Market foreclosure by a dominant company is regulated under Article 6 of Law No. 4054 on the Protection of Competition (“Competition Law”). It is usually achieved through the unilateral conduct of a dominant company. In cases where multiple companies agree to foreclose the market, these are evaluated under Article 4 of the Competition Law. Please see “Bilateral Exclusionary Conduct” for further information on such agreements.
Market foreclosure is explained in detail under the Turkish Competition Board’s (“Board”) recently enacted Guidelines on Abusive Exclusionary Conduct by Dominant Undertakings (“Guidelines”). In fact, market foreclosure is the basis of any exclusionary conduct by a dominant company. In line with this, the Guidelines set forth the basis of the Board’s assessment on exclusionary conduct as actual or potential anticompetitive market foreclosure by the dominant company.
The Guidelines provide a definition for anticompetitive market foreclosure as follows: “the dominant company’s obstructing or preventing its actual or potential rivals from reaching customers or supply sources through its abusive conducts, to consumers’ disadvantage”. Consumers’ disadvantage may take the form of price increases, decreases in quality, innovations or variety.
The Board considers the following factors when assessing cases of market foreclosure: (i) the position of the dominant company, (ii) the conditions on the relevant market, (iii) the position of the dominant company's competitors, (iv) the position of the customers or input suppliers, (v) the extent of the allegedly abusive conduct, (vi) evidence of actual market foreclosure and (vii) direct evidence of any exclusionary strategy in general.
A dominant company may foreclose the market in many different ways. The Guidelines list the most well-known and common ways of anticompetitive market foreclosure as follows:
- Exclusive dealing: The dominant company may enter into vertical agreements with its customers and condition the purchase upon the customer dealing exclusively or to a large extent with the dominant company. Exclusivity may occur in the case of a written agreement or de facto (through the dominant company’s conduct that may create exclusivity – such as loyalty rebates, extra discounts, volume commitments, surplus, etc.). Even though exclusivity brings along pro-competitive effects, it may result in anticompetitive market foreclosure for the actual competitors or potential newcomers. The Board assesses the anticompetitive foreclosing effects of exclusive agreements in light of the following:
- Size of the foreclosed part of the market: The Guidelines does not provide a specific foreclosure ratio which would be deemed serious. That being said, foreclosing 40% of the market could reasonably be alarming for the Board.
- Trade level: If the purchaser is on the retail level, it may create more serious foreclosure effects than the case where the purchaser is on the wholesale level.
- Barriers to entry: The higher the barriers to entry are, the more anticompetitive foreclosure effects the exclusive agreements would create. It is important for the actual competitors to reach customers and for the potential newcomers to enter into the market.
- Importance of the supplier—the dominant company—for the customers; unavoidable trading partner and duration of the exclusivity: If the dominant company and its competitors can compete on the same terms, it is less likely that exclusive agreements foreclose the market anti-competitively. Still, the duration of the exclusivity matters in such cases. If, also, the dominant company is an unavoidable trading partner for customers, even short terms of exclusivity may foreclose the market.
- Refusal to supply: In certain exceptional circumstances, refusal to supply by a dominant company may be considered restrictive. The Board seeks the following elements: (i) the company engaging in the refusal must be in a dominant position; (ii) the company must continue to supply certain customers while refusing to deal with others; (iii) there must be a long-term commercial relationship between the dominant company and the relevant purchaser; (iv) the refusal to deal must not be justified by objective, reasonable grounds; and (v) the refusal to deal must be motivated by anticompetitive intent. Please see “Refusal to Supply” for further information.
- Predatory pricing: This is a pricing strategy by a dominant company where it performs below-cost pricing in order to (i) exclude its existing competitors from the market, (ii) prevent potential new entries to the market or (iii) prevent its existing competitors’ tendency to reduce their prices. Please see “Below-cost Pricing” for further information.
- Margin/price squeeze: 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. 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. Please see “Price Squeezing” for further information.
- Rebates: These rebates are offered by the dominant company to the purchasers on the condition that they will be repeatedly purchasing from the same seller (the dominant company). Please see “Loyalty Rebates” for further information.
- Tying: Tying refers to the practice of conditioning the sale of one product on the buyer’s acceptance to simultaneously purchase a separate product. In general, the tying product is a desirable product with a high level of demand, in contrast to the tied product, which is usually less desirable and more difficult to sell. Please see “Tying and Leveraging” for further information.