imaging devices, has recently been published.1 The decision includes detailed explanations with regard to the definition of aftersales markets and the assessment of unilateral conduct in these markets.

In the Siemens – Siemed I decision, TCA examined the allegations of Siemed with regard to the abusive practices of Siemens in the service and spare parts markets and found that there were no violations. The case was brought before the Council of State (CoS) by Siemed. The CoS annulled the decision by holding that the findings of TCA showed that a violation did occur in the market for spare parts, although there was not sufficient evidence in the market for services.

One of the most critical issues in the decision was the definition of relevant markets. The "primary market" was easy to define and it was defined as the market for the sale of medical diagnostics and imaging devices. Siemens had many competitors in that market, and it was not made clear whether it was in a dominant position or not. With regard to the "secondary markets," there were significant discussions considering the scope of these markets. Siemens argued that there exists a single market for the service and spare parts of all producers whereby the TCA opted for a brand-specific market definition.

During the market definition process, TCA first assessed the need for defining aftersales markets. It found that the goods that are sold in the primary market were durable goods. It then held that the consumers would be in need of service and spare parts after the purchase of these goods. In the light of these findings, TCA decided to define separate after sales markets.

The more complicated question was related to the scope of the aftersales markets. TCA provided examples from its precedents and from the applications in the EU. It suggested that two main factors should be taken into consideration: (i) the availability of spare parts that are produced by other manufacturers and (ii) the switching costs (both monetary1 and non-monetary2<) in the primary market. When the primary market in the Siemens – Siemed II case was considered, TCA claimed that the spare parts were almost exclusively produced by Siemens and that the switching costs in the primary market were extremely high. Thus a separate market for Siemens brand spare parts was defined. It further argued that the same findings were true for the aftersales services as the service personnel were highly educated and the education could only be provided by the manufacturer of the primary good.

Once the brand-specific aftersales markets were defined, TCA examined whether Siemens was in a dominant position in these markets. TCA focused on the position of Siemens vis-ŕ-vis the consumers who already purchased Siemens products in the primary market and noted that the competition in the primary market would not protect these consumers from the arbitrary practices of the manufacturer. In the decision, five parameters for assessing market power in the aftersales markets were identified: (i) the price and lifespan of the primary good, (ii) the share of service and spare parts in the total costs, (iii) the transparency of prices in the aftersales markets, (iv) switching costs and (v) the manufacturer's ability to differentiate prices between new consumers and locked-in consumers.

When the market for medical diagnostics and imaging devices was examined, it was found that the price of the goods was significantly high and their lifespan was long, whereby the share of services and spare parts in the total costs were relatively low. It was further seen that the prices in the aftersales market were not transparent, the switching costs were quite high and the ability to price differentiate was present. In light of these findings, Siemens was found to be in a dominant position.

After the dominance was established, TCA went on with the analysis of Siemens' unilateral conduct in the service and the spare parts markets separately.

With regard to the service market, the main problem was that of a passcode. It was known exclusively by Siemens and was required to provide services. TCA stated that the presence of the passcode was creating a high entry barrier, and it was significantly restricting competition in the market. However, it held that this problem was addressed by the TCA in a previous decision, where Siemens was forced to share these passcodes with the customers free of charge and to inform consumers about this possibility at the time of purchase. TCA held that Siemens did comply with these requirements, and thus there was no longer a violation.

The claims in the spare parts markets were based on unjust and exclusionary discrimination. It was alleged that Siemens was deliberately refraining from publishing the price of spare parts and charging much higher prices to the consumers who make service agreements with the competitors. TCA stated that applying dissimilar prices to different buyers could never be regarded as a per-se violation but that it could constitute an exclusionary conduct when used as a tool to dissuade consumers form working with competitors. It than examined certain applications of Siemens, and it found that Siemens did adopt exclusionary strategies in the sales of tubes, by discriminating against users who did not purchase tube insurance that would prevent them from obtaining service from Siemens' competitors. Ultimately, Siemens was fined 0.2% of its annual turnover.

To recap therefore, the Siemens – Siemed II decision is an important decision that shows how TCA deals with competition law issues in the aftersales markets. It is seen that TCA relies on economic theories related to the aftersales markets while defining relevant markets, assessing market power and examining unilateral conduct. The decision further suggests that TCA closely monitors the developments in EU and regards the precedents of the Commission as important sources for its analysis.

1 TCA's decision dated 20.08.2014 and numbered 14-29/613-266.

2 Monetary switching cost would be low if the second hand market for the primary goods is well developed or if the price of the secondary good is very close to the price of the primary good (e.g. the price of toner is almost equal to the price of printer.)

3 Non-monetary switching costs include information costs, costs of changing initial software, learning costs, etc.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Şahin Ardiyok
Barış Yüksel
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