WEEK 11-12
- Familiarize with the concept of competition
- Explain the relationship between efficiency and consumer welfare
- Explain the basic notions: undertaking, relevant market
COMPETITION LAW
I)
INTRODUCTION, GENERAL FRAMEWORK
Competition tends to lead to cost efficiency, low prices and innovation. Markets
that are competitive tend to lead to a higher level of consumer welfare.
Competition law is about protecting the process of competition for the benefit of
consumers.1
Commercial competition occurs: (i) on various dimensions (such as price,
quality, variety, innovation) across markets, (ii) with different levels of product
differentiation, entry barriers, and transparency, (iii) at different stages of the
product life cycle, (iv) with different demands for technological innovation, and
(v) operating at different levels of efficiency.2
Competition Law is a set of rules, and judicial decisions maintained by
governments relating either to:
– agreements between firms that restrict competition, (RKHK 4054
m.4)
– abuse of market power on the part of private firms, (RKHK 4054
m.6)
– the concentration (RKHK 4054 m.7)
The purpose of Competition Law is to “protect competition,” which is indeed, the
protection of the entire competitive process, not simply rivalry among firms.
A) COMPETITION CREATES EFFICIENCIES IN THE MARKET
PLACE.
Mike Walker, Competition Law, Anti-Competitive Behavior, and Merger
Analysis: Economic Foundations, http://www.adb.org/
1
Maurice E. Stucke, RECONSIDERING COMPETITION AND THE GOALS OF
COMPETITION LAW
2
1) Issue of efficiency :
Any time a good or service is produced, it should be done by using the smallest
number of resources. Thus, if a man uses one tree to make 4 cricket bats, and
another man makes 5 cricket bats with one tree, then the latter’s productive
efficiency is better than the former’s. It is also important ensuring that the
available resources are used in a satisfactory manner. That is, we want to
produce those things most desired by the community first. In order to achieve
these efficiencies, firms should be aware of the changing circumstances, and they
should be able to adapt to meet those new needs, such as searching for and
adopting new technologies and ways of doing things better.
Pareto & Kaldor-Hicks Efficiency
A Pareto improvement, in economics, is a move toward Pareto efficiency. If one
has resources to allocate among a set of subjects, and resources can be reallocated in a way that improves the situation of one subject without harming the
situation of any other subject, this is a Pareto improvement.
However, in many areas of policy, particularly where it affects a large and
diverse population in complicated ways, no change is likely to be a Pareto
improvement one because there is always likely to be at least one person who
would be adversely affected by the change, which leaves no room for an
improvement under Pareto rules.
The Kaldor-Hicks criteria, and the Kaldor-Hicks combination, were developed to
address this limitation. Kaldor-Hicks efficiency is an outcome that is considered
incrementally more efficient where those who enjoy gains can compensate any
parties who are put in a less desirable position. Losers may be compensated by
winners. Most problematic of all, it is unclear what "settlement price" the
disadvantaged individuals would demand in compensation from the advantaged
individuals, or how this price would be reached.3 Kaldor-Hicks is a technique for
extending the normative implications of economic analysis.
Under both efficiency concepts, the test only takes account of only the
preferences of the specific set of participants are taken into account, without
paying attention to parties that are not defined to be included.
Competition is not an end in itself, but rather is the means by which society can
3http://www.reckon.co.uk/open/Pareto_improvements_and_Kaldor-
Hicks_efficiency_criterion
attain those efficiencies. Although competition is good (and thus ought to be
protected), does not mean that in a free market economy every sector is left to
unbridled competition. Areas such as health services or the provision of basic
utilities may, for example, be subject to governmental intervention or
government controls. Competition, however defined, is not the ultimate end.
Competition is “a policy tool to achieve broader government objectives for the
economy or for a given industry.”
2) Law and Economics
Law and Economics applies economic reasoning to legal questions and in general
views the creation and enforcement of legal rules primarily in terms of how legal
rules and institutions promote efficiency and wealth maximization. 4 The
application of economic principles by scholars and judges progressed quickly
from 1880 through 1960, with mathematical formulas devised to examine the
existence of a duty in negligence cases.
In U.S. v. Carroll Towing Co., 159 F.2d 169, 174 (2nd Circuit 1947), the event that
gave rise to the case were as follows: Several barges owned by the Connors
Marine Co. were tied together off a busy Manhattan Pier. The defendant's tug
boat, "Carroll," removed one of the lines connecting the barges to the pier. When
the remaining lines broke, the barges were washed down-river and sank. No one
was aboard the barges when they broke away, and the evidence indicated that
had Connors' barge operator (the "bargee") been on board, the barges could
have been saved. The question for the Court was whether Connors was liable for
failing to have its "bargee" remain aboard. Judge Learned Hand wrote that
Connor's liability for the lost barge depended on:
• (1) The probability that she will break away; P
• (2) the gravity of the resulting injury if she does; L
• (3) the burden of adequate precautions. B
Probability is called P, the injury is L, and the burden B. Liability depends upon
whether B is less than L multiplied by P (i.e., whether B is less than PL)
Whether the alleged tortfeasor had a duty, was reduced to a formula where,
– If--------- B < P x L
then a duty of care exists.
Spencer Weber Waller, THE LAW AND ECONOMICS VIRUS, CARDOZO LAW REVIEW,
Vol. 31:2
4
– X-axis : the amount of care taken by the defendant
– Y-axis : the cost of care
– B indicates that the marginal cost of prevention increases as more care is
taken. The downward slope of line PL indicates that the marginal expected
cost of an accident declines as more care is taken. The point at which the
combined cost of precautions and accident are minimized is c*, the optimal
level of care.
Certain fields of law such as competition, tort and insurance have tendency to
adopt a Law-and-Economics approach. On the other hand, a typical example of a
field where law and economics has gained little traction is child and family law.
Competition as a discipline has relied on economics heavily throughout most of
its existence, and has tended to reflect the dominant economic discourse of any
particular era. The core element of competition law has always been efficiency
and social welfare. Thus every individual case, as a matter of economics, is
heavily subject to empirical challenges. The law-and-economics approach
derived from the deep belief of neo-classical economics that political
interference in market activities interfered with freedom and reduced societal
welfare.
3) Critique of Law and Economics
Law and Economics favors efficiency and focuses on quantifiable values to the
exclusion of other, less measurable values that could have found expression
through the political process. Conventional Law and Economics assumes that
people exhibit rational choice: that people are self-interested utility maximizers
with stable preferences, and have the capacity to optimally accumulate and
assess information.5 Accordingly, if the cost of making a change outweighs the
benefits of that change, the change is not net-positive or an "improvement.” In
practice, it is difficult to measure (and even harder to predict) actual costs
associated with any action. If a legal rule left everyone better off, the rule should
be implemented; if not, it should be abandoned. Of course, this begs the question
of how "better off" is to be measured.6
Law & Economics works well where the solution to a problem is within the
borders of economic analysis. However, in the event that the conflict comes into
contact with other legal values (especially of “public order”), law and economics
becomes irrelevant. E.g. : Baby-selling
The goal of the law cannot solely be "efficiency" without any social aim. As
economizm7 pervades every layer of social life, rules are more likely to be
justified on the grounds of economic efficiency. The habit of viewing "everything
in relation to the economy and in terms of material productivity, making
material and economic interests the center of things by deducing everything
from them and subordinating everything to them as mere means to an end. It
would not be productive if economists largely ignored the complexity of the
world in which economic choices and policies operate. Economism invariably
led economists into the trap, the tendency to regard market mechanisms as
value-neutral methods applicable to any economic or social order. Economists
should seek to avoid segmenting economic inquiry from the complex character
of human nature. 8
While waste must be combated and resources marshaled, there is no reason to
believe that because efficiency is a desirable effect of good lawmaking, that it
should be the paramount goal of lawmaking generally. By replacing the legislator
with the calculator, economically "efficient" laws may better represent the data,
but poorly represent the people. The ordinary man is not such a homo
economicus .... The motives which drive people toward economic success are as
By contrast, behavioral economic analysis of law scholars argue that people do not
behave consistently with rational choice theory, and, moreover, that the deviations from
rational behavior are systematic, not random. Most people are likely to exhibit certain
biases, they assert, and thus these deviations from rational choice do not cancel each
other out.
6 http://cyber.law.harvard.edu/bridge/LawEconomics/origins.htm
5
Economism is a term used to describe economic reductionism, that is the reduction of
all social facts to economical dimensions.
8 SAMUEL GREGG, SMITH VERSUS KEYNES: ECONOMICS AND POLITICAL ECONOMY
IN THE POST-CRISIS ERA, 33 Harv. J. L. & Pub. Pol'y 443, 2010
7
varied as the human soul itself.
Competition ultimately must contribute to (and not impede) what is important
for citizens’ well-being. If our conception of competition deteriorates our
physical and mental health, increases our isolation and distrust, and lessens our
freedom and self- determination, then such competition is not worth having. In
the EU, for example, agriculture is controlled by the common agricultural policy,
which employs subsidies, grants, and intervention purchases to manipulate the
market
as
an
absolute
antithesis
to
a
competitive
system.
In the European Union (EU), single market integration is a major goal of
competition law, often overriding the goal of market efficiency.
Nevertheless in most cases, competition possibly improves economic
performance, opens business opportunities for citizens, and reduces the cost of
goods and services.9,10
B) EU AND US COMPETITION POLICY
In line with conventional law and economics of Chicago School, U.S. Antitrust law
has focused on consumer welfare. “The Chicago approach does two things: first,
it tells us what antitrust is about (consumer welfare being used as a synonym for
efficiency), second, it gives a method of analysis (micro-economics, wherein high
prices or low output are identified with inefficiency).”11 “The Chicago approach
takes efficiency to be a good measure of (or proxy for) well-being, since it results
in more and cheaper goods, and new and better goods, which improve the
standard of living. On the basis that competition improves efficiency, and
efficiency enhances well-being, the Chicago approach justifies competition law to
control certain conduct causing inefficiency.”12
“The certainty created by the Chicago School can be contrasted with
acknowledged uncertainties existing in European Union competition law,
primarily resulting from uncertainty as to the purpose ascribed to Union
competition law. The broad question to be answered is whether Union
competition law exists to promote efficiency, to achieve the Union objective of
market integration, to promote certain market freedoms desirable in a
Spencer Weber Waller, THE LAW AND ECONOMICS VIRUS, CARDOZO LAW REVIEW,
Vol. 31:2
10 Christine Jolls, Cass R. Sunstein, Richard Thaler, A Behavioral Approach to Law and
Economics, Stanford Law Review, Vol. 50, No. 5 (May, 1998), pp. 1471-1550
11 Okeoghene Odudu, The Wider Concerns of Competition Law, Oxford Journal of Legal
Studies, Vol. 30, No. 3 (2010), pp. 599–613, at 601
12 ibid, at 603
9
democracy, or to achieve any Union objective.”13 This has resulted with cases
where similar economic consequences receive dissimilar treatment.14
The difference between EU and US law is mostly attributed to the historical
circumstances in which the European Union’s predecessor, the European
Economic Community (EEC), found itself—in which the “single market” was
threatened by domestic distribution systems. Therefore EU competition law was
accepted to be more vulnerable to political influence, and (despite the clear
reference to efficiency in Article 101(3), the Merger Regulation, and Commission
Guidance) appeared to lack dedication to consumer welfare that characterizes
U.S. antitrust law.
Those who support inclusion of public policy considerations as a part of the
competition policy, ascribe to EU competition law specifically, the task of
ensuring ‘the well-being of its peoples’. Accordingly, “efficiency does not account
for all of one’s well-being and therefore, efficiency may conflict with policies
promoting non-efficiency objectives. In order for competition law adjudication to
be perfectible from the perspective of the citizen’s well-being, it is necessary to
include goals beyond efficiency, so as to enable the decision-maker ‘to ensure
that the optimal balance between conflicting goals is achieved in the specific case
in question”15
However, many observers have discerned growing trans-Atlantic convergence in
recent years in the treatment of concerted action, as Section 1 of the U.S.
Sherman Act has been increasingly subject to a rule-of-reason analysis, and
Article 101 of the EU Treaty has been subject to a more careful effects-based
analysis. Section 1 of the Sherman Act and Article 101 of the EU Treaty both deal
with “agreements;” and section 2 of the Sherman Act and Article 102 of the EU
Treaty both deal with single-firm behavior (abuse of dominant position). Article
101 has brought restrictions on distribution and other vertical agreements more
thoroughly than has Section 1 of the Sherman Act, even for firms of modest
market share.
The convergence may be observed in the debate pertaining the case
GlaxoSmithKline16 which gave rise to considerations on non-efficiency objectives
of competition law.17
13
Okeoghene Odudu, The Wider Concerns of Competition Law, Oxford Journal of Legal
Studies, Vol. 30, No. 3 (2010), pp. 599–613, at 600
14 ibid.
15
16
ibid, at 604
Case T-168/01 GlaxoSmithKline Services Unlimited, formerly Glaxo Wellcome plc v
Commission [2006] ECR II- 2969 [118]
Single firm conduct, largely matters of Section 2 and Article 102, presents a
greater barrier to convergence due to the inertial force of early ideological
differences on each side of the Atlantic. U.S. Law refers to a firm with a market
share much larger than that of others, and very large relative to the entire
market. Article 102, by contrast, creates special rules for “dominant” firms. EU
competition law is primarily concerned with the rivals and commercial
customers of relatively large firms.18
To sum up, it may be said that the economics of competition policy is now
similarly understood in the United States and the European Union. A similar
analytic approach normally results with the consideration of similar remedies
suitably adapted to domestic circumstances.19
C) COMPETITION LAW IN TURKEY
In 1994, the Act on the Protection of Competition (“Competition Act”)20 was
enacted, and thus a competition regime, which is modeled on EU law, was
established in Turkey. Implementation of a national competition policy
compatible with EU law has been an important element of Turkey’s program to
achieve membership in the European Union.
The Competition Act establishes Turkish Competition Authority (TCA) as an
autonomous enforcement agency, and vests the decision-making authority in a
seven-member Competition Board. The Competition Authority consists of the
Competition Board, Presidency, and Service Departments. Board members serve
for a term of six years. Law enforcement procedures can be triggered by a
complaint or, ex officio, at the Board’s own initiative. The TCA has broad
investigative powers, including authority to obtain a court order permitting the
search of corporate premises.
The Act’s substantive antitrust prohibitions appear in three articles. The first,
Article 4, deals with agreements among two or more firms (and parallels Article
101 of the TFEU law). The second, Article 6, deals with abuse of dominance by
17
Okeoghene Odudu, at 602
Daniel J. Gifford ; Robert T. Kudrle, Antitrust Approaches To Dynamically
Competitive Industries In The United States And The European Union, Jnl of
Competition Law & Economics (2011) 7(3): 695-731
19 Daniel J. Gifford ; Robert T. Kudrle
20 German ‘Gesetz gegen Wettbewerbsbeschränkungen’ (GWB – Act against Restraints
on Competition)
18
one or more firms (parallel to TFEU Article 102). The third, Article 7, focuses on
mergers and acquisitions (following the EU merger regulation).21
D) UNFAIR COMPETITION & COMPETITION (ANTITRUST) LAW
The law of unfair competition is primarily comprised of torts that cause an
economic injury to a business through a deceptive or wrongful business practice.
On the Continent, the law of unfair competition has a much longer and more
deeply rooted tradition than has antitrust law. Under Continental laws, rules
against unfair competition relate to a wide range of trade practices. Deceptive
advertising, passing off, counterfeit of non-protected product concepts and
configurations, trade secret protection, interference with contractual
relationships of all kinds (distribution systems, client or labor relations),
disparagement of competitors, predatory practices (sales below costs,
discrimination, tie-ins, boycotts etc.) are all practices that may come under the
heading of unfair competition.22
Unfair competition is regulated between the articles 54-63 of the Turkish
Commercial Code. Article 54 of TCC is a general clause that prohibits unfair acts
of competition. Article 55 contains list of specific examples of acts typically
regarded to be unfair. The examples of unfair practices listed in Art. 55 are nonexhaustive. Commercial Code contains no definition of the term “unfair” rather,
the code gives examples of practices regarded to be unfair, leaving the
determination of the precise scope and meaning of the term to the courts and
legal writers.23 There may thus be cases of unfair competition, which are not
explicitly listed.
According to Art. 55, competitors should not advertise their products and
services on the market in a way that unreasonably influences the customers’
independent judgment and free choice, in particular by using aggressive
marketing methods. Art. 55 prohibits the deception of consumers about the
value of the offer by using sales promotions. Art. 55 also prohibits the allegation
or circulation of deceptive or untrue facts concerning the goods, the services or
the business of a competitor which are liable to damage the operation of the
business or the credit of the proprietor. Acts of unfair competition law are not
limited to those mentioned here and there are many other acts exemplified as
unfair competition under Art. 55 of TCC.
Some acts defined under the heading of Unfair Competition may also
Competition Law and Policy in Turkey, OECD, 2005
Hanns Ullrich, Anti-Unfair Competition Law and Anti-Trust Law: A Continental
Conundrum? EUI Working Paper LAW No. 2005/01
23 Jan Peter Heidenreich, The New German Act Against Unfair Competition,
http://www.iuscomp.org/gla/literature/heidenreich.htm
21
22
constitute a violation under Competition Law. Discrimination in business
relations and predatory practices present typical cases of overlap between the
rules against unfair competition and the rules against restrictive business
practices. For example, predatory pricing is regarded as abuse of dominant
position under competition law, but it also constitutes unfair competition. This
debate turns on issues of qualifying business conduct as either anticompetitive
or unfair, and of determining the relative importance of the safeguard of the
freedom to compete and the proper definition of the standards of how to
compete.24 This overlap has been considered at the EU level in Regulation
1/2003 as : “… Member States may under this Regulation implement on their
territory national legislation that prohibits or imposes sanctions on acts of unfair
trading practice, be they unilateral or contractual. Such legislation pursues a specific
objective, irrespective of the actual or presumed effects of such acts on competition
on the market.” In the EU, control of practices of unfair competition is a matter of
national law.
Unfair competition aims to protect the injured party sustaining damages through
deceptive or wrongful business practice. An action for unfair competition is tried
before the commercial courts, and the plaintiff is rewarded with compensation to
be paid by the party involved in deceptive or wrongful business practice. On the
other hand, Competition Law aims to protect general public interest in
maintaining competition in the markets. An investigation under Competition
Law may be initiated, ex officio, by Competition Authority (CA) without need for
a complaint or filing of third party.
II) AGREEMENTS, CONCERTED PRACTICES & DECISIONS
RESTRICTING COMPETITION
Article 4 prohibits “agreements, concerted practices, and decisions” that prevent,
distort or restrict competition, or that have the potential to do so. The law
includes a non-exclusive list of anticompetitive practices that constitute potential
violations. The Act empowers the Board to issue individual and “block”
exemptions from Article 4, as well as case-specific “negative clearances”
declaring that the given case does not violate the law.
According to Art. 4, Agreements and concerted practices between
“undertakings”, and decisions and practices of associations of undertakings
which have as their object or effect or likely effect the prevention, distortion or
restriction of competition directly or indirectly in a particular market for goods
or services are illegal and prohibited.
Hanns Ullrich, Anti-Unfair Competition Law and Anti-Trust Law: A Continental
Conundrum
24
A) “UNDERTAKING “ IN COMPETITION LAW
Neither Turkish Competition Law nor EU Treaties or Regulations provide a
definition of the term undertaking. However case law of European Court of
Justice (ECJ) and the Commission, offers guidance in defining the borders of the
term undertaking´. According to ECJ Case law, “the definition of an ‘undertaking’
covers any entity engaged in an economic activity, regardless of the legal status of
that entity and the way in which it is financed”.25 For example in the context of
professional sport, a football club is an undertaking since it is engaged in various
types economic activities such as player contracts, ticket selling, broadcasting
rights.
1) State Activities - Functional Approach
It is established by the ECJ case law that rules on competition do not apply to
activity which …is connected with the exercise of the powers of a public authority.26
In determining whether an activity is connected with the exercise of the powers
of a public authority, functional approach better reconciles the principles of
competition law. Same entity may be acting as an undertaking when it carries on
one activity but not when it is carrying on another. Therefore the various
activities of an entity must be considered individually and the treatment of some of
them as powers of a public authority does not mean that it must be concluded that
the other activities are not economic.”.27
It is not a simple distinction to make whether an entity is engaged in a economic
activity, since privatization has changed companies owned by the state with
monopoly rights into private actors, and the fact that a wide number of activities
normally run by state is now done by private actors. An example of this in
England is the private providers of prisons.
SAT v Eurocontrol European Court of Justice found that air-traffic control was an
activity of state interest and not of “an economic nature justifying control by
competition law” and therefore not an “undertaking”. In the Diego-case the
European Court of Justice found that providing an anti-pollution surveillance
activity was an activity of state interest, which therefore did not work on normal
premises on the market and therefore not an “undertaking”. The two mentioned
ECJ, C-205/03 P – FENIN, 11 July 2006.5.
ECJ, C-309/99 –Wouters, 19.Feb 2002
27 CFI, T-155/04 –SELEX, 12. December 2006
25
26
cases draw up the lines, but are both characterised by being private companies
doing state-like activities.
The more difficult cases, in relation to being an “undertaking” or not, are
characterised by entities dealing with social or health activities. The European
courts have used the notion of solidarity as help to decide whether an entity is
doing activity that is related to the state in a way so the entity is not an
“undertaking”. In the case of Pouchet and Pistre v AGF and Cancava the European
Court of Justice found that a sickness and maternity scheme was not an
“undertaking”, since there were an element of redistribution in the scheme. The
case of FFSA v Ministère de l’Agriculture showed that this was not the case, when
an optional insurance scheme for farmers invests in financial products and the
outcome to the members is dependent on the market. In this case the insurance
scheme was found to be an “undertaking” competing with other insurance
companies, because the element of solidarity was not strong enough. In Albany
International v Stichtiing Bedrijfspensioenfonds textielindustrie the European
Court of Justice found that a supplementary pension fund was an “undertaking”,
even though the fund was non- profit-making and based on solidarity, because of
the fund “working on the basis of capitalisation and therefore the benefits
depended on the financial results of investments”. In FENIN v Commission the
European Court of Justice found that the Spanish health services was not an
“undertaking”, because of it operated on the principle of solidarity on a free-forall-scale paid by taxes.
2) Independent Economic Activity – Parent Company and
Affiliates
The term undertaking is very wide and neither the legal status of the entity nor
the way it is financed matters. Every entity engaged in an economic activity is an
undertaking. Companies, funds, individuals and everything in between could be
an undertaking.28 So every independent economic activity may be regarded as
undertaking and any activity consisting in offering goods and services on a given
market is an economic activity.
In terms of competition law, parent company and affiliates constitute a single
undertaking. Competition law recognises that different companies belonging to
the same group form a single economic entity as a whole because an affiliate
undertaking is not a position to determine independently its own conduct on the
market.29 In the case that a parent company holds 100% capital of a subsidiary,
Kristian Bro, The concept of an undertaking
http://www.kristianbro.com/Undertaking.pdf
29 Case T‑ 203/01 Michelin v Commission [2003] ECR II‑ 4071
28
there is a simple presumption that the parent company exercises decisive
influence over the conduct of its subsidiary.30 It is sufficient to show that the
entire capital of a subsidiary is held by the parent company in order to conclude
that the parent company exercises decisive influence. In such case it is possible
to hold the parent company jointly and severally liable for payment of the fine
imposed on the subsidiary, unless the parent company proves that the
subsidiary does not, in essence, comply with the instructions of the parent
company and acts autonomously.
B) RELEVANT MARKET
In case of a possible violation of the competition rules, the initial step shall be
defining of the relevant market. Defining the relevant market means determining
the scope of the competition rules in respect of restrictive practices, as well as
abuses of a dominant position.
When applying Art. 4, defining the relevant market is necessary to determine
whether the agreement or the concerted practice at issue, has as its object or
effect the prevention, restriction or distortion of competition within the relevant
market. In order to examine the effect of an agreement on competition, it is
necessary, first of all, to define the relevant market or markets, from both a
material and a geographic point of view.
This analysis incorporates both the product and the geographical dimensions of
the relevant market to be used to determine whether there are actual
competitors which are capable of constraining the behaviour of the firms in
question and to assess the degree of real competition on the market.31
In European competition law the courts have consistently ruled that the
Commission must define a market before a conclusion on the market position of
the firm or firms under investigation can be reached. EU Commission has
published a Notice on Market Definition pointing out the following aspects as
important32
Case C-97/08 P Akzo Nobel N.V. (“Akzo”) 2009
http://europa.eu/legislation_summaries/competition/firms/l26073_en.html
32 See, COMMISSION NOTICE on the definition of relevant market for the purposes of
Community competition law (97/C 372/03).
http://europa.eu/legislation_summaries/competition/firms/l26073_en.htm , Also see
Case C-234/89 Delimitis [1991] ECR I-935
30
31
1) Relevant
Market 34
Product
Market
33
and
Relevant
Geographic
A relevant product market comprises all those products and/or services which
are regarded as interchangeable or substitutable by the consumer due to the
products' characteristics, prices or the intended use. 35 Products or services
which are only to a small, or relative degree interchangeable with each other do
not form part of the same market.
A relevant geographic market comprises the area in which the undertakings
concerned are involved in the supply of products or services and in which the
conditions of competition are sufficiently homogeneous and which can be
distinguished from neighbouring areas because the conditions of competition
are appreciably different.36 The definition of the geographical market does not
require the objective conditions of competition between traders to be perfectly
homogenous. It is sufficient if they are “similar” or “sufficiently homogeneous”.37
It should be noted that transportation costs is a significant factor in limiting the
relevant geographic market.
In the Michelin I38 case the Commission stressed that since tyre manufacturers
had chosen to sell their products on national markets, the competition that
Michelin faced was on the Netherlands market. The Commission addressed its
decision to Michelin’s subsidiary whose activities were concentrated in the
Netherlands, and not to the Michelin group as a whole. The relevant geographic
market was again considered to be a national one, France, in the case.39
İlgili Ürün Pazarı, herhangi bir üründen hareketle tanımlanır; ancak pazar genellikle
başlangıç noktası olan bu üründen daha geniş bir ürün yelpazesini kapsayabilir. İlgili
ürün pazarı; ürünün özellikleri, fiyatları ve kullanım amaçları açısından tüketici
tarafından değiştirilebilir ya da ikame edilebilir sayılan bütün ürünleri ve/veya
hizmetlerini kapsar.
34 İlgili Coğrafi Pazar, teşebbüslerin ürün ya da hizmetlerin arzı ile uğraştıkları, kendi
içinde rekabet şartları yeterince homojen olan ve komşu bölgelerdeki rekabet şartları
belirgin bir şekilde farklı olduğu için bu bölgelerden ayırt edilebilen alanı kapsar.
33
35
Case T-168/01 GlaxoSmithKline Services Unlimited v Commission [2006]
Commission Notice on the definition of relevant market, para. 8
Case T-229/94, Deutsche Bahn AG v. Commission, [1997] ECR II-1689
38 Case 322/81, Nederlandsche Banden-Industrie Michelin v. Commission [1983] ECR
3461
39 Ebba Hedlund, Definition of the geographic market for the purposes of EC
competition law, 2007
36
37
2) Market Definition SSNIP-test (Small but Significant and
Non-transitory Increase in Price)- Hypothetical Monopoly
Test
In general, any market defined under the SSNIP test will have two dimensions.
There will be a product market dimension and a geographic market dimension.
Undertakings subject to a competitive system must respect two major
constraints: demand substitution and supply substitution. A market is
competitive if customers can choose between a range of products with similar
characteristics and if other suppliers do not face obstacles to supplying products
or services on a given market. In the first case, the question is whether
customers for the product in question can switch readily to a similar product in
response to a small but permanent price increase (between 5% and 10%). In the
second case, the question is whether other suppliers can readily switch
production to the relevant products and sell them on the relevant market.
SSNIP-test operates as follows :
- Define a narrow group of products and a geographic area, e.g., the wholesale
market for fresh bananas in Finland, called a “candidate market”, and suppose
that all of the products on the candidate market are sold by a hypothetical
monopolist.
- Suppose the hypothetical monopolist increases the prices of these goods
permanently by 5-10 %, while all other prices are assumed to remain constant. The SSNIP-test then asks, what happens to the profits of the hypothetical
monopolist? If the hypothetical price increase is not profitable, this means that
the price increase leads the customers to substitute away from these goods.
Unprofitability may also be due to supply substitution, i.e., producers outside of
the candidate market enter after the price increase and take away enough
market share from the hypothetical monopolist. The unprofitability indicates
that the candidate market is then too narrow to be a relevant market, as some
goods (or suppliers) outside the candidate market are good-enough substitutes
and provide an immediate competitive pressure on the candidate market. Then
one must enlarge the candidate market by including some goods, potential
suppliers or geographic area that were first thought to be outside of it, and
repeat the hypothetical price test. In the banana example, one could include, e.g.,
other fresh fruits on the candidate market. The test is repeated until one finds
the smallest set of goods and a geographic area such that the 5-10 % price
increase is profitable.
The Cellophane Fallacy
If an undertaking has already raised its prices up to the point at which the
constraints imposed on them by other products do not allow further price
raising, SSNIP test may result with a too broad relevant market definition and
thus become misguiding. This problem is called as the Cellophane fallacy with
reference to US Du Pont case. Du Pont argued that cellophane was not a separate
relevant market since empirical evidence showed that it competed directly and
closely with flexible packaging materials such as aluminum foil, wax paper and
polyethylene. However Du Pont was the sole supplier of cellophane and is likely
to have already raised its prices to the point at which the competitive constraints
imposed by other products. The mere fact that at the prevailing price level Du
Pont was unable to raise the current price did not necessarily lead to the result
that Du Pont had no market power. It may be the case that Du Pont had already
raised price above the effectively competitive price level due to its market
power. 40
In such a case, emphasis should be given to product characteristics, price and the
intended use when deciding whether the service or product is substitutable.
3) Biases in the Market Definition 41
In defining the relevant market, too much focus on product characteristics may
lead to misleading conclusions. In Orkla/Volvo, the Commission argued that
there is a separate market for beer, since beer is 40% more expensive per liter as
carbonated soft drinks and 75 % cheaper than wine. Again, the relevant exercise
here would have been whether a substantial number of consumers will switch to
other products in cases of a five to ten percent price increase. If enough
consumers switch so that the price increase becomes unprofitable, products for
which there are significant price differences (such as beer and wine) belong to
the same relevant product market.
In Renault/Volvo and Volvo/Scania. The Commission identified three markets
according to the truck’s gross vehicle weight: the light- duty (below 5 tons), the
medium-duty (5-16 tons), and the heavy-duty market (above 16 tons). There
may exist significant price differences between trucks of different sizes, but this
in itself does not imply that there are separate markets. Consider customers that
have the need to carry loads up to 18 tons. This can be satisfied with one 18 tons
truck or with two 9 tons trucks.
40
United States vs. E.I. du Pont de Nemours & Co. 351 U.S. 377 1956); 76 S. Ct. 994; L. Ed.
1264.
41 Markku Stenborg, Biases in the Market Definition Procedure, 2004
C) AGREEMENTS & CONCERTED PRACTICES RESTRICTING
COMPETITION
36
By entering into an agreement with other undertakings to coordinate their
behavior with the aim of reducing the effectiveness of competition, each
Firm chargesmay
a lowincrease
price (topprice
right above
quadrant),
will earn
zerohave
profits
and Firm B will earn
undertaking
the Firm
levelA that
would
otherwise
profits of 30.
prevailed in a competitive market.
Figure 2.1: The Incentives for Firms to Coordinate
The Incentives for Firms to Coordinate
Firm B
High Price
Cartel
High Price
Low Price
0 , 30
10 , 10
Firm A
Competition
Low Price
30 , 0
4, 4
6. potential
Figure 2.1
showsofthat
if bothup
firms
set highisprices,
they earnto10the
each,
whilst
The
benefit
setting
a cartel
also related
level
of if they both
set
low
prices,
they
earn
only
4
each.
They
would
therefore
prefer
to
both
set
high
competition in the relevant market. The fiercer is competition, and thereforeprices rather
than low prices. They would prefer the cartel outcome (top left hand quadrant) to the
lower
are prices,
the greater
the likely
fromHowever,
setting upwhilst
a cartel.
competitive
outcome
(bottomisright
hand benefit
quadrant).
there is an incentive for
firms to collude, there is also an incentive for a firm to “cheat“ on the collusive agreement.
reached4 of
anthe
agreement
that both
will charge
a highmust
price,
each firm has an
InHaving
order Article
Law No: 4054
to befirms
applicable,
first, there
be an
incentive
to
cheat
by
charging
a
low
price
as
it
will
then
earn
profits
of
30.
However, if both
agreement between undertakings, a concerted practice or a decision of an
firms cheat, this will lead back to the competitive outcome of both firms pursuing a low price
association of undertakings; second, that agreement, concerted practice or
strategy and earning profits of only 4. This illustrates that while firms may have an incentive to
decision
haveand
as its
object
or effect
the restriction
of competition
to an difficult.
collude, must
achieving
then
sustaining
a collusive
equilibrium
can be extremely
appreciable extent.
7.
In this simple example both firms do better by charging a low price regardless of what
the1)
other
firm does, so the outcome of this game is that each firm charges a low price. However,
Agreement
this game omits an important aspect of the real world: repeated interaction between firms.
When firms interact over time, they may be able to sustain collusion. A firm that is tempted to
The
concept
agreement
brings
within the
scope of acompetition
law, knows
any formal
deviate
fromofthe
coordinated
agreement
by charging
low price today
that the benefits
or
informal
of assurances
or any ifoffer
(communication)
from
pursuingexchange
such a strategy
may be short-lived
the other
firms are ableand
to detect such
behavior and
react by also charging
a lowprove
price (that
often
“punishment“).
acceptance
(commitment),
which may
the reaction
existenceis of
a termed
“common
Whether coordination is likely to be observed and sustained depends on the characteristics of
intention” between the parties. The communication of assent between the
the industry under investigation. There are two issues to consider. First, whether firms are able
parties
theagreement.
agreementSecond,
may take
different
forms, which
willreached
often depend
to reachtoan
even
if an agreement
can be
whetheron
firms are able
to
sustain
coordination
over
time.
This
will
depend
on
the
benefits
to
firms
from
deviating
from
the context of their relationship. Prohibition applies to concerted practices as
the coordinated agreement, the likelihood that such deviations will be detected and the extent
and severity of the “punishment“that the firms are able to impose on the deviating firm.
well as to agreements. The boundary between the two concepts is imprecise. The
key difference is that a concerted practice may exist where there is informal cooperation without any formal agreement or decision.
An agreement within the meaning of competition law exists when the parties,
expressly or implicitly, jointly adopt a plan determining the lines of their mutual
action (or abstention) on the market. Thus, the critical element is the existence of
a concurrence of wills, and neither the form of the agreement, nor the existence
of contractual penalties or enforcement measures are relevant”42
Concurrence of wills
Article 4 applies only to bilateral or multilateral anti-competitive conduct
engaged in by undertakings on their own initiative.43 In principle, a unilateral
conduct of a supplier, manufacturer etc. cannot be regarded as an agreement.
However in Sandoz case, ECJ held that constantly and systematically sending
invoices to customers with the inscription “Export Prohibited” could not be
considered as unilateral conduct if it formed part of a continuous business
relationship and customers continued to place orders without protest on the
same conditions. The repeated use of general conditions of sale printed on the
invoices and other order forms would thus lead to the conclusion that the
resellers have accepted the offer of the supplier, which amounted to an
agreement.44
In order to conclude for the existence of concurrence of wills, it is important to
ascertain a joint intention of the parties to conduct themselves on the market in a
specific way. Especially with regard to vertical distribution agreements, it is
essential to explore whether distributor benefits from the alleged anti–
competitive conduct or simply follows the instructions of its
supplier/manufacturer without any concrete advantage. For example, a ban on
parallel exports should be viewed from this perspective. In most cases a
distributor/wholesaler would try to increase sales by way parallel exports, if
possible. In the event that a distributor has no benefit in complying with
contractual clause which prohibits parallel exports, it should be deemed that
such conduct does not rely on mutual consent but it is rather an imposition from
the manufacturer/supplier. The analysis of economics of the agreement is
equally important as the observation of the conduct of the parties.
42
2006/895 Souris/TOPPS, O.J. 2006, L 353/5,
43
Case T-168/01 GlaxoSmithKline Services Unlimited v Commission [2006]
44
C-277/87, Sandoz prodoti farmaceutici SpA v. Commission, [1990] ECR I-45
Horizantal v. Vertical
Understanding the industrial process;
45
Vertical Agreements: Vertical agreements are agreements for the sale and
purchase of goods or services, which are entered into between companies
operating at different levels of the production or distribution chain. Distribution
agreements between manufacturers and wholesalers or retailers are typical
examples of vertical agreements.
46
45
46
http://mises.org/pdf/Salerno_syllabus06/Structure_of_Production.pdf
http://mises.org/pdf/Salerno_syllabus06/Structure_of_Production.pdf
rises above the cartel equilibrium and so prices fall. A cartel will not be sustainable where
barriers to entry or barriers to expansion by non-cartel members are low. For instance,
“maverick“firms can undermine cartels. Maverick firms are firms known to pursue aggressive
commercial strategies, e.g., always pursuing a low price policy. Even in concentrated markets,
the ability of firms to sustain a collusive outcome can be undermined by maverick firms. 5
Where fringe firms have low barriers to expansion, the cartel members may have to offer these
firms
considerable
inducements
to join the
cartel, such
as a enterprises
share of theoperating
cartel profits that is
Horizontal
Agreements:
Agreements
concluded
between
disproportionately large compared to their size.
on the same level of relevant market as competitors. Horizontal agreements and
47,
practices
pertain to
2. may Vertical
Restraints
- Marketare
allocation
17.
Vertical agreements
agreements between firms at different levels in the production
- Customer
allocationbetween manufacturers and retailers, manufacturers
and supply chain and
include agreements
and distributors, distributors
and
- Price fixing retailers and so on. Vertical agreements in general contain
restrictions imposed by one party on another. On occasion, these restrictions can fall foul of
- Output restrictions
competition law.
18.
- Information exchange
Figure 2.2 illustrates
the difference
between vertical and horizontal relationships.
- Covenants
not to compete
Figure 2.2: The Difference Between Vertical and Horizontal Relationships
Manufacturer A
Horizontal
Relationship
Manufacturer B
Vertical
Relationship
Retailer C
19.
Figure 2.2 shows that Firm A and Firm B are active at the same stage of the production
processFigure
and are
competitors
in Athe
supply
theiractive
products.
relationship
shows
that Firm
and
Firm of
B are
at the The
same
stage of between them is
deemedthe
to production
be a horizontal
relationship
so that anyinagreement
process
and are competitors
the supplybetween
of their them would be a
horizontal
agreement.
In
contrast,
the
relationship
between
Firm
A
and
Firma C is a vertical one
products. The relationship between them is deemed to be
horizontal relationship so that any agreement between them would
5
For an example of how a maverick firm can upset coordinated behavior, see the Commission decision on the Case
bePilkington-Techint/SIV
a horizontal agreement.
In contrast,
the relationship between
IV\M.358
merger ([1994]
O.J. L158/24).
Firm A and Firm C is a vertical one since they are active at different
stages of the production process. Firm A supplies product to Firm
C that Firm C then sells on to its consumers after either using that
product as an input in its production process or providing retailing
services. Rather than being competitors to one another, the
products or services supplied by Firm A and Firm C are
complementary to each other.48
2) Concerted practice
In Turkish and EU competition law, concerted practice is a parallel conduct
which do not reach to a stage where a formal agreement, properly so-called, had
47
Că tă lin Grigorescu; Cristina Mihai, EU COMPETITION LAW Agreements and
Concerted Practices, 09.02.2011
48http://www.adb.org/Documents/Others/OGC-Toolkits/CompetitionLaw/documents/chap2.pdf
been concluded, and which works against the risk of competition between
undertakings through their practical collaboration.49,50
The following are examples of factors, which may be considered in establishing if
a concerted practice exists:
-
-
Whether the parties knowingly entered into practical co-operation.
Whether behavior in the market is influenced as a result of direct or indirect
contact between undertakings.
Whether parallel behavior is a result of contact between undertakings
leading to conditions of competition which do not correspond to normal
conditions of the market.
The structure of the relevant market and the nature of the product involved.
The number of undertakings in the market and ,where there are only a few
undertakings, whether they have similar cost structures and outputs.
In the law of obligations, a contract is an agreement which gives rise to
obligations that are enforced or recognized by law. Because the aims of
competition law are not similar to those of contract law, the requirement of
concurrence of wills or mutual consent fulfills a different objective and should
therefore be interpreted differently from contract law.
Competition law does not draw any formalistic distinction between the different
forms of collusion51 as anti-competitive agreement. Differences between the
concept of agreement and that of concerted practice principally refer to the type
of evidence required and the burden of proof in establish the collusive element.
52
Presumption of Concerted Practice
Differing from EU Law, Art. 4 of the Competition Act provides that if parallel
market behaviors and collusion committed by the undertakings in a certain
Metin TOPÇUOĞLU, The Concept of Concerted Practice and Its Scope from the
Perspective of Turkish and European Competition Law, Review of International Law
and Politics (RILP - An USAK Publication, Ankara), Vol. 2, No: 5, 2006,
49
US law does not accept a notion of concerted practice. See, Fred S. McChesney,
Legal and Economic Concepts of Collusion: American Antitrust versus
European Competition Law,
http://www.law.northwestern.edu/searlecenter/papers/McChesney_TacitCollu
sionText.pdf
50
Secret or illegal cooperation or conspiracy, esp. in order to cheat or deceive others
Ioannis Lianos, Collusion In Vertical Relations Under Article 81 EC, Common Market
Law Review 45: 1027–1077, 2008
51
52
market causes the revealing of suspicion of cooperation in favor of eliminating
competition, it will be accepted that the undertakings have been involved in
concert.
Concerted practices are often inferred from circumstantial evidence (which may
include economic evidence), while hard/direct evidence usually proves the
existence of an agreement. From the perspective of economics, collusion is a
market position where undertakings are able to charge prices at a level higher
than it would have been in a competitive market. The specific form through
which such outcome is attained is not of significance.53
3) Decision of an association of undertakings
According to Article 4 of the Turkish Competition Act (No:4054), decisions taken
by association of undertakings may also have the object or effect of restricting
competition. The concept of ‘association’ within meaning of competition law is
not limited to any particular type of association. Trade associations54, chambers
of commerce and professional organisations55 are the most common form of
associations of undertakings. A decision by an association may include; the
constitution or the by-laws of the association, its recommendations or other
activities. The key consideration is whether the object or effect of the decision,
whatever form it takes, is to influence the conduct or coordinate the activity of
the members.
Any act or conduct of an association may be regarded as a decision even though
it is not binding on the members, so long as the members comply with it.56
The Piau57 decision concerned FIFA rules governing the profession of football
agents through which professional football players may conclude contracts with
the clubs. FIFA rules required that a contract was valid only if the agent had a
license issued by the national football association. It was required that licensed
agents must pass an interview, have an impeccable reputation, and deposit a
bank guarantee. Mr. Piau argued that the rules constituted a restriction on
competition under Articles 81(101 TFEU) and 82(102 TFEU) EC. Following the
EU Commission’s investigation, FIFA removed the most restrictive rules so that
53
Ioannis Lianos, Collusion In Vertical Relations Under Article 81 EC, Common Market
Law Review 45: 1027–1077, 2008
İhracatçılar Meclisi
Mimarlar Odası
56 Că tă lin Grigorescu; Cristina Mihai, EU COMPETITION LAW Agreements and
Concerted Practices, 09.02.2011
57 Case T-193/02, Piau v. Commission, ECR 2005 II-209
54
55
the deposit was substituted by a liability insurance and the interview was
replaced with a multiple-choice test, etc. On the basis of these amendments the
Commission rejected the complaint.
4) Object or Effect of Restricting Competition
For an agreement to fall under the scope of competition law, the object or effect
of the agreement must be to prevent, restrict or distort competition. Hardcore
agreements which are likely to be found anti-competitive as set out in Art.4, are
generally considered to constitute restrictions by object.
If the object of the agreement is restrictive of competition, it need not be
established that it also has restrictive effect, meaning that agreements which are
not actually implemented can also constitute a violation. Where it is not obvious
that the object is to restrict competition, it is necessary to assess whether or not
the effect is to prevent, restrict or distort competition(rule of reason). Even if
there is no intention, agreements can violate the law if the effect of the
agreement is to restrict competition.58
5) Hardcore Restrictions
Both EU Law59 and Art. 4 of the Turkish Competition Act (No:4054) provide a
non-exhaustive list of certain agreements, which are most common types of
58
59
http://www.ffw.com/pdf/EU-competition-law-articles-101-102.pdf
Article 101 of TFEU :
1. The following shall be prohibited as incompatible with the common market:
all agreements between undertakings, decisions by associations of undertakings
and concerted practices which may affect trade between Member States and
which have as their object or effect the prevention, restriction or distortion of
competition within the common market, and in particular those which:
(a) directly or indirectly fix purchase or selling prices or any other trading
conditions;
(b) limit or control production, markets, technical development, or investment;
(c) share markets or sources of supply;
(d) apply dissimilar conditions to equivalent transactions with other trading
parties, thereby placing them at a competitive disadvantage;
(e) make the conclusion of contracts subject to acceptance by the other parties
of supplementary obligations which, by their nature or according to commercial
usage, have no connection with the subject of such contracts.
2. Any agreements or decisions prohibited pursuant to this article shall be
automatically void.
3. The provisions of paragraph 1 may, however, be declared inapplicable in the
case of:
any agreement or category of agreements between undertakings,
violation also referred as per se violations. According to Art.4, agreements or
concerted practices which have as their object or effect the prevention,
restriction or distortion of competition within a certain market, and in particular
those which :
a. fix purchase or sales prices or the factors such as cost or profit which
form the price or all other trading conditions concerning purchase and
sales of goods and services;
b. share the markets for goods and services or to share or control the
market sources and components;
c. control or to determine the quantities of supply or demand in the
markets for goods and services outside the market conditions;
d. impede or restrict the activities of the competitors or to eliminate
other enterprises operating in the market by boycotts or by other
practices or to prevent the newcomers in the market;
e. Except exclusive dealing agreements, apply dissimilar conditions to
persons which have equivalent transactions with equal rights and
obligations;
f. Contrary to the nature of the agreement or to the commercial customary
rules, to make the conclusion of contracts subject to the purchase of other
goods and services or acceptance by the intermediary purchasers to
display of other goods and services or acceptance of resale conditions for
the goods or services concerned.
are illegal and prohibited.
Under a widespread conventional view, certain types of restrictive agreements
(or contractual clauses) are by their very nature so harmful, that they should (i)
any decision or category of decisions by associations of undertakings,
any concerted practice or category of concerted practices,
which contributes to improving the production or distribution of goods or to
promoting technical or economic progress, while allowing consumers a fair
share of the resulting benefit, and which does not:
(a) impose on the undertakings concerned restrictions which are not
indispensable to the attainment of these objectives;
(b) afford such undertakings the possibility of eliminating competition in respect
of a substantial part of the products in question.
Businesses who infringe these rules can be subjected to large fines by the
European Commission or national competition authorities. Prison is not
available as a punishment under Article 101 itself. Some countries within the
European Union have laws that impose criminal sanctions, including prison, for
participation in anti-competitive agreements or practices.
be automatically prohibited, regardless of their actual effects on the market; and
(ii) never be salvaged through the benefit of an exemption. This is, for instance,
the case of horizontal price-fixing arrangements or of vertical resale price
maintenance systems.
D) EXEMPTION
Even if an agreement is caught by Art. 4, it may still benefit from the exemption
provided in Art.5 of the Competition Act . Companies must assess for themselves
whether an agreement meets the criteria for exemption that are provided under
Art. 560 of the Competition Act. Accordingly agreements which contribute to
improving the production or distribution of goods or to promoting technical or
economic progress, while allowing consumers a fair share of the resulting
benefits, and which do not impose restrictions which are not indispensable to
the attainment of these objectives and do not afford such undertakings the
possibility of eliminating competition in respect of a substantial part of the
products concerned, shall be permitted under Art. 5.
Exemption becomes relevant only when an agreement between undertakings
restricts competition within the meaning of Art. 4. In such case the following step
would be to determine the pro-competitive benefits produced by that agreement
and to assess whether these pro-competitive effects outweigh the anticompetitive effects. The balancing of anti-competitive and pro-competitive
effects is conducted exclusively within the framework laid down by Article 5.
Four cumulative conditions to be examined are:


60
efficiency gains;
fair share for consumers;
Art. 101/3 of TFEU
The provisions of paragraph 1 may, however, be declared inapplicable in the
case of:
any agreement or category of agreements between undertakings,
any decision or category of decisions by associations of undertakings,
any concerted practice or category of concerted practices,
which contributes to improving the production or distribution of goods or to
promoting technical or economic progress, while allowing consumers a fair
share of the resulting benefit, and which does not:
(a) impose on the undertakings concerned restrictions which are not
indispensable to the attainment of these objectives;
(b) afford such undertakings the possibility of eliminating competition in respect
of a substantial part of the products in question.


indispensability of the restrictions;
no elimination of competition.
It is unnecessary to examine any remaining conditions once it is found that one
of them is not fulfilled. Moreover the greater the restriction of competition under
Art.4, the greater must be the efficiencies and the pass-on to consumers under
Art 5.61
Art.5 does not exclude a priori certain types of agreement from its scope. As a
matter of principle, all restrictive agreements that fulfil the four conditions are
covered by the exception rule. Theoretically, all restrictions of competition including hardcore restrictions – can benefit from an exemption if they fulfill the
four conditions of Art.5.62
However, hardcore restrictions of competition are unlikely to fulfill the
conditions. Hardcore restrictions are vertical or horizontal price-fixing, output
restrictions, bid-rigging or collective boycotts and refusals to deal. Agreements of
this nature generally fail (at least) the two first conditions of Art. 5. They neither
create objective economic benefits nor do they benefit consumers.
Undertakings are not required to apply for exemption and they can make their
own assessment whether certain agreement can benefit from the exemption.
1) Block Exemption
Restraints
Communique
Concerning
Vertical
The conceptual differences between a horizontal agreement and a vertical
agreement are significant. For example, competitors meeting together to discuss
market prices may provoke considerable suspicion. But a supplier and a dealer
are necessarily parties to a buyer-seller agreement, and they presumably discuss
prices all the time. As a result, in vertical restraints cases the evidentiary focus
tends to be the content of agreements, while horizontal cases tend to focus on
the fact of agreement.
Vertical restraints may also have positive effects. Vertical agreements between
an upstream and a downstream firm can have economic efficiency rationales. In
a vertical relationship the two undertakings produce complementary products,
whereas in a horizontal relationship the two undertakings produce substitute
Nicolas PETIT, Critical Review of The Guidelines on Article 81(3)
In the European case GlaxoSmithKline Services Unlimited vs. Commission, the CFI
unambiguously held that: “Any agreement which restricts competition, whether by its
effects or by its object, may in principle benefit from an exemption”
61
62
products. The demand for a product declines as the price of substitute products
falls, but may rise as the price of a complementary products falls. Where
products are substitutes, each undertaking would prefer the other firm to
increase the price of its product and thereby soften price competition. Where
products are complementary, each firm would prefer the other to lower the price
of its product.
Vertical agreements, for instance, help a manufacturer to enter a new market, or
avoid the situation whereby one distributor ‘free rides’ on the promotional
efforts of another distributor. The manufacturer of complex product (e.g., some
consumer electronics) may want retailers to provide expert advice to consumers
so that consumers can make informed choices. However, providing expert advice
imposes a cost on retailers. If some retailers provide expert advice but others do
not, those who do not provide advice will have lower costs and so will be able to
undercut the retailers who do provide advice. This will remove the incentive for
retailers to give expert advice. The manufacturer can avoid this by using
selective distribution and only supplying retailer’s who provide expert advice. In
this way free-riding by retailers who provide no advice can be avoided.
In general, vertical restraints are less harmful to competition than horizontal
restraints and may provide substantial scope for efficiencies in the distribution
chain. Therefore Turkish Competition Authority 63 has adopted the Block
Exemption Communiqué on Vertical Agreements, Amended by the
Competition Board Communiqué No. 2003/3 Communiqué No: 2002/2,
which provides a safe harbour for most vertical agreements.
According to the Communique, with the aim of purchase, sale or resale of
particular goods or services -vertical agreements- are exempted in block from the
prohibition in article 4 of the Act, based on article 5 paragraph 3 of the Act.
The Communiqué shall apply in the event that the market share of the
provider in the relevant market in which it provides the goods or services that are
the subject of the vertical agreement does not exceed 40%. Communiqué
introduces a 40% market share threshold for buyers in consideration of the fact
that some buyers may also have market power with potentially negative effects
on competition. For agreements, which exceed thresholds, an application for
individual exemption may be made to the Competition Authority.
Vertical restraints can be used to reduce both inter-brand competition
(competition between different brands) and intra-brand competition
EU Commission has adopted the Regulation (EU) No 330/2010, the Block Exemption
Regulation (the BER)
63
(competition between the same brand sold in different outlets). When vertical
restraints reduce the level of inter-brand or intra-brand competition
significantly, they may be anti-competitive. Vertical restraints may also be used
to attempt to foreclose markets. A firm may wish to avoid any increase in interbrand competition due to new entry. So an incumbent manufacturer might try
and foreclose the market to new manufacturers, particularly if they are
potentially more efficient than the incumbent, by signing exclusive dealership
agreements with all the retailers. Equally, a retailer might try to foreclose the
market to new retail entry by signing exclusive supply contracts with all the
manufacturers.
Communiqué provides that vertical agreements which involve hardcore
limitations that are listed below and whose goal is to hinder competition directly
or indirectly, may not benefit from the exemption granted by the Communiqué.
- Preventing the purchaser from determining its own selling price. (price
maintenance)
- Territorial or customer restrictions;
- Restrictions on sales by way of selective distribution;
Hardcore restrictions may be counted as : price maintenance, restrictions (with
certain exceptions) imposed on buyers or their end customers, restrictions of
active and passive sales to end users, restrictions of cross-supplies between
appointed distributors in a selective distribution system. Communiqué provides
some exceptions to territorial restrictions as well as selective distribution
agreements.
As stated above, where agreements or the provisions which they contain, fall
outside the Communiqué, this does not imply that they are per se illegal. It means
only that such arrangements must be assessed on an individual basis to
determine whether any efficiencies derived directly from such provisions
outweigh their anti-competitive effects.
2) Other Block Exemption Communiqués
Block Exemption Communiqué on Technology Transfer Agreements
(Communiqué No: 2008/2)
Block Exemption Communiqué in Relation to the Insurance Sector
(Communiqué No: 2008/3)
Block Exemption Communiqué on Vertical Agreements and Concerted Practices
in the Motor Vehicle Sector (Communiqué No: 2005/4)
Block Exemption Communiqué on Research and Development Agreements
(Communiqué No:2003/2)
III) ABUSE OF DOMINANT POSITION
A firm with strong market power might have the ability to adversely affect
conditions of competition, whereas a firm possessing only an insignificant
amount of market power is usually unable to unilaterally affect the conditions of
competition at all. In European and Turkish competition policy, a firm with very
strong market power is said to possess a dominant position.64
Art.6 of the Competition Act prohibits abuse of dominant position and contains a
non-exhaustive list of abusive practices. In contrast to Art.4, Art.6 applies to
unilateral actions. Consequently, agreements or concerted practices among the
firms in a company group may be regarded as an abuse of dominant position
under Art. 6, if other conditions are met.
In order for Art.6 prohibition to be applicable:
- an undertaking must hold a dominant position;
- there must also be an abuse of that dominant
position; and
- there must be an effect on trade.
A) DOMINANT POSITION
Art. 6 prohibits abuse, by one or more undertakings, of a dominant position,
which arises by way of market power. Market power is deemed to exist if, for a
sustained period, an undertaking or several undertakings possess the ability to
raise prices profitably above the levels that would be possible within a
competitive market.
To determine whether dominance exist the answer to these two questions are
necessary;
– What is the relevant market?
– What is a player’s market power?
64
Markku Stenborg, Biases in the Market Definition Procedure, 2004
Thus, relevant market definition and assessment of the degree of market power
thereon, is crucial to dominant position analysis.65 The larger the relevant
market is, the less the chances of there being dominant position are. With regard
to defining the market in its product and geographic dimensions, the purpose is
to identify all actual competitors on the market.
11
above the competitive level were to lead to lower profits, then the firm would not possess market
power. However, if the reduction in quantity sold is sufficiently small that it is outweighed by the
Any
firmprice
can choose
to raise
at any
time,
this does not
necessarily
higher
(and lower
costs price
since less
needs
to but
be produced),
restricting
output lead
below the
competitive
level
will
cause
profits
to
rise
and
the
firm
does
have
market
power.
So
the key is
to the conclusion that the firm has market power since the action of raising price
how much demand the firm loses when it raises price. This is measured by the price elasticity
will
a fall
in demand.
the decrease
in total
volumeasofthe
theratio
salesof the
of cause
demand
facing
the firm. However,
The price ifelasticity
of demand
is defined
decrease
resulting from
givenhigher
percentage
in price.
Thus an
is percentage
small enough
that init sales
is outweighed
bya the
price,increase
restricting
output
elasticity of “1 means that a 1% rise in prices will lead to a 1% fall in sales. An elasticity of “5
below the competitive level will cause profits to rise and the undertaking does
would mean that a 1% rise in price leads to a 5% fall in sales and an elasticity of “0.5 would
have
market
is how
much
demand
undertaking
losesofwhen
mean
that apower.
1% riseSo
in the
pricekey
leads
to only
a 0.5%
fall inthe
sales.
If the elasticity
demand is
greater
than
1,
then
a
rise
in
price
leads
to
a
reduction
in
revenue.
An
elasticity
of
less
it raises price. This is measured by the price elasticity of demand of the productthan 1
implies that
a price rise leads to an increase in revenue. Figure 1.4 shows that a rise in price
66
orfrom
service.
p1 to p2 has a larger effect on quantity demanded in (a) than in (b). Thus the elasticity of
demand is more elastic in (a) than in (b).17
Figure
1.4: Elastic
and Inelastic
Demand
Curves
Elastic
and Inelastic
Demand
Curves
Price
Price
p2
p2
p1
p1
q2
q1
(a)
Quantity
q2 q1
Quantity
(b)
However
if the
undertaking
is already
operating
maximum
38.
The
greater
is the elasticity
of demand
facing aat
firm,
the more profit
sales it margin,
will lose ifthe
it raises
its
price
and
hence
the
less
profitable
a
price
rise
is.
Thus
the
higher
the
elasticity
of
demand
answer to the question of whether the undertaking could profitably restrict
facing a firm at the competitive price level, the less market power the firm has.
output and raise price will always be negative. If it were profitable to do so, the
39.would
Thealready
third important
point it.
to note
is that
thethe
exercise
of markethas
power
firm
have done
In such
case
undertaking
setinvolves
price atincreasing
the
price above the level that would prevail under conditions of effective competition“ and therefore
point at which profits are maximized. Thus, in assessing whether market power
also restricting output to below the effective competition level. For the purposes of examining
exists,
theaissue
not whether
the undertaking
profitably
from
whether
firm isiscurrently
exercising
market power, could
the prevailing
priceraise
level price
does not
provide
the
appropriate
benchmark.
This
is
often
forgotten.
If
a
firm
is
maximizing
profits,
the
answer
the current level, but whether it is able persistently to price above the level to
the question of whether the firm could profitably restrict output and raise price should always be
which
intoconditions
effective
competition.
no. Ifwould
it wereprevail
profitable
do so, the of
firm
would already
have done it“ the firm would have set
price at the point at which profits are maximized. This holds true for all firms, from perfectly
competitive firms to monopolists. Thus, in assessing whether market power exists, the issue is
65
ECJ Case 6/72 Europemballage Corporation and Continental Can v. Commission.
The
price elasticity of demand is defined as the ratio of the percentage decrease in
17
In fact, when demand curves are linear, the elasticity of demand varies as price varies (it rises as price rises). So it
salesis resulting
given ofpercentage
price.
Mike
Competition
not the case from
that theaelasticity
demand at anyincrease
given pricein
in (a)
is larger
thanWalker,
the elasticity
of demand at all
prices
in
(b).
However,
what
is
true
is
that
at
any
given
price,
the
elasticity
in
(a)
is
larger
than
the
elasticity at the
Law, Anti-Competitive Behavior, and Merger Analysis: Economic Foundations
same price in (b).
http://www.adb.org/Documents/Others/OGC-Toolkits/CompetitionLaw/documents/chap1.pdf
66
Dominance is a precondition for any finding of abuse. The definition of
dominance, as elaborated by the case law of the European Courts, is a “[…]
position of economic strength enjoyed by an undertaking which enables it to
prevent effective competition being maintained on the relevant market by
affording it the power to behave to an appreciable extent independently of its
competitors, its customers and ultimately of the consumers”.67 However it should
be born mind that, giving too much weight to power to behave independently
would be erroneous since even near-monopolists, face a downward sloping
demand curve and the pressure of competition from substitute products or
services. Economists claim that no firm will ever have the power to behave
independently from all constraints; hence, independence should not be the only
proxy to infer dominance.68
The market share and the turnover can be strong indicators that a certain
company has reached a dominant position within the market, but in the reality of
the complex business world, they are not always enough. Another important
aspect is the relative position of the monitored company in relation to its
competitors. Different criteria such as market structure, limitations on market
entry, specific characteristics and the market behavior of the company have to be
observed in their entirety in order to determine whether there is market
dominance in a certain case.69
At this point, the issue of barriers to entry is an essential element in determining
whether a company holds a dominant position in market.
Three categories of barriers to entry may be identified:
– Legal : Such barriers arise by way of governmental regulation. A
common form of legal barrier is licensing. Most of the times, legal
barriers are not subject to antitrust scrutiny.
–
Economic : These are barriers whose incidences are linked to
production or proprietary technology, scale or scope economies,
product differentiation or branding.
Case 27/76, United Brands v. Commission, [1978] ECR 207, para. 65; case 85/67,
Hoffmann-La Roche v. Commission, [1979] ECR I-461, para. 38.
68 Oluseye Arowolo, Competition Law Application Of The Concept Of Barriers To
Entry Under Article 82 Of Ec Treaty: Is There A Case For Review?
http://www.dundee.ac.uk/cepmlp/car/html/car8_article12.pdf
69 ibid.
67
–
Strategic :These are barriers created or strengthened by an
undertaking in order to deter entry of new firms into the market.
These are exclusionary practices by undertaking to restrict conditions
of competition on the market. This may involve the threat to engage in
a price war or to expand output in response to a new entry or excessive
investments in product range or advertising.
The ECJ has decided that a market share in excess of 50% can be considered to
be dominant except in exceptional circumstances.70 The Commission has also
stated that a dominant position can generally be deemed to exist when a firm has
a market share greater than 40 or 45%, although it cannot be ruled out for
undertakings with a lower market share.
B) ABUSE
Article 6 does not prohibit dominant positions per se. In order to be caught by
Article 6 there must also be an abuse of that dominant position. “Abusive
behavior is likely to affect the structure of the market and to weaken competition
and involves the dominant firm behavior in a manner different from normal
competition.”71 “Commercial behavior which adversely affects competitor firms
on the grounds of superior economic performance either through better
efficiency, lower prices or better quality products, cannot be considered
abusive.” Obviously most business practices involve harm to competitors since
that is the nature of the competitive process. Therefore abusive behavior may be
distinguished with its adverse affects on consumer welfare. The behavior can
either harm consumers immediately by raising prices and/or lowering quality,
or in the longer run by reducing the level of competition (e.g., excluding a rival)
and hence leading to higher prices and/or lower quality.
“Thus in practice, actual abuse can take different forms, such as the imposition of
unfair prices or other trading conditions, exclusive dealing, tying of products,
predatory pricing, or denial of access to essential facilities.”72 Similar to Art. 102
70
Case C-62/86 AKZO v. Commission [1991] ECR I-3359.
71 Mike Walker, Competition Law, Anti-Competitive Behavior, and Merger Analysis:
Economic Foundations, at 34.
http://www.adb.org/Documents/Others/OGCToolkits/CompetitionLaw/documents/ch
ap2.pdf
72 Case C-62/86, AKZO Chemie BV v. Comm’n, 1991 E.C.R. I-3359, Case T-340/03, France
Telecom SA v. Comm’n, 2007 E.C.R. Ⅱ-107, Case C-7/97, Oscar Bronner GmbH & Co. KG v.
Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co. KG, 1998 E.C.R. I-7791 see,
Georgi Tsonchev, Latest Development In The Microsoft Case In The European Union:
Microsoft Officially Allows Browser Choice To Customers, 16 Colum. J. Eur. L. Online
85 (2010), at 87
of TFEU, Art. 6 of Competition Act provides a non-exhaustive list of different
modes of abusive conduct.
Article 6- The abuse, by one or more undertakings, of their dominant
position in a market for goods or services within the whole or a part of the
country on their own or through agreements with others or through
concerted practices, is illegal and prohibited.
Abusive cases are, in
particular, as follows:
– a)Preventing, directly or indirectly, another undertaking from
entering into the area of commercial activity, or actions aimed at
complicating the activities of competitors in the market,
– b)Making direct or indirect discrimination by offering different
terms to purchasers with equal status for the same and equal rights,
obligations and acts,
– c) Purchasing another good or service together with a good or
service, or tying a good or service demanded by purchasers acting as
intermediary undertakings to the condition of displaying another
good or service by the purchaser, or imposing limitations with
regard to the terms of purchase and sale in case of resale, such as
not selling a purchased good below a particular price,
– d) Actions which aim at distorting competitive conditions in another
market for goods or services by means of exploiting financial,
technological and commercial advantages created by dominance in
a particular market,
– e) Restricting production, marketing or technical development to
the prejudice of consumers.”
Evidently, it is quite possible for activities to constitute abuse in one industry but
not in another, or when carried out by one firm but not when carried out by
another. So a case-by-case assessment that takes into account the particular
circumstances of the industry and the undertaking under investigation is
necessary.
C) CERTAIN TYPES OF ABUSE
1) Refusal to Supply & “Margin squeeze” - “Essential Facilities
Doctrine”
Essential facility issues arise when a firm that is active at both the upstream and
downstream levels of an industry has a monopoly at one or other level and
refuses to provide access to the facility to other firms who wish to provide either
upstream or downstream services.
84.
The term “essential facilities doctrine“originated in commentary on US antitrust case law.
In such situations, owners of an “essential“or “bottleneck“facility are required by law to provide
access to that facility at a reasonable price. For example, a competition or regulatory authority
might insist that competitors be granted access to a telecommunications network and might set
the terms on which such access is to be granted. In Europe the concept has played an
To
imposerole
on aincompany
an obligation
to supply
a product,
license
or access to a
important
the liberalization
of network
industries
such
as telecommunications,
gas,
electricity
and transport.
However,
the doctrine
has also been
in to
other
industries that
facility
constitutes
a direct
limitation
of that company’s
rightinvoked
to freely
decide
are not generally
considered
to of
be its
characterized
by naturalsuch
monopoly.
Suchmay
industries
include
whether
and how
to dispose
property. However
limitation
be
newspaper distribution, port facilities and marketing data.
required by Competition Law to avoid an abuse of dominant position.
85.
Essential facility issues arise when a firm that is active at both the upstream and
downstream
levels ofisan
a monopolywhich
at oneoccurs
or other
level aand
refuses to provide
“Refusal to supply
a industry
“verticalhas
foreclosure,”
when
dominant
access
to
the
facility
to
other
firms
who
wish
to
provide
either
upstream
or
downstream
company denies a buyer access to an input in order to exclude that buyer from services
only. Figure 2.4 illustrates this. It shows that in order for B to supply final consumers B requires
73
participating
in an economic
access to a downstream
assetactivity.”
which is controlled by A.
Figure 2.4: Example of a Downstream
Bottleneck
Example of a Downstream Bottleneck74
A
B
Upstream
Downstream
Final consumers
45
See, for instance: European Commission. 1997. Notice on the Application of the Competition Rules to Access
InAgreements
the eventinthat
an undertaking that
isO.J.
dominant
the Telecommunications
Sector.
C265/2. in an upstream market refuses
to supply an indispensable input to a competitor in a downstream market in
which the dominant firm is also active, this refusal is found to have the effect of
foreclosing the competitor from the downstream market. In Europe, the concept
has played an important role in the liberalization of network industries such as
telecommunications, gas, electricity and transport.
“Margin
squeeze” arises when a vertically-integrated dominant firm sells an
essential input to a downstream rival at a price that does not leave sufficient
profit margin to operate profitably on the downstream market. 75
73
Rita Coco, 22
Mike Walker, Competition Law, Anti-Competitive Behavior, and Merger Analysis:
Economic Foundations, at 47.
http://www.adb.org/Documents/Others/OGCToolkits/CompetitionLaw/documents/chap2.pdf
75 ECJ Case C-52/09 Konkurrensverket v. TeliaSonera Sverige AB
74
In the Deutsche Telekom decision in 2008, the CFI decided that margin squeeze
existed “if the difference between the retail prices charged by a dominant
undertaking and the wholesale prices it charges its competitors for comparable
services is negative, or insufficient to cover the product-specific costs to the
dominant operator of providing its own retail services on the downstream market.”
Certain criteria have been developed to impose a duty to supply physical
product, to license intellectual property rights, or to grant access to facilities.
Art. 6 may only apply to a refusal to supply where;
•
•
•
the refusal of access to a facility is likely to prevent any competition at all on
the market in which the applicant operates;
the access must be indispensable or essential for carrying out the applicant’s
business; and,
the access must be denied without any objective justification.
“In the Bronner76 case, Mediaprint, an Austrian publisher with a large share of the
daily newspaper market, operated the only nationwide newspaper homedelivery network. Mediaprint refused to allow Oscar Bronner, publisher of a rival
newspaper, access to that scheme for an appropriate remuneration. This refusal
did not trigger any antitrust liability upon Mediaprint, because the scheme was
deemed not essential for the claimant publisher, since other methods of
newspaper distribution were available, and thus the refusal was not likely to
eliminate all competition on the part of the person requesting the service.”77
Thus the indispensability condition was not met.
In the European case B&I Line plc v. Sealink78, Sealink was both a car ferry
operator and the owner of Holyhead Harbour. B&I was another ferry operator
using Holyhead Harbour to compete with Sealink on ferry services between
Wales and Ireland. The issue concerned the location of the berths allocated to
B&I. The structure of the harbor was such that B&I vessels had to stop loading
and unloading whenever a Sealink vessel entered or left the harbor. The issue
arose when Sealink altered its sailing times so that B&I was affected in this way
more frequently. While recognizing that the new Sealink schedule was an
improvement from the perspective of consumers, the Commission held that its
adverse impact on B&I represented an abuse given that Sealink was using its
monopoly position in the supply of the essential facility—the harbor—“to
76 Case C-7/97, Oscar Bronner v. Mediaprint Zeitungs, 1998 E.C.R. I-7791
77
Rita Coco, 17-18
Case IV/34.174 B&I Line plc v. Sealink Harbours Ltd. and Sealink Stena Ltd. [1992] 5
C.M.L.R. 255
78
strengthen its position in another related market, in particular, by granting its
competitor access to that related market on less favorable terms than those of its
own service.
Refusal to license IP rights
In case of licensing of IP rights, the refusal by a dominant company to license the
IP rights could be considered abusive when all above three conditions are
fulfilled.
The legal monopoly created by IP rights empowers the owner of the right to
exclude others from utilizing the subject matter of the IP right (i.e. patented
invention, trademark, copyrighted works or a know-how). When such monopoly
distorts competition in the market, competition regime may outlaw or restrict
the monopoly and impose a compulsory license.
Broad intervention of competition rules with IP rights through compulsory
licenses, would be incompatible with the objective of IP law, since it may reduce
the incentives to invest in new technologies. On the other hand, if anticompetitive conduct is not prevented, it may result in foreclosure of markets to
the detriment of consumers, competitors and over all efficiency of the economic
system.79
“Intellectual property rights, like the Patent law, have slowly stretched the
boundaries of patentable subject matter to cover DNA sequences, software and
business methods. In the same way, Copyright Law in terms of adding a new set
of rights and subject matters along with increasing the length of the protection
has added a new set of exclusive rights to protect technological measures that, in
turn, are meant to protect copyrighted works.”80 Moreover, IP right holders
enter into agreements or engage in practices to broaden IP rights to a point
which is not expressly authorized by the IP laws.81 On the other hand, the nonexistence of IP rights would result with a lack of incentive on the side of authors
79
“A comparative analysis of the current European and American systems—the two
most mature for both antitrust and IP—shows that the former tends to downplay IP
rights in favor of competition, whereas the latter tends to curtail the imperative of
competition to preserve the exclusivity based upon IP rights. Yet these are only trends,
and on the whole the two systems are still largely unsettled on the matter.” Rita Coco,
Antitrust Liability For Refusal To License Intellectual Property: A Comparative
Analysis And The International Setting, Marquette Intellectual Property Law Review
[Vol. 12:1 2008]
80 Gupta, Anurag and Mazumdar, Satyajeet (2011) "Competition Law and Intellectual
Property Rights: Whether Conflicting or Complementing Each Other to Serve a
Common Purpose?," Asian Journal of Law and Economics: Vol. 2: Iss. 2, Article 5, at 2
81
ibid.
and inventors and eventually impairment of research, innovation and cultural
progress, a consequence, obviously adverse to consumer welfare.
Apparently achieving a fine balance between the competition regime and IP
rights is an ongoing process. A key point in achieving this balance is that the
main objective is not to protect rivals, but to enhance consumer welfare. Those
are ultimate objectives shared by both IP law and the competition law.82 “Both of
the policies can function to promote consumer welfare in the same manner,
while showing similarities and differences in their consideration of short and
long-term effects on consumer welfare. The difference lies in the fact that in the
competition regime, we are concerned with the conduct in the short-term--which
may be benign or even helpful to consumers, but that may be harmful in the long
run, whereas in the IP regime, we are willing to tolerate immediate consumer
harm, e.g. monopoly pricing, in the expectation that in the long run it will benefit
consumers by encouraging innovation.”83
IP rights provide a definite market power due to the exclusivity restricting
competition. This effect is pronounced “when alternative technologies are not
available, and as such, IP rights can be said to grant their holders monopolistic
positions in the relevant markets.”84
With regard to licensing of IP rights, Volvo85 and Renault86 were the first two
cases where the ECJ had to decide, whether the refusal by car manufacturers to
license design rights upon spare parts to independent manufacturers was an
abuse of dominant position. It was decided that the refusal by assertion of an IP
right did not amount in itself to an abuse of a dominant position.87 However, the
court mentioned the possibility that using IP rights to obstruct rival spare part
producers might have been regarded as an abuse under certain conditions.
In 1995, the ECJ issued Magill88, which
laid
down
the
“exceptional
circumstances” doctrine that provided the criteria according to which refusal to
license IP rights would be considered as abusive. The English TV channels RTE,
ITV and BBC published their TV guide magazine, each covering exclusively its
own programs, protected under copyright. When Magill attempted to publish a
comprehensive weekly television guide, it was prevented from doing so by the
82
Rita Coco 22
Gupta, Anurag ; Mazumdar, Satyajeet, at 12
84 ibid., 14
85 Case 238/87, AB Volvo v. Erik Veng (UK) Ltd., 1988 E.C.R. I-6211
86 Case 53/87, Cicra e Maxicar v. Renault, 1988 E.C.R. I-6039
87 Rita Coco, 13
88 ibid.
83
TV channels as copyright owners. Magill complained to Commission and it was
decided that the refusal was an abuse of dominant position and ordered a
compulsory license of copyright on TV listings. Both the CFI and the ECJ upheld
the Decision. 89 “The ECJ shared the Commission’s view that the concrete exercise
of IP rights presented “exceptional circumstances” for which it was abusive,
because: (a) the dominant firms’ refusal to provide basic information in the
upstream market impeded the emergence of a new product in a downstream
market for which a potential demand existed;(b) there was no justification for
such a refusal; and (c) by their conduct, the appellants reserved to themselves
the secondary market of weekly television guides by excluding all competition
on that market, because they denied access to the basic information needed for
the compilation of such a guide.”90
The EU Microsoft case defines abuse as refusal to supply essential information
to third parties and tying of products. In its decision, the Court of First Instance
(C.F.I.) confirmed the Commission’s finding that Microsoft had abused its
dominant position in the PC operating system market by refusing to disclose
interoperability information and protocols that would enable its competitors to
fully interoperate with Windows PCs and servers. The refusal to disclose
interoperability information and protocols to other operating system developers
is abusive and makes it impossible for them to come up with competitive
products. Thus, the competition is limited by the conduct of Microsoft, and
potential rivals in the market are foreclosed.91
2) Tying and Bundling
Dominant undertakings can leverage market power in one market into a related
market by tying or bundling products together. Tying and bundling occur when
the possibility to buy a good or its price depend on the quantity purchased of
another good.
Tying: A dominant firm selling products X and Y makes the purchase of product
X conditional to the purchase of product Y. Product Y can be purchased freely on
the market, but product X can only be purchased together with product Y.92
89
Joined Cases C-241 & 242/91, Radio Telefis Eireann v. Comm’n, 1995 E.C.R. I-743
90 Rita Coco, 14-15
91 D. Geradin, Limiting the Scope of Article 82 of the EC Treaty: What can the EU learn
from the U.S. Supreme Court's Judgment in Trinko in the wake of Microsoft, IMS, and
Deutsche Telekom?, 41 (2004) Common Market Law Review, 1519
92 Tying And Bundling: Economic Theory And New EC Guidance Paper On Application
Of Article 102, European Economic & Marketing Consultants - EE&MC
Bundling: A dominant firm sells products X and Y together but not separately
(pure bundle), or it sells products X and Y separately, but the price for the bundle
is lower than the sum of the individual prices (mixed bundle).
Monopolist uses his market power in the tying good market in order to improve
anti-competitively his position in the tied good market. According to the leverage
theory, tying provides a mechanism whereby a firm with monopoly power in one
market can use the leverage provided by this power to foreclose sales in, and
thereby monopolize, a second market.93
Dominant firm in market X can use tying strategies to extend its dominant
position in another market (leverage theory). Also, a firm can strategically use
tying to create barriers to entry, because rivals would have to enter two markets
in order to be able to compete. “Tying can take different forms. For example,
instead of forcing the customer to obtain several products, the seller can also
offer a price reduction, which induces the customers to buy several products
together, and hereby create an economic tie.”94
“Tying and bundling can serve many purposes, both pro-competitive and anticompetitive. There are possible efficiency-enhancing effects of bundling
including cost saving, improvement of quality, and reduction of pricing
inefficiencies.“95 “An understanding of the economic effects of tying is important
to understand the competition authorities legal approach towards the
practice.”96
i)
Necessary Conditions
In order to determine an abuse on the part of dominant undertaking four
cumulative conditions should be met:
- Dominant Position in the tying market
If the tying market is competitive, the product tie cannot force consumers to buy
the tied good as they can easily switch to competing products that are offered
without a tie. Therefore, a necessary but not sufficient condition for competitive
Eugen Kova ́c, Product bundling and tying in competition, 2006, http://www.unibonn.de/~kovac/papers/bundling_kovac1.pdf
94 Karin Montelius, The Application of Article 82 EC to Tie-in Agreements, 2006,
http://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=1560264&fileOId=
1565255
95 Tying And Bundling: Economic Theory And New EC Guidance Paper On
Application Of Article 102, European Economic & Marketing Consultants - EE&MC
report, http://www.ee-mc.com/files/Tying%20Bundling%20Article%20102.pdf
96 Karin Montelius, at 18
93
harm is market power in the tying market. The higher the market power, the
easier it is for the dominant firm to impose a tie on its customers/buyers.
- The tying and tied products should be distinct products
Two products are distinct if, in the absence of tying or bundling, a substantial
number of customers purchase the tying product without also buying the tied
product from the same supplier. In other words, the tied product should have a
distinct demand.
- The tying practice must be likely to lead to anti-competitive foreclosure
Tying or bundling lead to anti-competitive effects in the tied market,
the tying market or both.
- Anti-competitive effects of tying should outweigh any possible procompetitive benefits.
Dominant undertaking should be able to show that efficiencies cannot be
achieved by less restrictive means, and to demonstrate that the efficiencies
outweigh the anti-competitive effects.
ii)
Case Law
-
Microsoft Case97
In the Microsoft Case (2004), CFI found that Microsoft offered OEMs only the
version of Windows bundled with WMP. In this respect, Microsoft obtained an
unparalleled advantage, regarding the distribution of its product.
Microsoft Windows OS –
MONOPOLY IN THE TYING MARKET
Windows Media-player- WMP - NO MONOPOLY IN THE TIED MARKET
First, Microsoft ensured the ubiquity of WMP on client PC OS worldwide. Second,
this created disincentives for users to make use of third party streaming media
players and for OEMs to pre-install such streaming media players on client PCs.
Microsoft argued that tying enables software developers and internet site
creators to be sure that WMP is present on virtually all client PCs in the world.
The European Commission considered that the bundling led to the foreclosure of
competing streaming media players from the market. Although the uniform
presence to which Microsoft referred may have advantages for operators, that
97
cannot suffice to offset the anti-competitive effects of the tying at issue, an
argument subsequently upheld by the CFI.
“Before Microsoft, the European Commission dealt with tying and bundling
through a modified per se prohibition, which involved examining market power,
the existence of separate products and coercion. However, this view seems to
have changed and in certain cases, it is necessary to consider also whether there
is a restrictive effect on competition for the tied product, and whether there is an
objective and proportionate justification for the coercion. In other words, one
could speak of a shift towards a rule of reason approach by the European Courts
in establishing whether the anti- competitive effects of tying outweigh any
possible pro-competitive benefits. It was concluded that the availability of rival
media players and their widespread use did not legitimize the tie. Moreover, the
Commission was heavily influenced in its decision by the network effects that it
perceived in the operation of the media player market. Network effects were
seen as distorting the normal functioning of the market. The Commission
thought that content distribution companies would tend to adopt the format of
the most widely used media player.”98
Microsoft committed (a) to distribute a Choice Screen software update to users
of Windows client PC operating systems within the EEA by means of Windows
Update that will offer users an unbiased choice between the most widely used
web browsers in the EEA, and (b) to make available a mechanism in Windows 7
and subsequent versions of Windows in the EEA enabling PC manufacturers and
end users to turn Internet Explorer on and off. The commitments were made
binding on Microsoft by a Decision of 16 December 2009.
“In Microsoft a new analytical framework was applied in the Commission’s
decision, where the actual foreclosure effect was assessed. This suggests a move
towards a rule of reason approach by the Commission.”99
“The Commission also decided that Microsoft was abusing a dominant position in a
second way: by failing to provide certain critical information to its competitors in the
server software market. In response to a complaint by Sun, a Microsoft rival, the
Commission ruled that Microsoft was required to provide information about the
communications protocols of Windows 2000 server software sufficient to enable Sun
(and other Microsoft rivals) to produce server software that would enable rival servers
to interact “seamlessly” with the servers running on Windows 2000.” See Daniel J.
Gifford and Robert T. Kudrle, Antitrust Approaches To Dynamically Competitive
Industries In The United States And The European Union, Journal of Competition Law
& Economics (2011) 7(3): 695-731
99 Karin Montelius, The Application of Article 82 EC to Tie-in Agreements, 2006,
http://lup.lub.lu.se/luur/download?func=downloadFile&recordOId=1560264&fileOId=
1565255
98
The CFI Judgment was followed by the Commission's issuance of its Guidance
on the Commission's Enforcement Priorities in Applying Article 82 EC (102
TFEU) Treaty to Abusive Exclusionary Conduct by Dominant Undertakings
(2009/C 45/02).
-
HILTI v. Commission 100
“Hilti was a company that specialized in nail guns and consumables such as nails,
cartridges and cartridge strips. They were dominant in the market for nail guns.
Rival firms which are small companies specialized in supplying nails for Hilti nail
guns accused Hilti of trying to exclude them from the market for nails by using a
number of measures, one of which was tying cartridge strips and nails together.
This practice made it difficult for other companies to sell their nails. Hilti argued
that the motivation for this practice was concern for quality and safety. The
argument was rejected and the Commission found Hilti to be in breach of Art 82.
Hilti appealed the decision, but both the CFI and the ECJ upheld the
Commission’s decision.”101
-
Napier Brown v. British Sugar102
“British Sugar had a monopoly in the production of beet sugar in the United
Kingdom. Napier Brown was a merchant that bought and resold sugar. Napier
Brown turned to the Commission alleging that British Sugar was using a number
of abusive practices to exclude other companies from the market. One of these
was to only offer its sugar at “delivered prices”. This was in fact a way of tying
the supply of sugar and the delivery service together, and thereby excluding
other delivery companies from this market. The Commission found this practice
to be an abuse of Art. 82, since it eliminated all competition in the delivery
service of the product.”103
-
Hoffmann-LaRoche104
“In Hoffmann-La Roche the case was primarily about “loyalty” discounts. Roche
concluded agreements with their customers, which gave them discounts if they
bought most of, or their entire, vitamin supply from Roche. The Commission
100
Case T-30/89 Hilti AG v, Commission [1991] ECR II-1439, Case 53/92P Hilti AG v.
Commission [1994] ECR I-667.
101 Karin Montelius, at 21
102 Commission decision of 18 July 1988, Napier Brown-British Sugar, (1988) OJ
L284/41.
103 Karin Montelius, at 22
104 Case 85/76 Hoffmann-La Roche v. Commission [1979] ECR 461.
found Roche to be in breach of Article 82, since they had a dominant position on
the vitamin market and abused this position through their behaviour. The ECJ
came to the same conclusion, and said that when applying fidelity rebates, the
purpose is in fact to apply dissimilar conditions to equivalent transactions and
thereby discriminate between the customers.”105
-
Frito Lay106 - (Turkish Competition Authority)
“The Competition Board examined whether the discounts provided by Frito Lay
in return for exclusive agreements are violating the Competition Act. This is a
dominant position case which discusses whether a dominant undertaking’s
exclusive agreements providing only for the sale for sale of only its products with
retail outlets providing only for the sale for sale of only its products complicate
the rival’s activity and constitute abuse. Concerning discounts, the Competition
Board stated that it is necessary to examine the effects of the discount offerings
of Frito Lay on the market in return for exclusive agreements with retail outlets
rather than accepting them as a per se violation. However, the conduct of Frito
Lay, the dominant undertaking in salty snack market, in the form of discounts,
products for free and cash in return for exclusivity was proved to be realized in
limited time periods and limited areas and therefore such a conduct was deemed
to produce limited effect with no power to drive the competitor out of the
market. Therefore no abuse was found by the Competition Board.”107
iii)
Factors to be considered
Below factors are considered in identifying cases of anti-competitive foreclosure
of the market:
Duration: If tying and bundling are long-run strategies of the dominant
undertaking, a foreclosure effect on the market is more likely.
Number of bundled products: The greater the number of the products in the
bundle, the stronger is the likelihood of foreclosure effect. Bundles provide
consumers with a greater variety of products with no or only a small increase in
price, e.g. software bundles, bundled pay-TV offers or combined tickets for skiing
areas, theme parks, museums etc. These bundles may have pro-competitive
105
Karin Montelius, at 24
106 6.4.2006, 06-24/304-7
107 OECD Working Party No. 3 on Co-operation and Enforcement
ROUNDTABLE ON BUNDLED AND LOYALTY DISCOUNTS AND REBATES -- Turkey -10.07.2008
effects as they create a wider product variety for almost no extra cost enhancing
consumer welfare.
Some strategies can lead in practice at the same effects of bundling. For instance,
multi-product rebates applied by the dominant undertaking can foreclose
potential competitors who offer some of the components of the bundle but
cannot compete against the discounted bundle.108
Price regulation in the tying market: If the prices that the dominant
undertaking can charge in the tying market are regulated, tying may allow the
dominant undertaking to raise prices in the tied market in order to compensate
for the loss of revenue caused by the regulation in the tying market.
3) Predatory Pricing -(Predation)
“Competition prevents firms from profitably increasing prices above competitive
levels. In general, therefore, low prices ought to be welcomed. However, in some
instances prices can be so low as to be detrimental to competition. Such pricing
behavior is deemed to be predatory.”109 “Predatory pricing occurs where a
dominant undertaking lowers the prices of its product to such a point that
competitors are compelled to exit the relevant market.”110
Once it is found that there is no objective justification or commercial reason for
such a pricing policy, eliminatory intent is presumed to exist. In the absence of
conceivable economic purposes, prices below average variable costs must be
considered abusive.
However, even if a predating firm can raise prices above the competitive price
level after excluding a rival, this may not be enough to make predation a
profitable strategy. This will depend on how great the losses are that the
predator incurs in the short run, how long the short run is, how soon and by how
much above the competitive price level the predator can raise prices after
excluding a rival and for how long. Obviously, the larger are the short run losses,
and the longer they have to be incurred for, the less likely it is that predation will
be profitable.
Tying And Bundling: Economic Theory And New EC Guidance Paper On
Application Of Article 102, European Economic & Marketing Consultants - EE&MC
report, http://www.ee-mc.com/files/Tying%20Bundling%20Article%20102.pdf
109 Mike Walker, Competition Law, Anti-Competitive Behavior, and Merger Analysis:
Economic Foundations, at 43
110 Oluseye Arowolo, Competition Law Application Of The Concept Of Barriers To
Entry Under Article 82 Of Ec Treaty: Is There A Case For Review?
http://www.dundee.ac.uk/cepmlp/car/html/car8_article12.pdf
108
Criteria for establishing an abuse in the form of predatory pricing in
the EU
European Commission employs a version of the Areeda-Turner test111, which is
usually referred to as the Akzo112 test and has the following two components:
•
•
A price is predatory if it is below the average variable costs113 of the
alleged predator.
A price is predatory if it is above the average variable costs of the alleged
predator but below its average total costs (variable costs + fixed costs)
and the pricing policy is intended to exclude a rival.
This approach was later confirmed in France Télécom/Wanadoo114 case. ECJ
agreed with the Commission decision that Wanadoo Interactive S.A. (at the time
a subsidiary of France Télécom), abused its dominant position on the French
market for high-speed internet access for home-use by offering below cost
prices.115 “The ECJ confirmed, first, that price below average variable costs must
always be considered abusive and, second, that prices below average total costs
but above average variable costs are only to be considered abusive if an
intention to eliminate competitors can be shown.” It was also confirmed that “for
a finding of predatory pricing, the Commission was not required to prove that
Wanadoo had the possibility of recouping its losses. ECJ stated that the lack of
any possibility of recoupment is not sufficient to prevent the undertaking
concerned reinforcing its dominant position, so that the degree of competition
According to Areeda-Turner test a price is predatory if it is below the short run
marginal cost of providing the product or service. Since it is usually very difficult to
measure short run marginal cost, it is assumed that average variable costs provide a
reasonable approximation to short run marginal costs. Thus, the Areeda-Turner test
holds that a price below average variable costs should be considered predatory and a
price above average variable costs should not be considered predatory. See Areeda, P.E.
and Turner, Predatory Pricing and Related Practices under Section 2 of the Sherman
Act, Harvard Law Review 88: 697–733, D.F. 1975.
112 Case C-62/86 AKZO v. Commission
113 Theoretically, variable costs are the expenses that are affected by, and vary with, the
rate of output, i.e., raw material costs. Fixed costs are those that are not affected with the
rate of output such as investments in machinery and equipment.
114 Case T-340/03
111
COMMISSION STAFF WORKING DOCUMENT Accompanying the
REPORT FROM THE COMMISSION on Competition Policy 2009 COM(2010)282
final, 3.6.2010, at 42
115
existing on the market is further reduced and customers suffer loss as a result of
the limitation of the choices available to them.”116
“Another approach to testing for predation is to ask the following three
questions:
•
Are short-run profits are being sacrificed?
•
Is the strategy is likely to lead to the exclusion of a competitor?
•
Will short run losses be recouped in the long run (i.e., is it plausible that
the resulting long-run profits will more than compensate the alleged predator
for the loss of profits in the short-run)?”117
IV) MERGER CONTROL
A) THE NOTION OF CONCENTRATION IN COMPETITION LAW
Concentration refers to the number, distribution and size of the firms competing
in a market. Key aggregation indicators used in assessing market structure and
concentration include market shares, concentration ratios118 and the HerfindahlHirschman Index (HHI). In the case of mergers, the competition authorities look
at the ratios in order to establish how the new entity resulting from the merger
is going to affect the concentration of the market, and thus affect competition.
A merger or acquisition involves, from a competition law perspective, the
concentration of economic power in the hands of fewer than before. This usually
means that one firm buys out the shares of another. However merger is defined
broadly in competition law as the acquisition or establishment, direct or indirect,
by one or more persons, whether by purchase or lease of shares or assets
including IP rights, by amalgamation or by combination or otherwise, of control
over or significant interest in the whole or a part of a business of a competitor,
supplier, customer or other person. The key point in concentration is the change
of control.
116
ibid., at 42-43
Mike Walker, Competition Law, Anti-Competitive Behavior, and Merger Analysis:
Economic Foundations, at 47.
http://www.adb.org/Documents/Others/OGCToolkits/CompetitionLaw/documents/chap2.pdf
118 “In economics, a concentration ratio is a measure of the total output produced in an
industry by a given number of firms in the industry”
http://en.wikipedia.org/wiki/Concentration_ratio
117
“Control may be obtained through rights, contracts or any other means which,
either separately or in combination, confer the possibility of exercising decisive
influence on an undertaking. This decisive influence may be either by way of
ownership or the right to use all or part of the assets of an undertaking; or by
way of rights or contracts which confer decisive influence on the composition,
voting or decisions of the organs of an undertaking. Acquisition of a minority
shareholding can also amount to a merger, if and to the extent it leads to a
change in the control structure of the target entity. Acquiring de facto majority at
the general assembly meetings confer the acquirer de facto control over the
target and lead to a change of control within the meaning of Competition
Law.”119
The reasons for oversight of economic concentrations by the state are the same
as the reasons to restrict firms who abuse a position of dominance, only that
regulation of mergers and acquisitions attempts to deal with the problem before
it arises, ex ante prevention of creating dominant firms.120
1) Horizontal mergers
Horizontal mergers involve mergers between actual and potential competitors
which supply (or purchase) substitute products or services and operate at the
same stage of production(such as between two rival manufacturers) which may
lead to anti-competitive effects and harm to consumers due to the direct loss of
rivalry between these competitors.
2) Vertical mergers
Vertical mergers are mergers between firms which are active at different stages
of the supply chain, such as between a raw material supplier and a manufacturer
which uses that material as an input, or between a manufacturer and a retailer
selling its products.
3) Conglomerate mergers
Conglomerate mergers cover all mergers other than horizontal or vertical
mergers. Mergers between firms active in unrelated markets are very unlikely to
See TCA decisions (Bouygues/Alstom, 15.06.2006, 06-44/551-149;
Total/Cepsa,20.12.2006,
06-92/1186-355; Jacobs/Adecco, 14.4.2006, 06-27/31974). Gönenç Gürkaynak, The International Comparative Legal Guide to:
Merger Control 2011, A practical cross-border insight into merger control,
http://www.iclg.co.uk/khadmin/Publications/pdf/4086.pdf
120 http://en.wikipedia.org/wiki/European_Union_competition_law
119
raise any competition issues. However, Conglomerate Mergers between firms
which supply complementary products may raise competition concerns.
4) Efficiencies
Vertical and conglomerate mergers do not directly change the number of actual
or potential competitors active within any given market. Competitive harm
arising from vertical and conglomerate mergers is less direct and may be more
obviously offset by efficiencies than is the case with horizontal mergers.
Horizontal mergers too, may yield efficiency benefits associated with the
products being substitutes (e.g. associated with savings in common production,
R&D, and logistics costs across substitute products). In contrast, efficiencies
associated with non-horizontal mergers arise because the firms in question are
engaged in complementary activities.
B) AN OVERVIEW OF EU MERGER CONTROL LEGISLATION
Merger Regulation
Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of
concentrations between undertakings (the EC Merger Regulation)
Official
Journal L 24, 29.01.2004, p. 1-22
Implementing Regulation
Commission Regulation (EC) No.802/2004 implementing Council Regulation
(EC) No. 139/2004 (The "Implementing Regulation") and its annexes (Form
CO, Short Form CO and Form RS)
Official Journal L 133, 30.04.2004, p. 1-39.
This Regulation was amended by Commission Regulation (EC) No 1033/2008
(Official Journal L 279, 22.10.2008, p.3-12)
Guidelines & Notices
Commission Consolidated Jurisdictional Notice under Council Regulation (EC) No
139/2004 on the control of concentrations between undertakings, OJ C 95,
16 April 2008,
Commission Notice on a simplified procedure for treatment of certain
concentrations under Council Regulation (EC) No 139/2004, OJ C 56, 5
March 2005,
Commission Notice on the definition of the relevant market for the purposes
of Community competition law, OJ C 372, 9 December 1997,
Guidelines on the assessment of horizontal mergers under the Council
Regulation on the control of concentrations between undertakings, OJ C 31,
5 February 2004,
Guidelines on the assessment of non-horizontal mergers under the Council
Regulation on the control of concentrations between undertakings, OJ C
265, 18 October
2008,
Commission Notice on remedies acceptable under Council Regulation (EC)
No 139/2004 and under Commission Regulation (EC) No 802/2004, OJ C 267,
22 October 2008,
Commission Notice on restrictions directly related and necessary to
concentrations, OJ C 56, 5 March 2005,
C) MERGER CONTROL UNDER TURKISH LAW
1) Article 7 of Competition Act and The Communiqué No.
2010/4 on Mergers and Acquisitions
The relevant legislation on merger control is the Competition Act and a
Communiqué published by the Turkish Competition Authority. Art. 7 of the
Competition Act governs mergers and acquisitions, and authorises the
Competition Board to regulate through communiqués which mergers and
acquisitions should be notified in order to obtain legal validity.
Article 7- Merger of two or more enterprises and acquisition, except
acquisition by way of inheritance, by an enterprise or by a person, of
another enterprise, either by acquisition of all or part of its assets or
securities or other means by which that person or enterprise acquires a
controlling power in that enterprise concerned, which creates or
strengthens the dominant position of one or more enterprises as a
result of which, competition is significantly impeded in the market for
goods and services in the whole or part of the territory of the State, is
unlawful and prohibited.
The Board, shall issue communiqués to announce the categories of mergers
and acquisitions which, to be considered as legally valid, require a
permission by prior notification to the Board.121
121
Madde 7
In accordance with this provision, Communiqué No. 2010/4 on Mergers and
Acquisitions Requiring the Approval of the Competition Board was
published on October 7, 2010 as the primary instrument in assessing merger
cases in Turkey. The Communiqué sets forth the types of mergers and
acquisitions which are subject to the review and approval of TCA. Pursuant to
Article 2 of the Competition Act, foreign-to-foreign mergers fall within the scope
of the Turkish merger control regime, to the extent they affect the relevant
markets within the territory of the Republic of Turkey.122
The New Communiqué defines the scope of the notifiable transactions in Article
5/I as follows:
(a) merger of two or more undertakings; and
(b) acquisition or control by an entity or a person of another undertaking’s
assets or a part or all of its shares or instruments granting it the management
rights.123
2) Permanent Change in Control
Concentrations that do not bring about a permanent change in control will fall
outside of the scope of the Communiqué. Following from this, joint ventures that
permanently meet all functions of an independent economic entity are subject to
notification to, and approval of, TCA.
With regard to meaning of “control”, similar to EU Law, Article 5/II of the
Communiqué provides that: “Control can be constituted by rights, agreements or
any other means which, either separately or jointly, de facto or de jure, confer the
possibility of exercising decisive influence on an undertaking. These rights or
agreements are instruments which confer decisive influence in particular, by
ownership or right to use all or part of the assets of an undertaking, or by rights or
Bir ya da birden fazla teşebbüsün hakim durum yaratmaya veya hakim durumlarını daha
da güçlendirmeye yönelik olarak, ülkenin bütünü yahut bir kısmında herhangi bir mal veya
hizmet piyasasındaki rekabetin önemli ölçüde azaltılması sonucunu doğuracak şekilde
birleşmeleri veya herhangi bir teşebbüsün ya da kişinin diğerbir teşebbüsün mal varlığını
yahut ortaklık paylarının tümünü veya bir kısmını ya da kendisine yönetimde hak sahibi
olma yetkisi veren araçları, miras yoluyla iktisap durumu hariç olmak üzere, devralması
hukuka aykırı ve yasaktır.
Hangi tür birleşme ve devralmaların hukuki geçerlilik kazanabilmesi için Kurula
bildirilerek izin alınması gerektiğini Kurul, çıkaracağı tebliğlerle ilan eder.
122 Gönenç Gürkaynak, The International Comparative Legal Guide to:
Merger Control 2011, A practical cross-border insight into merger control,
http://www.iclg.co.uk/khadmin/Publications/pdf/4086.pdf
123 ibid.
agreements which confer decisive influence on the composition or decisions of the
organs of an undertaking.”
The merger transaction is deemed to have been implemented and effectuated on
the date on which control over the target undertaking(s) have been transferred.
3) Thresholds for mergers subject to notification
Turkish Competition Authority has issued a Communiqué Concerning The
Mergers And Acquisitions Calling For The Authorization Of The Competition
Board (Communiqué NO: 2010/4)
Mergers subject to notification:
a) If the total turnover of the parties to a concentration in Turkey exceeds
100 million TL and the respective turnovers of at least two of the parties
individually exceed 30 million TL; OR
b) the worldwide turnover of one of the parties exceeds TL 500 million and
the Turkish turnover of at least one of the other parties exceeds 5 million
TL.
Multiple transactions between the same undertakings realized over a period of
two years are deemed as a single transaction in terms of turnover calculation.
Once the thresholds are exceeded, there are no exceptions for filing a
notification. There is no de-minimis exception. There is no specific deadline for
filing but the filing should be made before the closing of the transaction. A
transaction is deemed to be “effectuated” on the date when the change in control
occurs.124
A joint-venture which permanently fulfills the functions of an independent
economic entity shall be regarded as a transaction aiming acquisition.
According to the current banking legislation (Article 19, Law No 5411), mergers
in which the merged entity has a market share below 20% of the Turkish
banking market are excluded from the merger provisions of the Law on
Protection of Competition.125
ibid.
Madde 19: Ticaret Kanunu ile devir veya birleşmeye konu bankaların toplam
aktiflerinin sektör içindeki paylarının yüzde yirmiyi geçmemesi kaydıyla 4054 sayılı
Rekabetin Korunması Hakkında Kanunun 7, 10 ve 11’inci maddeleri hükümleri
uygulanmaz.
124
125
4) Failure to notify
In the event that the parties to a merger or an acquisition which requires the
approval of the Turkish Competition Authority realize the transaction without
approval of the TCA, a turnover-based monetary fine of %0.1 of the turnover
generated in the financial year preceding the date of the fining decision (if this is
not calculable, the turnover generated in the financial year nearest to the date of
the fining decision will be taken into account) shall be imposed on the incumbent
firms (acquirer(s) in the case of an acquisition; both merging parties in the case
of a merger), regardless of the outcome of the Competition Board’s review of the
transaction.126
5) Investigation Phases
It is advisable to file the transaction at least 45 calendar days before closing. The
Competition Authority, upon its preliminary review (i.e. Phase 1) of the
notification will decide either to approve, or to investigate the transaction
further (i.e. Phase 2). TCA notifies the parties of the outcome within 30 days
following a complete filing.127 In the absence of any such notification, the
decision is deemed to have received a tacit approval. If a notification leads to an
investigation (Phase 2), it evolves into a fully-fledged investigation. Under
Turkish law, the investigation (Phase 2) takes about six months. If deemed
necessary, this period may be extended only once, for an additional period of up
to six months. Under Article 14 and Article 15 of the Competition Act, the
Competition Authority may send requests for information and may carry out onthe-spot investigations. Monetary penalties are applicable in the case of noncompliance. 128
6) Prohibition, clearance or conditional approval
The Competition Authority may either render a clearance or a prohibition
decision. It may also give a conditional approval. Examples of the Competition
Authority’s pro-competitive conditions include divestitures, ownership
unbundling, legal separation, access to essential facilities, obligations to apply
Gönenç Gürkaynak
In the event the Competition Authority asks for another public authority's opinion in
reviewing a transaction, the applicable time periods for the "tacit approval" mechanism
(i.e. the review period) will start running anew from Day 1 as of the date on which the
relevant public authority has submitted its opinion to the Competition Authority.
Gönenç Gürkaynak, New Merger Control Regime to be Effective in Turkey Starting with
January 1st, 2011, http://www.mondaq.com/article.asp?articleid=112460
128 Gönenç Gürkaynak
126
127
non-discriminatory terms, transfer or licensing of IP rights etc. There is no
standard approach to the terms and conditions to be applied to a divestment.
Parties may provide commitments to remedy substantive competition law issues
of a concentration. The parties may also submit proposals for possible remedies
either during the preliminary review or the investigation period.
Guidelines on Remedies
According to Guidelines on Remedies Acceptable By TCA In
Merger/Acquisition Transactions (2011), where a concentration notified to
TCA raises competition concerns, either in the Phase 1 or in the Phase 2 stage,
that it might constitute an infringement of Article 7 of the Act, TCA shall notify
the parties of these concerns. It is the responsibility of the Commission to show
that a concentration would significantly impede competition as a result of the
creation or strengthening of a dominant position in the relevant market. In such
case, parties shall submit commitments to TCA to remedy the competition
concerns.
To this end, parties shall provide, with the commitments, detailed information on
the content of the commitments offered, conditions for their implementation and
showing their suitability to remove any significant impediment of effective
competition. For commitments consisting in the divestiture of a business, parties
shall provide a description of the divested business so as to enable the TCA to
assess the viability, competitiveness and marketability, by comparing its current
operation to its proposed scope under the commitments.
The Authority shall decide whether the proposed remedies, once implemented,
would suffice to eliminate the competition concerns identified. Given the fact
that it is the parties who possess all the relevant and the most comprehensive
information necessary for such an assessment, as to the feasibility of the
proposed commitments and remedies, it is the responsibility of the parties to
provide all such information available that is necessary for the assessment of the
remedies proposal.
7) Violation of Art. 7, Invalidity of the Transaction
In the event that a transaction subject to notification was not notified and
subsequently found to be in violation of Art. 7 (in other words, it creates or
strengthens a dominant position and causes a significant decrease in
competition), the undertakings shall be subject to fines of up to %10 of their
turnover generated in the financial year preceding the date of the fining decision
(if this is not calculable, the turnover generated in the financial year nearest to
the date of the fining decision will be taken into account). A notifiable merger or
acquisition, not notified to or approved by the Competition Authority shall be
deemed as legally invalid with all its legal consequences.129 ???
Employees and managers of parties that had a determining effect on the
occurrence of the violation may also be fined up to %5 of the fine imposed on the
respective party.
In determining the monetary fines, the Competition Board shall take into
consideration the existence of willful misconduct, intent, economic power of the
entities, degree of negligence and amount of possible damage in the relevant
market, as well as the market power of the undertaking(s) within the relevant
market.130
In addition to the monetary sanction, TCA is authorised to take all necessary
measures to terminate the transaction, remove all de facto or legal consequences
of every action that has been taken unlawfully, return all shares and assets if
possible to the places or persons where or who owned these shares or assets
before the transaction or, if such measure is not possible, assign these to third
parties; and meanwhile to forbid participation in control of these undertakings
until this assignment takes place and to take all other necessary measures.
V) FINES TO APPLY & ACTIVE COOPERATION
UNDER TURKISH LAW
A) ADMINISTRATIVE FINES
İDARÎ PARA CEZASI (4054 Art. 16)
129
130
ibid.
ibid.
Fines to Managers and Employees Having Decisive Influence
B) AGGRAVATING AND MITIGATING FACTORS
1) Aggravating factors
(Regulation On Fines To Apply In Cases Of Agreements, Concerted Practices And
Decisions Limiting Competition, And Abuse Of Dominant Position (Regulation On
Fines) Art. 6
ARTICLE 6 – (1) The base fine shall be increased by half to one fold;
•
•
•
•
a) for each repetition in case of the repetition of the violation,
b) in case the cartel is continued after the notification of the
investigation decision.
(2) The base fine may be increased;
a) by half to one fold, where the commitments made for the
elimination of the competition problems raised within the scope of
Article 4 or 6 of the Act are not met,
b) by up to half, where no assistance with the examination is
provided,
•
c) by up to one fourth, where other undertakings are coerced into the
violation.
2) Mitigating factors
C) ACTIVE COOPERATION/LENIENCY
The basics of the Leniency Program 131
Gönenç Gürkaynak, A New Era In Turkish Antitrust Enforcement: Leniency
Program And Regulation On Fine Calculation
Neşe Taşdemir Önder, Turkish Competition Authority Published Regulation On
Immunity From Fines And Reduction Of Fines In Cartel Cases
131