Turkey: The Turkish Competition Board Published Its Reasoned Decision on the Investigation Conducted Against Aygaz Anonim Şirketi

The Turkish Competition Board ("Board") published its reasoned decision^[1] on the investigation initiated against Aygaz Anonim Şirketi ("Aygaz"). Aygaz is active in the production, supply, distribution and delivery of liquefied petroleum gas ("LPG"), as well as the production and sales of devices and products that use LPG. Following a complaint that Aygaz had violated Turkish competition law by determining the resale prices charged by its dealers, the Board decided not to initiate a full-fledged investigation and chose to send an opinion letter to Aygaz pursuant to Article 9(3) of the Law No. 4054 on the Protection of Competition ("Law No. 4054")^[2]. The reasoned decision stated that there were some findings which might indicate that Aygaz and its wholly-owned subsidiary, Mogaz Anonim Şirketi ("Mogaz"), had engaged in resale price maintenance ("RPM"). Although the Board found the conduct in question to fall within the scope of Article 4 of the Law No. 4054, pursuant to the outcome of the on-site inspections and interviews, the Board determined that the object and effect of the relevant practices in the market had had limited presence and effect.

The Ankara 16th Administrative Court ("Administrative Court") annulled the Board'sdecision with its decision of 14 May 2015 (2013/1478 E 2015/655 K.), on the grounds that the Board should have opened a full- fledged investigation against Aygaz in order to determine whether there had been a violation of the Law No. 4054, and should have reached a determination beyond any doubt by expanding the scope of its research and examination, and by evaluating the gathered information, documents, and evidence. Following the Administrative Court's decision, the Board initiated a full- fledged investigation to determine whether Aygaz had violated Turkish competition law by determining the resale prices of its dealers.

Subsequently, the Economic Analysis and Research Department ("Department") prepared an economic analysis report in relation to the sales prices of Aygaz dealers. The Department investigated whether Aygaz had dictated its dealers' prices and set diem at the same level, and whether Aygaz had determined the resale prices of its dealers separately. The Department also carried out an analysis known as the "difference in differences" analysis, in order to determine how much the dealers' prices had been increased. As a result of its various analyses, the Department concluded that: (i) there was no indication of a vertical RPM strategy being used by Aygaz, and (ii) the results of the Department's analysis should be evaluated together with all the information and documents relating to the case, and a conclusion should be reached only after carrying out this thorough evaluation.

In addition to the Department's report, the Board also evaluated the market structures of the LPG and automobile gas markets, along with the Turkish Energy Market Regulatory Authority's sectorial industry reports, as well as data obtained from the Turkish Statistical Institute.

In terms of the relevant geographic and product market definitions, the Board did not find it necessary to define the relevant markets, since the result of the investigation would not be affected by the possible relevant product and geographic market definitions.

The allegations against Aygaz with respect to the resale price of its dealers focused mainly on whether: (i) the resale price difference between Aygaz and Mogaz-branded stations were determined by Aygaz, and (ii) the resale prices of Aygaz-branded stations were determined by Aygaz. These allegations and the results of the investigation are discussed in detail below.

(i) The allegation that Aygaz determined the resale price difference between Aygaz- and Mogaz-branded stations:

In terms of determining the resale price difference between Aygaz and Mogaz-branded stations, the Board uncovered only one relevant document during its preliminary investigation, and stated that this particular document suggested that Aygaz could have interfered with its dealer's resale price in that case. However, no other document, information, or evidence that suggested that the resale price difference between Aygaz and Mogaz-branded stations was determined by Aygaz, or that Aygaz interfered with its dealers' resale prices, was discovered. Evaluating Aygaz's defense that its relationship with certain dealers was an agency relationship, the Board concluded that, although there were certain time periods during which the dealers had acted as agents, the dealer referred to in the relevant document (i.e., the one found during the preliminary investigation) was indeed an independent undertaking during the time period in which the document was obtained. With regards to the time period during which the dealer had acted as an independent undertaking, the Board investigated whether Aygaz had dictated a price difference between an Aygaz dealer and a Mogaz dealer. The Board asserted that there was no other information, document, finding or evidence that could indicate that Aygaz had interfered with the resale prices of its dealers. Moreover, the Board concluded that Aygaz did not implement a direct or indirect RPM practice so as to introduce a price difference. The Board also declared that there was no evidence which indicated that Aygaz had built a mechanism to trace or track the dealers who did not comply with the prices recommended by Aygaz. The Board also added that no evidence had been found to substantiate the allegations that Aygaz had pushed, pressured, or punished dealers who did not comply with its suggested prices. The Board indicated that, in a competitive market in which prices change quickly and frequently, an undertaking who acted with the intention of setting and maintaining a price difference between dealers would be expected to build a strict mechanism to control, pressure, and penalize its dealers. Accordingly, the Board declared that a single document indicating that Aygaz might have determined a price difference in one instance would not be sufficient to conclude that resale price differences between Aygaz- and Mogaz- branded stations had been determined by Aygaz in general. The Board further stated that, even though it was determined that Aygaz had interfered with its dealers' resale prices, a practice which is directed against one specific dealer was (i) isolated, (ii) far from being systematic, and that, since the relevant dealer was active in Ankara, this practice would not have any considerable anti-competitive effect in the market in a broader sense. Furthermore, taking into account the nature and characteristics of the LPG market in Turkey (i.e., a dynamic and emerging market), the Board asserted that it would be difficult for possible interference by Aygaz regarding the resale prices of its dealers to affect the competition in the market as a whole. Consequently, with respect to the allegations concerning whether Aygaz had determined the resale price difference between Aygaz dealers and Mogaz dealers, the Board stated that the information, documents and findings gathered and evaluated during its investigation were not sufficient to conclude that Aygaz had violated Article 4 of the Law No. 4054 through RPM practices.

(ii) The allegation that Aygaz had determined the resale prices of Aygaz dealers:

The Authority discovered several e-mail correspondences which, according to the Authority's interpretation, indicated that Aygaz employees had been exchanging information regarding dealers' resale prices and sharing plans for maintaining dealers' resale prices. Such documents led to the understanding that Aygaz had determined the resale prices of its dealers, and that there could be an agreement under which such prices had been applied in accordance with the relevant correspondence. In response to Aygaz's argument in its defense that two of the dealers concerned were its agents, the Board assessed the relationship between Aygaz and the two dealers in question, and concluded that, during the relevant time period, the two dealers had indeed been agencies of Aygaz. Therefore, the Board concluded that resale price maintenance practices concerning these two particular dealers could not be evaluated or punished under Article 4 of the Law No. 4054. With regards to the resale prices of the rest of its dealers, Aygaz argued in its defense that the dealers were free to determine their own resale prices, and that the correspondence in question related to Aygaz's supports and its updates in invoices when Aygaz discounts its prices, due to the margin-share system. To that end, the Board reviewed Aygaz's margin- share system to assess whether the alleged conducts constituted a violation of competition law. As a result of this review, the Board found that, within the LPG market, refineries and distributors set a maximum resale price according to the relevant regulations, and that the difference between the maximum resale price and the costs are shared between the dealer and the distributor. Such distribution arrangements are determined by an agreement between the distributor and the dealer. The Board came to the conclusion that, in terms of the allegations at hand, there was no information, document, or finding that indicated that Aygaz had determined the resale prices of its dealers, considering that: (i) the dealers could increase their prices up to the maximum limit or decrease their own profit margins in order to provide a discount, (ii) the dealers could contact distributors to ask for support in order to provide a higher discount due to the margin-share system, and (in) there was no penalty or deterrence system applied to the dealers who did not comply with the prices.

In light of the foregoing, the Board decided that Aygaz had not violated Article 4 of the Law No. 4054, and therefore, the Board did not impose an administrative monetary fine on Aygaz.

This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in September 2017. A link to the full Legal Insight Quarterly may be found here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.