Turkey: The Board Denies INTES Individual Exemption For Price Variation Survey: Walking The Fine Line In Exchanging Price Information

The Turkish Competition Board ("Board") published its reasoned decision regarding the request by the Turkish Employers Association of Construction Industry ("INTES") for an individual exemption for a survey ("Survey"), which would be carried out by an independent firm to track variations in the prices of raw materials affecting the costs in the construction sector. The case handlers' report indicated that as long as (i) the results of the Survey would be made public 6 months after the data collection, (ii) the results would also be shared with the Board, and (iii) the company carrying out the Survey and INTES would enter into a non-disclosure agreement, the proposed Survey would be a suitable candidate for an individual exemption. Despite the affirmative opinion of the case handlers, the Board refused to grant an individual exemption to the Survey, as it concluded that the information exchange for the purposes of the Survey failed to satisfy the cumulative conditions for an individual exemption under Article 5 of the Law No. 4054 on the Protection of Competition ("Law No. 4054"). 1

INTES, a trade association in the construction sector, comprises over 100 members who undertake large-scale projects in Turkey and abroad. INTES applied to the Board for an individual exemption to be granted to the Survey, which would be carried out by a third­ party independent survey company, in order to determine price variations in the raw materials (such as iron, cement, ready-mixed concrete, asphalt material and lumber) that affect the costs of its members' projects. The participation of INTES members in the Survey would be voluntary, and non-member undertakings could also take part in the Survey upon request. According to the information provided by INTES, the Survey would have been a novel development for the construction sector, since it would include inquiries regarding the raw material costs and total unit costs. INTES confirmed that individual data provided by the participants would be collected each month by the independent survey company and would not be shared with any of the parties involved in the Survey. Moreover, only the aggregated results would be shared with the INTES board. The data collected by the independent survey company would then be used to calculate an index, known as the "construction costs index" which would be used to examine whether a trend of increasing costs could be discerned for each material. INTES asserted that the index, which would be made public, would not be segmented or divided on the basis of geographic regions, and if the index identified any trends regarding increasing costs for a particular geographic market, INTES would notify the Turkish Competition Authority ("Authority") and other relevant institutions of any such findings.

In its assessment, the Board defined the relevant product market as "construction services" by taking note of the fact that all the members of INTES were active in the construction industry and that the construction materials and the raw materials used in construction (regardless of whether a particular project concerns the construction of houses or other structures) are generally very similar. The Board defined the relevant geographic market as "Turkey" in light of the fact that all the players in the Turkish construction market would have benefitted from the information exchange in the course of the Survey contemplated by INTES.

In order to determine whether the Survey would hinder competition in the relevant market, the Board examined the characteristics of the relevant product market and assessed the scope of the proposed Survey. Accordingly, the Board evaluated whether the members of INTES constituted a separate product market and, if so, whether there were any barriers to entry to that market. The Board also assessed whether the information that would be collected by the survey company would be strategic, private or public, current or historic, and whether the information would be exchanged frequently.

The Board found that the proposed Survey seemed to give the impression that it would not lead to any competitive concerns, since (i) the relevant product market was competitive, (ii) the data collected would be aggregated, and (iii) the outcome of the Survey would be announced publicly. However, the Board nevertheless concluded that the Survey could hinder competition within the meaning of Article 4 of the Law No. 4054, given that the information exchange that would ensue as a result of the Survey (i) would include strategic and current information that is not publicly accessible, and (ii) would occur frequently.

As the Board determined that the Survey could restrict competition within the meaning of Article 4 of the Law No. 4054, the Board proceeded to apply the individual exemption test based on the following cumulative conditions: (a) the Survey must contribute to the improvement of the production or distribution of goods or the promotion of technical or economic progress, (b) the Survey must provide consumers a fair share of the resulting benefits, (c) the Survey should not lead to the elimination of competition with respect to a substantial part of the products in question, and (d) the Survey should not impose restrictions on the undertakings in question that are not indispensable to the achievement of the objectives specified under (a) and (b).

With regard to the first condition, INTES pointed out that, despite the obvious need, there had been no previous study that allowed construction firms to track price trends with regard to the raw materials affecting construction costs. INTES further argued that, through the Survey, construction firms would increase their efficiency by comparing their own performance to those of their competitors in the relevant market. In addition, INTES noted that, if a trend of increasing input costs was identified as a result of the Survey, then it would inform the Board and other relevant institutions of such a trend.

In response, the Board stated that it did not see the connection between informing the Board of such a trend (i.e. of increasing costs) on the one hand and achieving the proposed cost savings on the other. The Board decided that potential cost savings were more likely to result from the Board's examination and finding of a competition law infringement, if any, rather than the Survey itself, and declared that it was unclear how the monitoring of competitors would affect the costs of construction firms. The Board therefore concluded that the proposed Survey did not satisfy the first condition of an individual exemption.

For the second condition regarding consumer benefits, the Board determined that the Survey did not fulfill the requirement of providing consumers a fair share of the resulting benefits, since it would not create any efficiency gains.

In terms of the third condition, the Board decided that the Survey fell short of satisfying the requirement, since the information exchange in the course of the Survey could lead to coordination among undertakings active in the input markets. The Board also noted that information exchange among firms with regards to the raw material prices of the preceding month might create coordination effects, especially in certain sectors (such as cement and ready-mixed concrete) where seasonality and regionally are important factors in the market. For instance, the Board determined that, if the survey company collected information in the same geographic markets as the markets defined in the Board's decisions, then the risk of coordination among producers in those regions would increase, since those producers would be informed of the cost trends in their regions.

As for the fourth condition of an individual exemption, the Board concluded that the Survey would restrict competition beyond what is necessary to attain the objectives stated, even if it had the goal or effect of informing the Authority of a potential increase in input costs. The Board indicated that the Authority already carries out investigations (in the construction sector in general and in the cement and ready-mixed concrete sectors in particular) ex officio and/or upon complaints. Therefore, the Survey was deemed likely to hinder competition beyond what is necessary to achieve its stated objectives.

As a result, the Board decided that the Survey did not meet any of the conditions of an individual exemption under Article 5 of the Law No. 4054 and chose not to grant an individual exemption to it.

Footnote

1 The Board's decision numbered 18-03/31-18 and dated January 18, 2018.


This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in June 2018. A link to the full Legal Insight Quarterly may be found here.


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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