April 18, 2023 the 1st Supervision and Enforcement Department of the Turkish Competition Authority (the "Authority") published its "Report on the Reflections of Digital Transformation on CompetitionLaw" (the "Report"). We believe, the Authority's main purpose in preparing this Report is to have basis for the regulatory amendments with regard to the digital sector, due to the objections raised by the stakeholders upon publishing of the draft amendments to the Law No. 4054 on the Protection of Competition back in October 2022.
A. Purpose and Scope
The report, which consists of approximately 300 pages, in general, focuses on; (i) trends, current situationand potential of digitalization in Türkiye, (ii) competition-related issues emerging with digitalization, (iii) the Turkish Competition Authority's investigations and decisions on digital markets, (iv) steps that have been taken by competition authorities around the world, (v) possible competition violations observed in the digitalmarkets, and (vi) insights from the market on core platform services.
B. Main Findings in relation to Digital Markets
In acknowledgement of the radical changes due to digitalization in business models and methods of doing business, which eventually is indicated to transform the tendencies and behaviors of consumers and undertakings, the Report provides that digitalization will primarily have an impact on the competition in the markets for goods and services, and one of the main areas of law that is and will be affected by digitaltransformation is competition law.
The Report states that digital markets have different characteristics that make competition law enforcement in such area challenging and even, inadequate, which are indicated as follows: (i) first-mover advantage, (ii)high entry/investment costs, (iii) economies of scale and scope, (iv) network effects and data ownership. The Report adds that the tipping-prone nature of these markets, high barriers to entry and market growth, rapid growth of undertakings to unusually large sizes and the ability to easily shift their activities to different sectors, and the existence of dozens of different business models significantly affect competition lawenforcement in these markets and provides that such challenges are generally observed in four main areas: (i)defining the relevant market, (ii) accurately determining the market power of undertakings, (iii) accurately identifying the anti-competitive conduct and (iv) finding adequate remedies for the resulting damage. Below are the Reports inferences with regard to these areas:
Defining the relevant market: The Report identifies the main problems in terms of defining the relevant market in digital markets as follows: conventional market definition tools cannot be used and require adaptation, supply and demand substitution considerations become more complex, and diverse and dynamic business models reduce the accuracy of typology-based definitions. Yet, the Report finally indicates such problems as more acute in terms of accurately identifying the market power of undertakings.
Accurately determining the market power of undertakings: The Report states that although it is possible to use classical indicators to determine market power by adapting them to the dynamics of digital markets, the accurate determination of market shares may require a different method for each specific platform, and it may be challenging to establish dominant position due to the constantly changing market shares under the dynamic atmosphere of digital markets. The Report then concludes that market shares determined in digitalmarkets may not be reliable, and dominant position analysis in such markets should not be subjected to strict market share thresholds.
Accurately identifying the anti-competitive conduct: The Report emphasizes that understanding the anti-competitive conduct and planning the intervention in terms of timing is particularly difficult in digital markets; a late intervention in these markets may lead to market closure, while an early intervention may undermine the innovation and investment incentives. As a result, the Report indicates that intervention is often delayed, damaging the competitive environment in the market and often resulting in irreversible consequences.
Finding adequate remedies for the resulting damage: The Report finally touches upon the difficulty ofeffective implementation and monitoring/supervision by the relevant authority of the remedy that would eliminate the identified breach in digital markets; the relevant remedy can only be applied prospectively and cannot eliminate the effects of the infringement in the relevant market; in some cases, the remedies put forward by the authorities do not even fulfill the function of re-establishing competition in the market.
The Report thus points to the inadequacy of current competition law rules in addressing these problems in digital markets and concludes that complementary regulations should be introduced in this regard.
C. Other Notable Findings
The Report contains a summary of each investigation carried out (and being carried out) with regard to digitalmarkets (including the Google Android, Google Shopping, Google Local Search, Google Adwords, Whatsapp/Facebook, Trendyol, Elon Musk/Twitter) and both the decisional practice and regulatory steps being taken around the globe in this regard.
Then, the Report explores the possible competition violations observed in the digital markets under seven main headings:
- Collection, processing and use of data
- Data portability and interoperability
- Self-favoritism and/or self-preferencing
- Tying and Bundling Practices
- Exclusivity and MFN Practices and Unfair Contract Terms
- Lack of Transparency
- Concerns Over Merger and Acquisition Transactions
The Report also comprehends the views of stakeholders in the markets for eight different basic platform services and identifies the anti-competitive concerns in each such market as follows:
1-Intermediary Services. The Report tackles with this section under three main types of intermediary services: (i) price comparison, comparison and reservation services, (ii) application stores, (iii) fintech services. In all these types of services, the Report touches upon the anti-competitive concerns related to entry barriers, lack of transparency in search algorithms, data portability and interoperability, self-preferencing and payments realized at application stores.
2-Search Engine Services. The Report indicates one of the main anti-competitive concerns in this market as the pre-installed (default) presence of search engines in mobile operating systems, internet browsers and/or technology products such as voice commands. It states that the pre-installed applications are widely used by users and most users do not tend to search for alternative applications, thus, undertakings offering competing products are disadvantaged. Another competitive concern indicated in the Report is the lack ofdetailed disclosure of algorithm changes by search engines and insufficient transparency.
3-Social Media Services. The Report emphasizes here that combating anti-competitive practices of large digital platforms, which act as gateways for commercial users to reach end-users and thus are inevitable trading partners for these commercial users, is difficult due to the resource-based and protracted nature ofcompetition investigations. Moreover, the Report states that existence of disparate regulations affecting online platforms poses the risk of increased operational and compliance costs for businesses, and cumulative and complex regulatory frameworks would burden small and medium-sized companies, thereby benefiting incumbents.
4-Video Sharing Services. The Report touches upon the anti-competitive concerns arising from the activities of vertically integrated undertakings in the video-sharing market, in particular with respect to favoritism of their own products and services, methods of purchasing advertising, and the diversion ofconsumer attention.
5-Number-independent Peer-to-Peer Communication Services. One of the competition concerns mentioned in the Report, particularly in relation to instant messaging services, is that some of the applications available in the market are available on limited devices, i.e. lack of interoperability. In addition, it is mentioned that some numberless communication service applications are pre-installed on devices, which reinforces consumers' single access behavior and limits competition in the market, the functionality and quality ofservices offered, consumer preferences and technical development.
6-Communication System Services. In terms of communication systems, the Report cites concerns about limiting the ability of end-users to uninstall/remove the pre-installed applications and to install third-party applications instead, as well as concerns about data collection, use of collected data and data transparency.
7-Cloud Computing Services. The Report states that the most prominent anti-competitive concern in cloud computing services is related to data (data transparency, data portability) but eventually concludes that there are no significant entry barriers nor practices that may cause anti-competitive concerns.
8-Online Advertising Services. The Report identifies the main competition related concerns in the online advertising market as the dominance of global players and the lack of transparency in the auction process. In terms of the auction process, undertakings the Authority referred to have stated that the intermediary decides which advertisements are published and when, but the information used in the algorithm that makes this decision is unknown.
D. BTS Comments and Implications
As indicated above, we believe the Authority's main purpose in preparing this Report is to have basis and pave the way for regulatory amendments tackling with the specific characteristics of the digital sector, thus we expect the Report to be indicative of legislative efforts to address the anti-competitive concerns referred to in the Report.
Subject to any developments regarding the upcoming elections, it seems as though the Authority will increase its scrutiny over the incumbents in the digital markets and focus on alleviating competition concerns in the digital markets.
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