This article examines the abuse of dominant position, which constitutes a significant portion of investigations in competition law alongside cartels and price-fixing.
- Introduction
The purpose of competition law, as set forth in the Law No. 4054 on the Protection of Competition ("Law"), is to prevent agreements, practices and abuses of dominance by undertakings in a dominant position in the goods and services markets. Before analyzing the abuse of dominant position, which constitutes the majority of this article, the concept of dominant position should be emphasized.
- The Concept of Dominant Position
Dominant position is regulated under Article 6 of the Law and can be defined as the position of an undertaking that is stronger and has more control than its competitors in the market; in other words, the ability to direct the market with its actions. In the Law, it is defined as "the power of one or more undertakings in a particular market to determine economic parameters such as price, supply, production and distribution quantity by acting independently from its competitors and customers".1
There may be different reasons for an undertaking to be in a dominant position: For example, a high market share, barriers to entry or technological/knowledge superiority. The undertaking in a dominant position may have a monopoly position or a significant competitive advantage in the market. In determining whether an undertaking is in a dominant position, the Turkish Competition Authority ("Authority") analyzes the market in which the undertaking operates and takes into account many factors such as market share, market size, nature of products and services, and barriers to entry. The dominant position is evaluated separately for each market. An undertaking may be dominant in one market, but not in another.
Undertakings in a dominant position should not only be considered as undertakings with high market shares. Undertakings in a dominant position are undertakings that can make decisions independently of their competitors and are not affected by price increases or decreases of their competitors. Therefore, an undertaking may be in a dominant position with a 30% market share in one product market, while it may not be in a dominant position with the same market share in another market. It should be evaluated according to the concrete situation.
Although there is no specific criterion, generally, undertakings with a market share above 30% are likely to be in a dominant position.
- Abuse of Dominant Position
We can see that an undertaking in a dominant position in the whole or the majority of the market engages in anticompetitive acts by using its power and control. It should be recalled that a dominant position of an undertaking is not a violation in itself. However, engaging in anticompetitive behavior by using its dominant position is a violation. Undertakings in a dominant position are required to act more carefully than other undertakings. These undertakings also cannot benefit from certain opportunities granted to non-dominant undertakings. Therefore, a perfectly competitive behavior of any undertaking may become unlawful when done by an undertaking in a dominant position.
When evaluating allegations of abuse of dominant position, the Authority considers the following issues specific to the conduct:
- Refusal to Execute a Contract
In competition law practice, it is generally accepted that all undertakings, whether dominant or not, have the right to freely choose the companies with which they do business. However, in certain exceptional circumstances, refusal to execute a contract by dominant undertakings may be considered as anticompetitive behavior and the dominant undertaking may be obliged to execute a contract under competition law. Direct refusal, unreasonable postponements, reduction of product supply, and imposition of unreasonable conditions are examples of refusal to execute a contract.
The Authority seeks the cumulative existence of the following 3 conditions for the refusal to execute a contract to constitute an infringement:
- The refusal must be related to a product or service that is indispensable to compete in the market.
- The refusal must be likely to eliminate effective competition in the market.
- The refusal must be likely to cause consumer harm.
In a decision of the Authority dated 2016, the relevant undertaking is a dominant undertaking that provides services for congress tourism, in particular, cultural-congress-fair centers, operation and/or rental of meeting venues, congress/fair, entertainment, weddings, food and beverage, social, cultural, sportive areas. Every year, fairs are organized on the property owned by the undertaking and many customers participate in these fairs. In the case subject to the complaint, the complainant company has been participating in the same fair for 46 years and could not take part in another fair and exhibit its products in the first year when it could not execute a contract with the undertaking. In this respect, it was stated that the relevant undertaking was in a dominant position by evaluating that supply substitution was limited in terms of organizer companies in the exhibition sector, which is a service sector that requires specialization. The refusal to execute contract against the company, which did not accept the excessive price offered by the undertaking and could not find another exhibition venue afterwards, resulted in a refusal to execute a contract and the relevant undertaking was imposed an administrative fine of TRY-268,042.77, which is 1.5% of its annual gross revenues at the end of 2015.2
- Predatory Pricing
In predatory pricing, the undertaking maintains a pricing policy at an unusually low level to eliminate its rivals.3 Predatory pricing is an anti-competitive pricing strategy in which a dominant undertaking, in order to maintain or increase its market power, sets a selling price below its cost in the short term in order to drive one or more of its existing or potential competitors out of the market, discipline them, or otherwise prevent competitive behavior of the competitor.
- Overpricing
Excessive pricing is pricing that is significantly and continuously above the competitive level as a result of pricing above the market price by using market power. The dominant undertaking uses its dominant position in the sector to sell by raising prices above reasonable levels.
- Price/Margin Squeeze
In order to be able to talk about price squeeze, the relevant undertaking must operate in a vertically related market and have a dominant position in the upstream market. Price squeeze is when the undertaking determines the margin between the price of the upper market product and the price of the lower market product in such a way that even an equally effective competitor in the lower market is unable to permanently engage in commercial activity in a profitable manner. In other words, an undertaking in a dominant position in the upper market may increase the price of the product in the upper market or decrease the price of the product in the lower market. Thus, the dominant undertaking may transfer its market power over its product in the upper market to the lower market, thereby restricting competition in the lower market.
- Discount Systems
Discount systems refer to price discounts offered to customers in exchange for engaging in a certain purchasing behavior. The dominant undertaking may offer a discount in return for customers doing business with it. In some cases, it may also state that the discount will not be valid in the absence of a certain number of sales.
- Exclusivity
Exclusivity is defined as a dominant undertaking's act of foreclosing the market by preventing competitors from selling to customers through exclusive purchasing obligations or discounts. While a non-dominant undertaking may apply exclusivity under certain conditions within the scope of the Communiqué No. 2002/2 on Vertical Agreements Block Exemption, such practices by a dominant undertaking are likely to be considered an abuse and may result in penalties.
- Discrimination
A dominant undertaking is obligated to offer equal terms to buyers in equivalent situations. These terms include discounts, payments, and prices. If the undertaking engages in discriminatory practices toward its customers, favoring certain clients over others, it may be considered an abuse of its dominant position.
- Tying
Tying is defined as conditioning the sale of one product on the buyer's simultaneous purchase of another product. An example of this would be requiring the purchase of product Y as a condition for buying product X.
- Determining the Conditions of Sale
This includes the determination of all conditions of sale by the re-buyer.
While some activities are permitted under the exemption for a non-dominant undertaking, this is much more limited for a dominant undertaking. For example, undertaking X operates as both a supplier and a re-seller in the sector. When re-sellers who are its customers buy this product from X, it is essential that it can sell it to the consumer at the price it wants. However, in practice, it is observed that the dominant undertaking X interferes with the selling price of the product of the customer, and this is considered as abuse of dominant position.
It is also necessary to avoid indirectly achieving the same result through all actions that are expressly prohibited in relation to these violations.
- Conclusion
In conclusion, abuse of a dominant position is a frequently encountered issue in practice. Being in a dominant position is not a violation in itself; however, relevant regulations, the Board's decisions, and guidelines must be carefully examined when taking any actions.
Footnotes
1 Law on The Protection of Competition, Law No. 4054
2 Decision of the Turkish Competition Authority numbered 16-35/604-269, dated 27.10.2016
3 Legaling, https://legaling.net/search/WORD/1/predatory%20pricing/ (Accessed: 30.12.2024)
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.
