October 2021 – The Turkish Competition Board's strict approach to this singular case is setting the stage for the regulation of digital markets. As the first of its kind in Turkey and one of the first worldwide, could this be a precursor for other competition authorities?
To keep pace with the rapidly changing commercial landscape, the Turkish Competition Authority ("the Authority") keeps a close eye on e-marketplace platforms. This trend continues, as following the publication of a preliminary report on the sector inquiry regarding e-marketplace platforms, the Competition Board ("the Board") launched a full-fledged investigation and has taken interim measures concerning Turkey's largest e-commerce platform, Trendyol (DSM Grup Danışmanlık İletişim ve Satış Ticaret A.Ş.), which is majority owned by China's—and the world's—largest online seller, Alibaba.
The Authority's announcement and the Board's decision regarding interim measures state that after the evaluation of the algorithms and data held on Trendyol's IT systems, there are significant findings showing that Trendyol:
- has been interfering with the algorithms to attain an unfair advantage for its own brands i.e., TrendyolMilla, TrendyolKids, and TrendyolMan and giving the option for "next-day delivery" only for its products;
- has been using data regarding third-party retailers obtained through the platform to set its marketing/design strategy to favour its retail activities;
- has been discriminating between third-party retailers selling on its platform via interferences to the algorithm and lack of transparency concerning sponsored products.
The Board notes that self-favouring behaviour, which is being discussed more frequently with the development of digital markets, is defined as a dominant undertaking—which the Board considers Trendyol to be—placing their products or services in a more favourable positioning and display compared to their competitors on the same platform. With reference to the EU Commission1 and the Board's Google Shopping decisions2—where Google's placement of its comparison shopping services in a favourable positioning and display within its general search results is assessed—the Board states that dominant undertakings in terms of e-commerce platform services gain an unfair competitive advantage by transferring their market power to another related market by favouring themselves.
The Board considers that the documents obtained during the on-site inspection show that Trendyol manipulates data by making changes in algorithms and codes, thus misleading both the sellers and users on its platform, as well as putting its own brands in a favourable position.
Additionally, the Board underlines that Trendyol has benefited from data obtained from sellers and consumers via its marketplace. The concern arises from the fact that such data may allow a dominant undertaking to copycat popular products and services, i.e., sell/offer the same product/service as its competitors without incurring significant commercial risks and entry costs, or produce/develop the same product/service itself. As it is possible for the dominant undertaking to detect and copy the popular and profitable products, the Board assesses that such behaviour may damage the third-party retailers' activities, as they are dependent on the dominant undertaking's platform and the dominant undertaking may offer lower prices to similar products/services with its ability to benefit from economies of scale and scope. Therefore, the Board considered that self-favouring behaviour based on data, i.e., forced free-riding, weakens innovation, prevents the entry of new products and services, and in this sense harms consumer welfare.
Additionally, the Board finds that Trendyol creates exceptions for certain brands to be put at the top of sorting lists via nudges to the algorithm. Based on the assessment that there is a lack of transparency about the rules for ads regarding sponsored products, the Board concluded that Trendyol prioritises certain vendors and therefore discriminates between the sellers on its platform.
Based on the above assessments, the Board concluded that there is a risk that Trendyol may cause substantial and irreparable damage to competition. Considering that Trendyol has gained significant market shares in fashion and all other categories in the market for multi-category e-marketplace platforms, and that the market share trends show that Trendyol is not facing any competitive pressure, the Board decided to take interim measures to prevent any such effect.
Pursuant to the Board's decision dated 30 September 2021, Trendyol is required to:
- refrain from any practice or application, including coding and algorithms, that may create an advantage for its own brands against its competitors;
- cease sharing and using any kind of data obtained and created via its marketplace activities for the benefit of its other products and services;
- cease any interference, including via algorithms and coding, that may discriminate between retailers active on the marketplace and refrain from any such behavior throughout the investigation;
- take all technical, executive and organisational measures necessary to ensure that the above may be auditable;
- store the parametric and structural changes made on each algorithm model used for product search, seller listing, seller points calculation, etc. in a way that is versioned and that may be justified beyond any doubt for at least 8 years;
- store the source codes of all software developed for Trendyol in a way that is versioned and that may be justified beyond any doubt for at least 8 years;
- store the user access and authorisation records to all software used to execute the business activities of Trendyol in a way that may be justified beyond any doubt for at least 8 years.
Trendyol is given 30 days to implement the above measures—with the exception of measure (iv), for which the company must submit a course of action within 30 days. As is the case for all administrative decisions, the Board's decision is subject to appeal at the Ankara administrative courts for a period of 60 days.
The Authority and the Board's sensitivity toward e-commerce activities is understandable, bearing in mind that as also stated in the preliminary report on the e-marketplace platforms sector inquiry, it is estimated for Turkey to have an annual average growth rate of 20.2% regarding retail e-commerce. The report also states that multi-category e-marketplaces offering one-stop shopping for consumer products are growing fast. Trendyol is the most preferred among consumers in Turkey and is also generally seen as a crucial commercial partner by vendors. You can read our article on the relevant preliminary report here.
However, it should be underlined that both the decision and the Authority's report focus on multi-category e-marketplaces, and it could be argued that because of the breadth of the activities of the relevant undertakings, due attention was not paid to other e-commerce platforms.
The Board took a similar approach with the report concerning the relevant market based on the reference to "the market for multi-category e-marketplaces", the references to the report itself and the assessments based on the fashion category of multi-category e-marketplaces. The Board especially states that consumer preferences heavily favour Trendyol, as the report finds Trendyol to be the most frequently used platform. It is also defined as an indispensable commercial partner by a majority of sellers among the multi-category e-marketplaces.
However, this approach may tend to overlook quite a significant number of undertakings active in any area where Trendyol is also active. To take the market for fashion and beauty products is taken as an example: the main reason for the interim measures is that Trendyol is actively competing against third-party retailers regarding fashion products on its own platform. The online sales of fashion products in Turkey are made by most of the major retailers via their own websites and platforms. While there are arguments that Trendyol is abusing its dominance in this market, it should also be remembered that such an outlook disregards major companies selling their products online as well as at brick-and-mortar stores such as Inditex Group, H&M, Mango and LC Waikiki.
Therefore, an analysis concerning how brands such as TrendyolMilla and TrendyolKids compare to other major competitors active in online sales for fashion products may be especially critical to demonstrate the reality of the relevant markets. It will be intriguing to follow the Board's assessments regarding this subject while also considering the concerns about intra-platform competition regarding e-marketplace platforms.
In this context, the next steps taken with regards to these interim measures and the investigation into Trendyol as a whole is likely to have a major effect in shaping the e-commerce landscape in Turkey for years to come.
1. EU Commission's Google Search (Shopping) decision, CASE AT.39740
2. The Board's Google Shopping decision dated 13.02.2020 and numbered 20-10/119-69.
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