Last week, an administrative court decision on one of the most debatable decisions of the Turkish Competition Authority was published at the TCA's official website. The 6th Chamber of Ankara Administrative Court annulled the TCA's Sahibinden decision1, which demonstrates exceptional approaches to excessive pricing in many aspects. While doing so, the Court also shared its assessments on excessive pricing enforcement in digital markets in detail.
Background: TCA's decision on Sahibinden
In May 2017, the TCA initiated an investigation following the preliminary inquiry against Sahibinden Bilgi Teknolojileri Pazarlama ve Ticareti A.Ş. ("Sahibinden") on allegations of excessive pricing practices towards real estate agencies. During the investigation, the TCA also initiated a new inquiry concerning alleged abuse of dominant position in the online automobile ads market through excessive pricing in September 2017. Subsequently, the TCA combined the two cases of Sahibinden concerning the allegations of excessive pricing in two different markets.
Despite the different arguments of Sahibinden about the relevant market definition and hence, its market power, the TCA claimed for the dominant position of Sahibinden in both online automobile and real estate ads markets. On the other hand, case handlers and the Competition Board rendered the pricing strategy of Sahibinden with distinctive approaches during the investigation. Although the case handlers2 described the pricing of Sahibinden "quite high", they did not consider such allegations as an "excessive pricing". They emphasized (i) the fierce competition in platform markets, (ii) the existence of current and potential entrants (local and global), and (iii) non-existence of negative welfare effect for consumers. Accordingly, in their investigation report, the case handlers did not ask for an administrative fine before the Competition Board. However, as an exceptional or infrequent situation, the members of the Board reached out a different conclusion. In October 2018, the Board accepted the violation of Competition Act through "excessive pricing" of Sahibinden by a majority and imposed an administrative fine of approximately 1.9 million Euro (TRY 10.7 million).
The most prominent difficulty that may arise after the decision of the TCA is the problem of determination of "fair prices". Unfortunately, in its decision, the TCA solely stating that such a pricing strategy of Sahibinden constituted a violation of Competition Act but did not recommend an alternative pricing model or a threshold for not being "excessive" in prices at least for a specified period. This ambiguity for the post-decision period and difficulty in the calculation of the cost structure of digital market players increased the uncertainty and has become one of the critical points that was examined by the administrative court in its annulment decision.
Intervening the excessive pricing should be an exception
The 6th Chamber of Ankara Administrative Court's annulment decision has an in-depth analysis of interpretation of dominance and excessive pricing in digital markets, consumer welfare, and the burden of proof. It seems that the administrative court reached its decision based on solid and strong arguments that sourced from EU Competition Law and general arguments of industrial organization. Concisely, the administrative court stated that due to the peculiarities of excessive pricing cases, the competition authorities should examine the circumstances at hand in a very delicate manner to sustain the aimed competition level in the market. Otherwise, there could be some questions concerning the standard of proof and necessity of intervention on maintaining the competition in the market in the long run.
In its detailed analysis, the 6th Chamber of Ankara Administrative Court pointed out the following:
- In excessive pricing cases, it has not sufficient to detect violations solely based on market power. As per the opinion of the court, the competition authorities should initially consider (i) the market structure, (ii) the barriers of entry and (iii) the permanence of such obstacles.
- Instead of intervening the prices, the competition authorities should give the initial priority to eliminate barriers of entry in the relevant market.
- Furthermore, the competition authorities should prove the infringement concerning excessive pricing in a certain/indisputable way by the facts surrounding the case at hand and the detailed cost-price calculations. However, in Sahibinden case, the Competition Board accepted that it has difficulties in estimating the real cost structure and hence cost-price margin of the company, which weakens the grounds of the TCA's case as per the opinions of the administrative court.
- The Administrative Court also criticized the benchmark products and platforms that were selected for price comparison analysis of the TCA3. In this regard, the Administrative Court questioned the substitutability relation between Sahibinden's and other online sales platforms' products. Instead, the Administrative Court emphasized the lack of comparison of prices of Sahibinden with the other online ads platforms in different countries.
- The Administrative Court also stated that the TCA only considered the welfare level of corporate customers (i.e. car dealers, real estate agencies) but did not take into consideration the welfare of individual consumers who benefit from Sahibinden's services free of charge.
- The Administrative Court also stated that the TCA based upon some observations on the effects of some of its claims instead of any market studies, facts surrounding the case or economic analysis:
- Sahibinden has an advantage of providing multiple product ads in its platform while Sahibinden's competitors have operations only in one of the products (only in real estate, only in automobiles, etc.).
- The economic value of "Sahibinden" name on consumers ("Sahibinden" means "sales directly from the owner" in Turkish and the TCA claimed that Sahibinden name by itself gives an economic value/advantage to the undertaking).
- The effects of entrance of global players in the Turkish digital platform market.
- The level of competition in the relevant market in the long run due to the dynamic market structure, entrance of local and global players, high profitability, etc.
As per the procedural issues, the 6th Chamber of Ankara Administrative Court's decision is the first stage of a three-stage appeal process against the TCA's Sahibinden decision. Upon the decision of the administrative court, the TCA will appeal the administrative court's decision before the Regional Administrative Court and subsequently before the 13th Chamber of the Council of State. Since in this case of Sahibinden, the 6th Chamber of Ankara Administrative provided substantial and strong arguments about the TCA's assessments, it can be expected that the Regional Administrative Court can be more inclined to uphold the decision of the administrative court of first instance.
In any case, we have seen that in its annulment decision, the 6th Chamber of Ankara Administrative Court examined the TCA's Sahibinden decision in a detailed way and stated its arguments on a very technical and debatable competition law issue, excessive pricing. Since it could not be a big surprise to have witness new cases of the TCA on the digital markets, it would be a preferable approach for the TCA to enlighten and give guidance, which is based on the harmonization of both technical and practical issues, especially to the digital markets in its decisions.
1. TCA's Sahibinden decision dated 01.10.2018 and numbered 18-36/584-285.
2. One of the case handlers wrote an opposing view during the investigation and claimed that Sahibinden's pricing strategy depicts the signs of excessive pricing. Hence, stated that Sahibinden's conducts in both relevant markets violated the competition law.
3. In its decision, the TCA compared the prices of Sahibinden with other online platforms in Turkey that have operations in different markets, such as hepsiburada, yemeksepeti, ciceksepeti, etc.
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