Margin squeeze is a pricing strategy of a vertically integrated company which is (i) active both in the downstream and upstream market of a production/service chain, and (ii) in a dominant position in the upstream market. This anti-competitive conduct may fall under the prohibition laid down in Article 6 of Law No. 4054 on the Protection of Competition (the “Competition Law”) as it may constitute one of the forms of abuse of dominant position, depending on circumstances.
Margin squeeze occurs when a company, which is vertically integrated and dominant in the upstream (mostly wholesale) market, narrows the margin between the wholesale price of the input it controls in the upstream market and the price of the product in the downstream market via the use of the input by changing the level of both prices. As a result, the profit margin for competitors in the downstream market, whose operations are dependent on the use of the input and who have to pay the wholesale price as well as compete with the retail price charged by the vertically integrated dominant company, is squeezed. Moreover, the company dominant in the upstream may cause margin squeeze (i) by increasing the price for the upstream product, (ii) by decreasing the price for the downstream product, or (iii) by doing both simultaneously. This anti-competitive conduct of the dominant company leads to abuse of dominance as the vertically integrated dominant company may exclude actual or potential competitors in the retail market, restrain their activities or market shares and prevent competition by transferring its market power on the input in the wholesale market to the retail market.
The Turkish Competition Board (the “Board”) is known to closely scrutinize allegations of margin squeeze.1 For example, in TTAŞ case (08-65/1055-411, 19.11.2008) which concerns whether Türk Telekomünikasyon A.Ş. (TTAŞ) and TTNet A.Ş. (TTNET) violated the Law No. 4054 in wideband internet access services market, the Board decided that TTAŞ and TTNET (as an economic unity) were in dominant position and this economic unity abused its dominant position by way of margin squeeze in the relevant product market.
1 See Dogan Dağıtım (9 October 2007, 07-78/962-364), Türk Telekom (19 October 2004, 04-66/956-232); TTNet (11 July 2007, 07-59/676-235); and Türk Telekomünikasyon A.Ş. (3 May 2016, 16-15/254-109))