The Turkish Competition Board (“Board”) adopts the “Dominance Test” as the substantive test upon which it examines mergers and acquisitions. Per the Dominance Test, mergers and acquisitions which create or strengthen a dominant position and significantly impede effective competition in a relevant product market within the whole or part of Turkey would be blocked. After the Board’s conclusion that the transaction meets the first prong (creating or strengthening dominant position), it examines the second prong; i.e. whether creating or strengthening dominant position would significantly impede the effective competition in the relevant market.

During the examination of the second prong, the Board conducts an ex ante analysis as to whether the transaction would result in significant anticompetitive effects on the competition in the relevant market. The Board’s recently enacted Guidelines on Horizontal Mergers (“Horizontal Merger Guidelines”) and Guidelines on Non-Horizontal Mergers (“Non-Horizontal Merger Guidelines”) provide guidance on what types of anticompetitive effects may occur as a result of a transaction.

Possible Anticompetitive Effects of Horizontal Mergers

Horizontal mergers may significantly impede effective competition through two main ways: (i) unilateral effects and (ii) coordinated effects.

  1. Unilateral Effects

A merger may result in significant impediment of effective competition in the relevant market if the merged entity gains market power through eliminating significant competitive pressure over it.

Numerous factors determine whether a merger will lead to unilateral effects. Those factors should be evaluated cumulatively. Such factors can be, though they are not limited to, the following:

  • The parties having large market shares
  • The merging parties being close competitors
  • The customers having limited possibilities of switching supplier
  • The competitors being unlikely to increase production in response to price increase
  • The merged company having the ability to hinder expansion of its competitors
  • The merger eliminating an important competitor in the market

  1. Coordinated Effects

A merger in a highly concentrated market may result in creating or strengthening collective dominance in the market and thereby significantly impeding the effective competition. Coordinated effects occur when several companies adopt, on a sustainable basis, a behaviour pattern aimed at making sales at high prices (or similar anticompetitive conducts).

The merger does not need to result in an agreement or a concerted practice between the market players for collective effects to arise.

Coordination may appear in various forms such as keeping prices above the competitive level, limiting production or the amount of new capacity brought to the market, dividing the market according to geographic area or other customer characteristics, allocating contracts in bidding markets etc.

Coordinated effects are more likely to emerge in markets where it is relatively simple to reach a common understanding on sales terms. In order for coordination to be sustainable it should fulfil three conditions, namely (i) the coordinating companies must be able to monitor to a sufficient degree whether the terms of coordination are being adhered to, (ii) there must be some deterrence mechanism that will be activated if deviation from coordination is detected and (iii) outsiders, such as current and future competitors should not be able to jeopardise the outcome expected from coordination.

Possible Anticompetitive Effects of Non-Horizontal Mergers

Possible anticompetitive effects of non-horizontal mergers are classified similarly to the effects of the horizontal mergers: (i) unilateral effects and (ii) coordinated effects.

  1. Unilateral effects

Unilateral effects generally emerge when non-horizontal mergers result in foreclosure. Foreclosure occurs when the merger hampers or eliminates actual or potential rivals' access to supplies or markets and thereby reduces these competitors' ability and/or incentive to compete. As a result of this foreclosure, the merged company may be able to profitably increase the prices. Two types of foreclosure can be distinguished, namely (i) input foreclosure and (ii) customer foreclosure.

  1. Coordinated effects

Coordinated effects occur when companies which did not use to harmonize their behaviour before the merger, are significantly more likely to coordinate after the merger. Similarly, for companies which were already coordinating their behaviour, coordination will be easier, more stable and more efficient to coordinate. In order for coordination to be sustainable it should fulfil three conditions, namely (i) the coordinating companies must be able to monitor to a sufficient degree whether the terms of coordination are being adhered to; (ii) there must be some deterrence mechanism that will be activated if deviation from coordination is detected and (iii) outsiders, such as current and future competitors that are not within the scope of the coordination.