New development
The increased use of the internet and the rapid advancement of technology have profoundly affected the business models and operating principles of undertakings all over the world. Consumer preferences in digital markets have also changed as a result of this transformation. Accordingly, Turkish Competition Authority (“Authority“) conducted a study on which competitive interventions might be appropriate for the structure and functioning of digital markets under Turkish competition law, how competition law and policy may be shaped in the near future, and consequently the policy changes required in these markets. The final version of the Digital Markets Study (“Study“), was published on the Authority’s website on 18 April 2023. The Authority’s announcement which contains a link to the Study is available here (in Turkish).
Main findings of the study
The Study, in essence, contains the Authority’s assessments of several segments within the scope of digital markets. The relevant findings and recommendations of the Study are summarized below:
- Current status and potential of the digitalization process in Turkey: In the Study, various indicators (e.g. internet infrastructure development indicators, internet, use of social media, rates, habits and perception, and age distribution of the population) were considered within the scope of the speed, current status, and potential of digitalization in Turkey. The empirical data provided in light of these indicators anticipates that Turkey performs above the world average with regard to the digitalization process and that the speed of development will increase further with the elimination of infrastructure deficiencies.
- Competition concerns because of digitalization: The Study highlights the first-mover advantage, high entry/investment costs, economies of scale and scope, network effects, and data ownership characteristics of digital markets that challenge traditional competition law approach, and even make them ineffective.
As per the Study, these challenges are expected to be encountered in four key areas: (i) defining the relevant market; (ii) identifying the market power of undertakings accurately; (iii) identifying the anti-competitive conduct; and (iv) finding a remedy for the infringement.
The above-mentioned challenges have led the Competition Board (“Board“) to focus on digital markets even more, and many detailed decisions, investigations, and sector inquiries have been carried out recently.
- Investigations and decisions of the Board related to digital markets: An analysis of the investigations and Board decisions related to digital markets reveals that a significant number of the files dated from recent years and fell within the scope of Article 6 of Law No. 4054 on the Protection of Competition (“Law No. 4054“), which prohibits the abuse of dominant position.
According to the Study, 15 decisions and 5 ongoing investigations were conducted related to digital markets. In addition, it was emphasized that the Authority, which published the final report titled “E-Marketplace Platforms Inquiry” dated 14.04.2022 and the preliminary report titled “Online Advertising Sector Inquiry” dated 07.04.2023, is actively engaging in sector reviews.
Against the foregoing, it is clear that the digital markets are under close scrutiny by the Authority. In fact, the Study shows that foreign competition authorities carry out new legislations and studies with similar competitive concerns.
- Studies, regulations, and practices of foreign competition authorities: Based on the Study, many foreign Competition Authorities have similar concerns with regard to digital markets. An in-depth discussion of regulations that have been legislated or implemented for digital markets is provided in the Study. The Digital Markets Act (DMA)[1] and the Digital Services Act (DSA)[2], the draft legislation published by the European Commission, are among the most significant regulations. The advisory report[3] published by the British Competition Authority (CMA) in December 2020 on digital markets is deemed to be an important global steps.
This suggests that competition law concerns related to digital markets are global as well as local.
- Possible infringements observed in digital markets: Within the scope of the Study, it is noted that it is unclear under which of the pre-existing categories of infringement and under which theory of harm the Authority will assess the conduct.
The main competitive concerns raised in this regard are as follows:
1. Collection, Processing, and Use of Data: The Study focuses on exploitative and/or exclusionary theories of harm with respect to data aggregation. It has been assessed that excessive data collection may lead to a dominant position or strengthen a dominant position. Consequently, related undertakings may abuse their dominant position through exclusionary/exploitative practices.
2. Data Portability and Interoperability: According to the Study, data is becoming increasingly crucial for digital markets and, thus, preventing data portability and interoperability is becoming a competition concern.
Data portability and interoperability are seen as pro-competitive as they; (i) render the externalities caused by network effects; (ii) encourage entry to digital markets and provide freedom to users between the relevant products; (iii) strengthen the user’s ability to control their data; (iv) reduce costs for the consumer and increase innovation.
3. Favoring and/or Promoting Product/Service: As per the Study, undertakings with significant market power may favor their own products and/or services in different ways.
For example, this may include; (i) placing their own products or services in the foreground/higher in the rankings than those of their competitors; (ii) using data obtained within the scope of the basic platform service provided for their own favor; (iii) if vertically integrated, limiting or completely restricting their downstream competitors’ access to the basic platform service in the upstream market, or (iv) giving their products/services an advantage over competitors’ products/services by pre-loading or integrating their products/services with devices.
4. Tying and Bundling Practices: Based on the study, undertakings with significant market power in digital markets may harm consumers by causing market closure in the tied product market, even if they are not in a dominant position.
In order to establish the tying theory, the Study sets forth the following conditions: (i) the undertaking performing the tying practice must be in a dominant position in the tying product market; (ii) the structural characteristics of the tying market where the exclusion occurs must be assessed; (iii) to qualify tying as an infringement, the existence of tied products that were separated before must be demonstrated; (iv) the sale of the tying product must be mandatory for the purchase of the tied product; and (v) the tying practice is likely to cause entry barriers.
5. Exclusivity, Most Favoured Customer (“MFC”) Practices and Unfair Contract Terms: Due to the strong network effects in digital markets, the risk of tipping is a competitive concerns, yet, exclusivity practices increase this risk by causing entry barriers.
The Study also notes that the theories of harm should be evaluated in the case of MFC practices and classified under three main headings: (i) decreased competition in the market due to the commission rates and accordingly higher retail prices; (ii) price rigidity in the market and anti-competitive collusions; and (iii) decreased market entry, facilitated market exit and/or restricted the market growth.
Finally, competitive concerns regarding unfair contract terms should be evaluated under Article 6 of Law No. 4054 provided that digital platforms have a certain market power.
6. Lack of Transparency: In terms of the effective functioning of digital markets, the Study identified the need to ensure transparency in three separate areas.
These include informing consumers about the terms and conditions and ranking parameters of the service they receive, and about the advertisements they encounter when receiving that service.
7. Merger and Acquisition Transactions Concerns: The Study divides the frequent criticisms made by competition law practitioners regarding concentration transactions carried out by undertakings with a dominating position in digital markets into two categories.
The first criticism is that the undertakings’ transactions fall below the thresholds for merger controls in most jurisdictions or do not meet the requirements for review.
The second set of criticisms alleges that either market power, entry obstacles, or any other anticompetitive consequences that could result from the transaction have been disregarded, or that standard assessments were insufficient to foresee potential concerns in this market.
The Study currently includes alternative thresholds such as transaction value and notification of all transactions of the identified undertakings in the market to prevent transactions with significant market effects from evading competition law merger control. These alternative thresholds aim to capture those transactions that turnover cannot.
- Market insights from the platform services: The Study also assesses the market characteristics and competitive concerns for brokerage services, search engine services, social media services, video sharing services, number-independent peer-to-peer services, operating system services, cloud computing services, online advertising services.
In particular, concerns such as barriers to market entry, favoritism, and abuse of a dominant position by an undertaking that is already dominant in the relevant market in other markets are the main and common concerns of the assessed services.
In this regard, many stakeholders, from consumers to large technology undertakings, share common ground on the practices in digital markets, the challenges encountered, and the policy adjustments.
Conclusion
In light of the Study, the Authority has determined that it is difficult to understand the action and plan the intervention in terms of time to detect anti-competitive acts in the digital market. Accordingly, the Study concluded that while early intervention may undermine the innovation and investment incentives of the undertakings in the market; late intervention may lead to market closure,
In light of this, the Authority has come to the conclusion that it would be appropriate to (i) draft legislation outlining the fundamental principles and practices for the regulation of the digital market and (ii) make specific provisions for the relevant fundamental regulations through secondary legislation.
[1] Digital Markets Act, Regulation (EU) 2022/1925, 14 September 2022, https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32022R1925 Accession Date: 19.04.2023
[2] Digital Services Act, Regulation (EU) 2022/2065, 19 October 2022, https://eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX%3A32022R2065&qid=1666857835014 Accession Date: 19.04.2023
[3] A new pro-competition regime for digital markets, Advice of the Digital Markets Taskforce, December 2020, CMA, https://assets.publishing.service.gov.uk/media/5fce7567e90e07562f98286c/Digital_Taskforce_-_Advice.pdf Accession Date: 19.04.2023
