Price / Margin Squeeze
Introduction
Dominant undertakings have a unique responsibility to ensure that their conduct does not distort competition in a particular market for goods or services. However, in some cases, such undertakings may use their dominance to obstruct others and to restrict their options, such as cases of ‘price squeeze.’ The term of ‘price squeeze’ (also referred to as ‘margin squeeze’) corresponds to an anticompetitive practice that occurs when there is a narrow margin between an integrated provider’s price to sell essential inputs to a rival and its downstream price that the rival cannot survive or effectively compete[1] with.
Price squeeze cases before the competition authorities are relatively common. Many of the price squeeze cases particularly arise in the telecommunications sector, but also in other sectors, such as water, railways, postal services, pharmaceuticals, pay television and gasoline sectors, etc[2].
‘Price Squeeze’ as an Abuse of Dominant Position
Art. 6 of Act No. 4054 on the Protection of Competition (“Act No. 4054”) entitled ‘Abuse of Dominant Position’ covers a general prohibition of abuse of dominant position with a list of particular cases deemed as abusive. Although ‘price squeeze’ is not explicitly specified under this list, it is regulated as a form of abuse in the Guidelines on the Assessment of Exclusionary Abusive Conduct by Dominant Undertaking (“Guidelines”).
The definition of price squeeze in the Guidelines is based on the Competition Board’s (“Board”) decision dated 19.11.2008 and numbered 08-65/1055-411[3]. As per the Guidelines, price squeeze occurs “when an undertaking that is active in vertically related markets that is dominant in the upstream market sets the margin between the prices of the upstream and downstream products at a level, which does not allow even an equally efficient competitor in the downstream market to trade profitably on a lasting basis.” A vertically integrated undertaking with a dominant position in the upstream market may cause price squeeze by increasing the price for the upstream product, by decreasing the price for downstream products, or by doing both concurrently. In this respect, a dominant undertaking may restrict the competition in the relevant market via transferring its market power over the upstream products to the downstream market.
Conditions Sought for Price Squeeze
In order to establish that competition rules are infringed, certain economic and legal conditions regarding the structure of the market should simultaneously exist wherein a vertically integrated dominant undertaking and its competitors operate[4]. As specified in the Guidelines, the Board takes certain factors into account while determining the likelihood of conduct under examination leading to anticompetitive foreclosure by price squeeze. These factors are specified as follows: (i) the undertaking must be active in upstream and downstream markets that are connected to each other in a production chain, (ii) the upstream product must be indispensable for operating in the downstream market, (iii) the undertaking must hold a dominant position in the upstream market, (iv) the margin between the upstream and downstream products must be low enough to ensure that a competitor which is as efficient as the undertaking that is dominant in the upstream market would be unable to profit and operate in the downstream market on a lasting basis.
Prominent Decisions of the Court of Justice of the European Union on Price Squeeze
Below, some of the most prominent decisions of the Court of Justice of the European Union (“CJEU”) on price squeeze are succinctly briefed.
Judgment of the CJEU in Deutsche Telekom AG v. Commission[5]
The CJEU issued its judgment in the Deutsche Telekom AG v. Commission Case consisting of the dismissal of the appeal filed by Deutsche Telekom AG (“Deutsche Telekom”) against the judgment of the Court of First Instance (now the General Court) and the upholding of the €12.6 million fine imposed by the Commission on Deutsche Telekom for abuse of its dominant position in the fixed telephony markets in Germany. That abuse consisted of charging competitors prices for network access services (‘local loop access services’) that were higher than the retail prices, which Deutsche Telekom’s end-users were charged for access. Such pricing forced competitors to charge their end-users prices higher than those that Deutsche Telekom charged its own end-users. According to the CJEU, Deutsche Telekom strengthened its dominant position by squeezing the margins of its competitors, and consequently, caused damage to consumers by limiting the choices available to them[6].
Judgment of the CJEU in Telefónica S.A. and Telefónica de Espaha S:A:U: v. Commission[7]
The CJEU issued its judgment in Telefónica S.A. and Telefónica de Espaha S:A:U: v. Commission. Based on this judgment, the CJEU dismissed the appeal lodged by Telefónica and Telefónica de Espaha (“Telefónica”), the former state monopoly in telecommunications in Spain, concerning its abuse of a dominant position in the wholesale broadband markets. The CJEU decided that Telefónica abused its dominant position by imposing unfair prices on its competitors in the form of a margin squeeze between the prices for the retail broadband access market, and the prices on the regional and national wholesale broadband access markets[8]. Also, it is noteworthy that the fine of €152 million imposed by the Commission and upheld by the General Court remained unchanged.
Prominent Decisions of the Board on Price Squeezes
The Board frequently makes investigations with regard to price squeezes in the telecommunications sector due to numerous complaints raised in the market. Unsurprisingly, the Board’s first decision[9] with respect to price squeezing was in the telecommunications sector. Yet, the term of price squeezing was not examined elaborately in the said decision, and the complaint against Türk Telekomünikasyon A.Ş. (“Türk Telekom”) was rejected by the Board, since Türk Telekom’s relevant campaign was approved by the Information and Communication Technologies Authority.
Board Decision on Türk Telekom and TTNet [10]
A remarkable decision of the Board concerning price squeezing was rendered against Türk Telekom and TTNet A.Ş. (“TTNet”), which is a subsidiary of Türk Telekom. The Board imposed an administrative monetary fine of TRY 12.4 million upon Türk Telekom and TTNet, since this economic integration violated Art. 6 of Act No. 4054 by means of abusing its dominant position in the wholesale broadband internet access services by squeezing the margins in the retail broadband internet access services. With regard to this decision, it is crucial that the Board clarified three factors in relation to price squeezing. The first of these factors is related to the means to calculate the insufficient margin in price squeezing. Secondly, price squeezing is different from predatory pricing, and retail prices do not need to be predatory. Even if a predatory price cannot be determined, the determination of a price squeeze can be realized. Thirdly, the duration of the conduct should be taken into account in order to determine the price squeeze infringement. Additionally, as it was found related to the case in question, the Board referred to recent -relatively, as per the date of the said case- Telefónica and Deutsche Telekom decisions concluded by the Commission and the Court of First Instance, respectively.
Board Decision on Turkcell Corporate Tariffs[11]
Another significant decision of the Board regarding price squeezing is the Turkcell Corporate Tariffs pre-investigation decision. In this decision, the Board examined whether the input price by Turkcell İletişim Hizmetleri A.Ş. (“Turkcell”), which is the undertaking with the dominant position in the upstream market, applied to the other undertakings operating in the downstream retail market, is higher than its own retail price in the downstream market, or not. Additionally, the Board evaluated whether an ‘efficient operator’ could operate with a ‘normal profit’ under such circumstances in the downstream market. The Board eventually concluded that the margin between Turkcell’s average retail prices in the downstream market, and the costs of an efficient operator was sufficient to operate in the market. In conclusion, no price squeeze conduct of Turkcell was found, and the relevant complaint was rejected by the Board.
Conclusion
Price squeezing is one of the forms of abuse under competition law. As specified above, a vertically integrated undertaking with a dominant position in the upstream market may cause price squeezing by increasing the price for the upstream product, by decreasing the price for the downstream product, or by doing both, concurrently. In this respect, a dominant undertaking may restrict the competition in the relevant market via transferring its market power over the upstream product to the downstream market. Apart from the telecommunications sector, there are other investigations conducted in relation to price squeezing allegations in other sectors. Lastly, in order to prevent any anticompetitive conducts of price squeezing, and to provide and protect effective competition in the relevant markets, attention should be paid to the conduct of undertakings active in upstream and downstream markets that are connected to each other in a production chain, and which hold dominant positions in the upstream market.
[1] OECD DAF/COMP(2009)36, Policy Roundtable on Margin Squeeze, available at: http://www.oecd.org/regreform/sectors/46048803.pdf (Accessed on: 07.12.2016).
[2] OECD DAF/COMP(2009)36, Policy Roundtable on Margin Squeeze, p. 8.
[3]Board decision dated 19.11.2008 and numbered 08-65/1055-411, available at: http://www.rekabet.gov.tr/File/?path=ROOT%2f1%2fDocuments%2fGerek%25c3%25a7eli%2bKurul%2bKarar%25c4%25b1%2fkarar2899.pdf (Accessed on: 07.12.2016).
[4] OECD DAF/COMP(2009)36, Policy Roundtable on Margin Squeeze, p. 218.
[5] Case C-280/08 P - Deutsche Telekom AG v. Commission, Judgment of 14.10.2010, ECLI: EU:C:2010:603.
[6] Court of Justice of the European Union, Press Release No 104/10, Luxembourg, 14.10.2010, available at: http://europa.eu/rapid/press-release_CJE-10-104_en.pdf (Accessed on: 07.12.2016).
[7] Case C-295/12 P - Telefónica and Telefónica de España v Commission, Judgement of 10.07.2014, ECLI:EtJ:C:2014:2062.
[8] Court of Justice of the European Union, Press Release No 95/14, Luxembourg, 10.07.2014, available at: http://curia.europa.eu/jcms/upload/docs/application/pdf/2014-07/cp140095en.pdf (Accessed on: 07.12.2016).
[9] Board decision dated 08.09.2005 and numbered 05-55/833-226, available at: http://www.rekabet.gov.tr/File/?path=ROOT%2f1%2fDocuments%2fGerek%25c3%25a7eli%2bKurul%2bKarar%25c4%25b1%2fkarar1321.pdf (Accessed on: 07.12.2016).
[10] Board Decision dated 19.11.2008 and numbered 08-65/1055-411, available at: http://www.rekabet.gov.tr/File/?path=ROOT%2f1%2fDocuments%2fGerek%25c3%25a7eli%2bKurul%2bKarar%25c4%25b1%2fkarar2899.pdf (Accessed on: 07.12.2016).
[11] Board Decision dated 04.07.2007 and numbered 07-56/634-216, available at: http://www.rekabet.gov.tr/File/?path=ROOT%2f1%2fDocuments%2fGerek%25c3%25a7eli%2bKurul%2bKarar%25c4%25b1%2fkarar2070.pdf (Accessed on: 07.12.2016).
All rights of this article are reserved. This article may not be used, reproduced, copied, published, distributed, or otherwise disseminated without quotation or Erdem & Erdem Law Firm's written consent. Any content created without citing the resource or Erdem & Erdem Law Firm’s written consent is regularly tracked, and legal action will be taken in case of violation.
Other Contents
The Competition Board (“Board”) has broad powers to request information from undertakings. The legal basis for this authority is provided by Article 14 of Law No. 4054 on the Protection of Competition (“Law No. 4054”). Under this provision, the Board may request any information it deems necessary from public...
Competition authorities around the world have increasingly focused on labor market infringements under competition law, issuing new regulations and guidance recently. Notable examples include the U.S. Department of Justice and Federal Trade Commission’s joint guidance, the Japanese Fair Trade Commission’s...
Chapter 8 of the General Data Protection Regulation (“GDPR”) sets out the legal remedies available to data subjects in the event of a breach of their rights under the GDPR. Accordingly, each data subject has a right to lodge a complaint with the supervisory authority of the Member State in which they reside, work...
Mergers and acquisitions play a critical role in shaping the competitive structure of the market. Although such transactions can lead to positive outcomes such as the provision of products and services at lower prices, the development of new products and technologies, and improvements in quality, they may also...
Technology and the opportunities it brings undoubtedly play a key role in strengthening the competitiveness of market players. In this context, pricing algorithms that enable undertakings to monitor publicly available prices and optimize their own pricing strategies have become widely used, especially by digital platforms...
The Regulation on Fines to Apply in Cases of Agreements, Concerted Practices and Decisions Restricting Competition, and Abuse of Dominant Position (“Former Regulation on Fines”), which entered into force upon its publication in the Official Gazette dated February 15, 2009 and numbered 27142, was...
In the past years, the Turkish Competition Board (“Board”) has closely monitored the activities of undertakings operating in the retail sector. As a result of the Board’s record of administrative fines, horizontal type of violations in the retail sector have been highly publicized. Vertical violations such as resale price...
In recent years, numerous automobile manufacturers have announced their goals to reduce carbon emissions, with many brands setting net-zero carbon targets spanning from production processes to the lifecycle of their vehicles. While ongoing debates persist regarding the significantly higher carbon footprint of...
Under Article 15 of Law No. 4054 on the Protection of Competition (“Law No. 4054”), the Competition Board (“Board”) may conduct on-site inspections at the undertakings’ premises when it deems necessary in fulfilling the duties assigned to it. During the on-site inspection, the Board is authorized to examine all...
Agreements and information exchanges between undertakings in labor markets have recently been examined in various preliminary investigations and investigations initiated by the Turkish Competition Authority (“Authority”). Following the investigations in which some undertakings were subject to...
The Turkish Competition Board’s (Board) decision regarding the acquisition of the international road transport business line of Ekol Lojistik AŞ (Ekol) by DFDS A/S (DFDS) has been one of the most prominent transactions on the competition law agenda recently...
The Competition Board (“Board”) has broad powers to request information from undertakings. The Board’s authority to request information arises from Article 14 of the Law No. 4054 on the Protection of Competition (“Law No. 4054”). Under the relevant provision, the Board may request any information it deems...
Doğuş Otomotiv Servis ve Ticaret A.Ş. (Doğuş) applied to the Turkish Competition Authority for an exemption for the practice of recommending basic wages to be applied to sales and after-sales service employees of its authorized dealers and distributors...
Access to Instagram was blocked ex officio by the Information and Communication Technologies Authority (ICTA) as of 2.08.2024. Under Article 8 of Law No. 5651 on the Regulation of Publications on the Internet and Combating Crimes Committed Through These Publications, ICTA can issue an ex officio access...
It is well known that agreements between employer undertakings with regards to their employees, such as wage-fixing and non-poaching agreements, along with competitively sensitive information exchanges have been under the scrutiny of competition authorities all over the world, including the Turkish Competition...
Automotive is one of the sectors in which the world’s most significant investments are made. The Competition Board (“Board”) has been closely interested in the automotive sector over the years and has conducted various examinations and studies in this field...
Competition authorities around the world continue unabated to investigate competition concerns arising from data collection and processing activities of digital platforms and impose severe sanctions as a result...
The startup ecosystem in Turkey has experienced notable growth in recent years. In the last quarter of 2023, 81 startups secured a combined investment of around 60 million dollars. While the number of investments remained consistent when comparing the third quarter periods of 2022-2023, there was a decrease...
Hub and Spoke cartel is a type of violation that is not clearly defined and regulated under Law No. 4054 on the Protection of Competition (“Law No. 4054”). Decisional practices of foreign competition authorities, particularly the UK Competition and Markets Authority’s decisions (“CMA”), are instructive concerning...
The Competition Board ("Board") made an addition to its line of decisions on resale price maintenance with its decision on Sunny Elektronik Sanayi ve Ticaret A.Ş. ("Sunny") . In its decision, the Board thoroughly examined the allegations regarding Sunny's involvement in maintaining resale prices and restricting...
It is observed that the Competition Authority (“Authority”) has recently scrutinized various industries such as fast-moving consumer goods, labor market, pharmaceuticals, and cement. When the reasoned decisions of the Competition Board (“Board”) published in October are examined, it can be seen that the...
Jules Verne says, “Everything on earth has a limited lifespan, nothing that will exist forever can be created by human hands”. Perhaps change is the only constant concept in all our lives. Despite two major world wars and countless periods of crisis, humanity has been undergoing a great change and...
At the meeting of the Fédération Internationale de Football Association (“FIFA”) held on 16 December 2022, the FIFA Council approved the FIFA Football Agents Regulations (“FFAR”). In the FFAR, various amendments have been made, such as the introduction of a maximum service fee limit that football agents are...
Resale Price Maintenance (RPM) is still considered a hardcore restriction under the recently revised Vertical Block Exemption Regulation (VBER), which means that it cannot benefit from a statutory exemption under Article 101(1) TFEU, unlike certain other types of vertical agreements. However, it has been debated...
In competition law, it is important to accurately determine the concept of undertaking, especially in terms of mergers and acquisitions. Therefore, the concept of economic entity aims to reveal the economic units covered by the undertakings. The relationship between the concept of economic entity and family ties comes...
In these days when the Competition Board (“Board”) frequently imposes administrative fines for preventing on-site inspections and both the Competition Authority (“Authority”) and undertakings take legal and technical measures regarding on-site inspections, a striking development has occurred. In its decision...
Online advertising has become an important source for businesses for promoting products and services and meeting consumers, as a result of the rapid development of information technologies and increase in the use of internet. Delivering targeted messages to consumers at the right time through the digital...
Selective distribution systems refer to a type of distribution system in which suppliers commit to selling the contracted goods or services directly or indirectly to distributors selected based on specified criteria, while the distributors commit not to sell the said goods or services to unauthorized...
Fast-moving consumer goods is undoubtedly one of the sectors that the Competition Authority has been working most intensively since the COVID 19 pandemic. Among the most important developments of this period was the Sector Inquiry initiated on Fast Moving Consumer Goods (“FMCG”) Retailing...
In the decision of the Constitutional Court ("Constitutional Court" or "Court") dated 09.11.2022, numbered 2020/67 E. 2022/139 K. (the "Decision"), the annulment of certain articles of the Law Amending the Law on the Protection of Competition No. 4054 ("Law No. 7246") was requested...
In Turkish competition law, certain types of mergers and acquisitions are subject to Turkish Competition Board’s (“Board”) approval in order to gain legal validity. Pursuant to Article 7 of the Law No. 4054 on the Protection of Competition (“Law No. 4054”), the Board is competent to define mergers and acquisitions...
Recently, the Competition Board (the Board) had imposed administrative fines on banks and financial institutions for failing to respond to the request for information within the scope of a preliminary investigation.[i] The request for information that lays the groundwork for the administrative fine imposed by...
Amazon, a world-famous company, is an e-commerce company that operates the world’s largest online shopping platform. In the backstage, Amazon is a data-driven company whose retail decisions are mostly driven by automated systems, fueled by the relevant market data. That being said, Amazon has a dual...
The right to make on-site inspections is one of the Competition Board’s (“Board”) most important tools for revealing whether Law No. 4054 on the Protection of Competition (“Law No. 4054”) has been violated. The effective use of this authority is quite important in terms of obtaining fruitful results from...
“Harese” is an interesting Arabic word. There is a thorn that camels love very much in the desert. The camel eats the thorn with great greed. So much so that, its mouth bleeds as it eats, but it doesn't stop eating. The taste of the thorn is mixed with the salty taste of its own blood. This mixed taste drives the camel...
Turkey’s leading pay television service provider, Krea İçerik Hizmetleri ve Prodüksiyon A.Ş. (“Digiturk”), is frequently the subject of complaints made to the Competition Authority (“Authority”). In fact, the Competition Board (“Board”) issues a new decision about Digiturk almost every year. In these decisions...
The French Competition Authority (Autorité de la Concurrence), within the scope of the competition law proceeding initiated upon the complaint of Criteo SA (“Criteo”), accepted the commitments proposed by Meta Platforms Inc., Meta Platforms Ireland Ltd., and Facebook France...
While the scope of Competition Board’s (“Board”) power to conduct on-site inspections has increased with the introduction of Guidelines on Examination of Digital Data during On-site Inspections (“Guidelines”), nowadays the amount of monetary fines imposed on undertakings continue to...
The hub and spoke cartel, which is a relatively new type of violation in terms of Turkish competition law, is defined as the indirect exchange of information between two independent undertakings which are horizontal competitors on the supplier or retailer level, through another undertaking...
The settlement mechanism has only recently been introduced to Turkish competition law practice. It entered into force with the amendment made to the Law on the Protection of Competition (“Law”) numbered 4054 on 16.06.2020, and has been in effect for less than two years. In this relatively...
Due to their increasing share in the economy and rapid growth rate, e-marketplace platforms have come under the increasing scrutiny of the Turkish Competition Authority (“Authority”) as well as many competition authorities around the world...
Pursuant to the Amendment Communiqué Concerning the Mergers and Acquisitions Requiring the Competition Board’s Approval (“Amending Communiqué”) published in the Official Gazette dated March 4th, 2022 and numbered 31768, certain amendments have been introduced...
The Competition Board (“Board”) has recently published a reasoned decision in which it evaluated BSH Ev Aletleri Sanayi ve Ticaret A.Ş.’s (“BSH”) request for negative clearance or exemption with regard to its practice of prohibiting authorized dealers from making sales through online marketplaces...
Shahmaran, a Mesopotamian myth, is believed to take place in Tarsus. According to the myth, the shah of snakes is the immortal and omniscient "Shahmaran." Shahmaran is described as a beautiful woman living in her cave with her snakes...
During the COVID-19 pandemic, competitive concerns about the pricing behavior of chain markets, manufacturers, and wholesalers engaged in the retail trade of food and cleaning supplies led to an investigation by...
When the past decisions and the recent decisions of the Competition Board (“Board”) are examined, a significant increase can be observed in the number of decisions where the Board found hindrance or obstruction of on-site inspections. This situation shows that...
The European Commission began investigating the collusive behavior of Credit Suisse, UBS, Barclays, RBS, and HSBC in the Foreign Exchange (forex) spot trading market in 2019. With the recent press release dated 02.12.2021, the Commission announced that the case is now closed...
Digitalization, in particular, necessitates the rewriting of competition law rules. Competition law is at the center all questions regarding e-commerce and digital platforms. The aforementioned platforms, which have become prominent due to innovations in...