Competition Law and Policy

Within a comprehensive approach, “competition policy” can be defined as “the set of policies and laws which ensure that competition in the marketplace is not restricted in a way that is detrimental to society”.

the most common objective accepted by many competition authorities in the world is to promote economic welfare and ensure the efficient use of resources in the economy. Some countries tend to use the consumer welfare standard in enforcing competition rules. The total welfare standard is also used in some other jurisdictions. In the EU, the main objective of competition rules is to ensure the proper functioning of the common market. In different times and different countries, other objectives such as creating and protecting national champions, promoting pluralism, ensuring decentralization of economic decision-making, supporting small businesses, fairness, and equity have also been attributed to competition policy.

The first anti-trust law in the world was adopted in Canada in 1889.

The federal antitrust law in the United States of America (USA), known as the Sherman Act, was adopted in 1890. Section 1 of the Sherman Act prohibits contracts, combinations, and conspiracies that restrain trade. Section 2 of the Sherman Act prohibits monopolization, attempts to monopolize, and conspiracies to monopolize “any part of the trade or commerce among the several states, or with foreign nations.

The Clayton Act was introduced in 1914 to cover mergers that could lessen competition. The Clayton Act also prohibits price discrimination which reduces competition.

In the USA, anti-trust laws are enforced by the Department of Justice and the Federal Trade Commission.

The effective law in the field of competition in Türkiye is The Act of the Protection of Competition numbered 4054 (Law No.4054), adopted on December 7, 1994.

Similar to those in the EU, the substantive provisions of Turkish competition law are set on three
pillars:
(a) “Agreements, Concerted practices and Decisions Limiting Competition” (Article 4),
(b) “Abuse of Dominant Position” (Article 6), and
(c) “Mergers or Acquisitions” (Article 7).

In economics, the concept of market power is defined as the ability of a firm or a group of firms to set prices at a level significantly higher than the competitive level. Similarly, the same can be said for the ability to set the level of quantity and quality supplied at a level significantly lower than the respective competitive levels.

Dynamic efficiency is the increase in welfare obtained when firms produce new products or introduce new processes of production. Competition leads firms to invest in innovation to become more successful than their rivals.

Because there is only one firm in monopolistic markets, the monopolist has a lower incentive to innovate, and therefore it is less efficient than firms in competitive markets.

The relevant market has two dimensions: product market and geographic market. Usually, two dimensions are defined and assessed together.

The geographical markets are defined as the areas in which the conditions of competition are sufficiently
homogenous and are appreciably different from those of neighboring areas.

The higher the demand elasticity (in absolute value), the lower the monopolist’s market power is.

In Turkish competition law, “agreement” is defined as “all kinds of compromise or accord to which the parties feel bound,” and it does not matter whether the agreement is written or verbal. The most important condition for an agreement to exist in competition law is the intention of the parties to take actions as mutually agreed, and any mutual consent among the parties is sufficient to accept the presence of an agreement

Through vertical agreements, manufacturers can impose upon their retailers the price at which the product should be sold to the final customer. This business practice is “resale price maintenance” (RMP).
RMP can have the potential to facilitate collusion and enhance cartel stability between manufacturers by
eliminating price variation at the retail level.

The agreements signed between undertakings operating at different levels of the production or distribution chain to purchase, sell, or resale particular goods or services are called “vertical agreements.”

Rebate systems can have positive effects on efficiency and consumer welfare by decreasing the price paid by customers, increasing the volume of output and product variety, by lowering transaction costs that can be caused by the separate sale of products. However, the rebates offered by dominant firms may also result in anti-competitive foreclosure.

When assessing refusal to supply, competition authorities in the EU and Türkiye investigate whether the three conditions below are satisfied:
• “The refusal should relate to a product or service that is indispensable to be able to compete in a
downstream market,
• The refusal should be likely to lead to the elimination of effective competition in the downstream market,
• The refusal should be likely to lead to consumer harm”

Mergers between firms in the same relevant market are defined as “horizontal mergers.” Nonhorizontal
mergers occur between firms that are not in the same relevant market. Mergers between firms in the different supply chain stages (e.g., manufacturer, distributor, retailer, etc.) are known as “vertical mergers.” If the merger is between firms that are not direct rivals of each other or between firms that do not have a vertical relationship, then the merger is said to be a “conglomerate merger.”

HHI is equal to the sum of the squared market shares of the independent undertakings in the market. In calculating the HHI, the market shares of the firms belonging to the same economic unity are taken into account in the aggregate.

GUPPI: The Gross Upward, Pricing Pressure Index, was proposed by Salop and Moresi (2009) and Moresi (2010).The GUPPI provides an estimate of the merged firm’s incentive to raise prices. However, it does not directly estimate price rises after a merger. It is usually compared against an assumed ‘tolerable’ threshold, such as 5% or 10%. If GUPPI is larger than this threshold, it is accepted that the merger could raise competition concerns. It does not take into account the efficiency gains from a merger.

UPP:The UPP test was developed by Farrell and Shapiro (2010).The UPP test does not estimate the magnitude of the price increase. It only shows the likelihood of a post-merger price increase.

IPR:The Illustrative Price Rise (IPR) tests directly predict the magnitude of price increases after a merger (Shapiro, 2010).Unlike GUPPI and UPP, the IPR tests require information, or assumptions, on the functional form of demand and the pass-through rate.

a. Digital markets are multi-sided. For example, a digital e-commerce platform offers services to both final consumers and sellers of products.
b. There are strong network effects in the digital markets. As the number of users of a platform increases, the value of the platform increases also. In addition, as the number of users who use the services on one side of the platform increases, the demand for the services on the other side also increases. Strong network effects may lead to markets “tipping” into a monopoly.
c. There are significant economies of scale and scope in digital markets. Therefore, firms can enlarge their geographic coverage or enter other markets easily.
d. Big data is the most important input. Digital markets depend on large amounts of user data that are difficult to collect, replicate, and analyze by new entrants.
e. In some cases, users can have switching costs if they decide to change the platform they use.
f. Intellectual property rights on the use of a particular technology can be a barrier to entry.
g. Some services are offered at zero price. Instead, consumers pay by sharing their personal data. Digital platforms earn money by selling the spaces for advertising using user data.
h. Digital markets are characterized by disruptive innovation. A product or service enters into the market through simple applications that are less expensive but more accessible, then relentlessly eventually displaces established competitors.
i. Vertically integrated or conglomerate business models are observed in some digital markets. Through these business models, firms may leverage their market power from one market into another.