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Legal Alerts

10/06/2021

Footsteps of Change: Preliminary Report on the E-Marketplace Sector Inquiry

Legal Alerts
Competition
General

New Development

As the role of internet technologies in the economy grows, business structures change  ̶  and lawmakers and authorities are well-aware of the need to the adapt to the ongoing digitization of the economy. On May 7, 2021, the Turkish Competition Authority (“Authority“) published its preliminary report on its e-marketplace sector inquiry (“Report“). The sector inquiry was initiated on June 11, 2020, with the Turkish Competition Board’s (“Board“) decision numbered 20-28/353-M, in order to understand the dynamics of the e-commerce sector and to determine potential competition law concerns along with the search for possible solutions as policy changes and regulations.

What Do the Developments Mean?

This is not the first time that the Authority has demonstrated its increasing awareness of the digital markets, and of digitalization itself. In this regard, 2020 was a busy year for the Board. The Digital Data Review Guidelines for Dawn Raids were introduced on October 8, 2020, clarifying matters regarding digital inspections on servers, computers, mobile devices, clouds, and the use of the forensic software. While undertakings such as Google, Facebook, Booking, Yemeksepeti, Sahibinden and Nadirkitap have already undergone investigations, the Digitalization and Competition Policy Report, announced on January 2020 is still being studied. A digital workforce is also established by the Board. It is safe to say that the Authority pays great attention to the digital economy, and the e-commerce sector inquiry is part of this long-term goal.

The inquiry is seen as a part of the Authority’s aim to be in line with the global developments, starting with the EU, along with its aim to establish an understanding of the sector needs of the Turkish market. Thus, it included different parties’ opinions, collected data from online marketplace platforms, third party sellers, service providers and consumers, and provided examples from institutions such as the EU Commission and the OECD, with references to former decisions given by authorities in a worldwide scope. Notably, the Authority clearly underlined the importance of the relationship between personal data and its practical applications, use cases, and the potential concerns in a competitive environment.

The Report is open to public comments until July 9,  2021, and stakeholders are encouraged to submit their views to the Authority.

Findings of the report

A brief summary of the findings and recommendations in the Report are presented below:

  • Findings on the theoretical scope
    • E-marketplaces are multi-sided business structures and differ from the traditional markets in terms of their workflows, network effects, scales, sourcing type, data-related conducts and market conditions.
    • High entry and growth barriers prevent the market from self-correcting and may cause a concentration cycle, to the advantage of certain undertakings, changing the in-market competitionto competition for the market, which would result in a winner gets allmonopoly structure
    • The structural problems result in more market power and exclusion opportunities that can negatively affect sellers in the platforms, and in the end, consumers.

 

  • Findings on the current market situation
    • The e-commerce sector has gained a significant momentum with the COVID-19 pandemic, and the competition for market shares has increased.
    • In the eyes of consumers, e-marketplace platforms are not interchangeable with the websites of physical stores and brands.
    • The competition between e-marketplaces is mainly based on the number of active consumers. Consumer prejudice and inertia also increases transition costs for undertakings, which increases the market concentration tendency.
    • A hybrid structure is commonly observed among e-marketplaces, making the e-marketplaces themselves and the third party sellers “competitors” on the same platform. This situation also creates asymmetrical bargaining power, leading to competition concerns for the third party sellers on these platforms most of whom are small scale enterprises.

 

  •  Key concerns regarding inter-platform competition
    • Economies of scale and network effects benefit the gatekeeper undertakings as they create strong and durable market positions for them and complicate the procedure for current or potential competitors to establish an effective scale.
    • Wide MFN clauses implemented by gatekeeper undertakings can restrict competition with regard to commission rates, affect prices and market entries, and obstruct market growth. The anti-competitive effects can even increase if applied at the retail level.
    • While narrow MFN clauses and contractual exclusivity conditions can also have more anti-competitive results when implemented by the gatekeeper undertakings, they should be assessed individually.
    • Seller and consumer data that the gatekeeper undertakings have access to can provide a significant competitive advantage to the undertakings. Thus, gatekeeper marketplaces should not obstruct data transferability so as to not to restrict multi-homing opportunities of both consumers and sellers. (The emphasis on data transferability is a noteworthy statement as the Board already has an ongoing investigation on Nadirkitap regarding data transferability issues.)

 

  • Key concerns regarding intra-platform competition
    • Asymmetrical bargaining power gives unilateral determination ability to the e-marketplace platforms against third party sellers.
    • Gatekeeper platforms create concerns on “self-preferencing” against third party sellers as third party sellers and platforms’ retail operations are competitors at the retail level. The e-marketplaces should avoid self-preferencing conduct such as “prioritizing its own products in lists/rankings,” “gaining unfair advantage in terms of using sellers’ data and its own data for product sales,” “providing unfair advantages to sellers who uses the platforms’ related service over other sellers who do not.”
    • An objective, transparent, accountable and predictable business environment and platform conduct is of critical importance in preventing information asymmetry within e-commerce platforms.

 

  • Key concerns regarding consumers
    • Consumers have an “illusion of free service,” as it is the case for most platform users, and they do not have the awareness of the intensive usage of their personal data and potential privacy breaches, which would also negatively affect the quality.
    • Establishing a transparent, open, accessible and customizable consumer policy based on an objective criteria is necessary in order to minimize consumer manipulation risk with listing, rating and commenting conducts that are open to manipulation.
    • The number of new entries may be even more limited due to high structural entry barriers and killer acquisitions in the future.

 

  • The next steps and policy recommendations

The Authority is expected to finalize its preliminary report and proceed to its studies on the preparation of the legislative and regulatory plans, which are briefly provided in the Report with three main steps:

1. Updating the secondary competition law legislation

The Authority considers that the competition law principles should be implemented strictly and conservatively on the e-marketplace platforms market. The Authority believes that the secondary legislation should address issues such as assessment of MFN or exclusivity clauses by online platforms, and existing legislation should be both further clarified and strengthened. In particular, the Authority hints that lower market share thresholds for exemption may be warranted in the case of online platforms.

The Authority also aims to address potential exploitative abusive behaviors by platforms under Article 6 of the Law No 4054 on Protection of Competition. Therefore, it is recommended that secondary legislation also address and clarify potential exploitative abuses, such as excessive collection of consumer data and imposition of unfair commercial terms.

2. Establishing a “Platform Code of Conduct”

The Authority aims to prevent the alleged asymmetrical bargaining power of platforms from causing a skewed commercial environment in which costs and benefits are unfairly allocated. Thus, the Authority states that a “Platform Code of Conduct” to maintain a transparent, open, accessible and foreseeable ecosystem should be established as a reference point.

This code of conduct would target behaviors such as: (i) abusive contractual changes imposed on third-party sellers; (ii) lack of clarity in terms and conditions; and (iii) access to data.

3. Ex-ante gatekeeper regulation

The Authority notes that a separate inquiry regarding digital markets is also underway and aims to promulgate legislation regarding the determination of “gatekeeper” undertakings and the conducts that they must avoid. This sector inquiry also encompasses online marketplace platforms under the “online intermediary services market.”

In relation to this, the Authority lists a number of prohibitions that it believes should be imposed on gatekeeper online marketplace platforms, including: (i) imposing wide-MFN clauses; (ii) restricting sellers from reaching out to public authorities for conflicts between the sellers and the marketplace; (iii) using non-public data gathered from the sellers’ activities against sellers for competitor products; (iv) self-preferencing its own products; and (v) obstructing data transferability.

Remarkably, the Authority also recommends that gatekeepers notify the Authority of all the mergers and acquisitions they undertake, independently of the notification thresholds given in Communiqué No. 2010/4 Concerning the Mergers and Acquisitions Calling For the Authorization of the Competition Board.

Conclusion

The Authority once again demonstrated the importance it gives to digital platforms and its aim to be in line with the EU approach. Indeed, many of the policy recommendations and competitive considerations expressed by the Authority are in line with the assessments and stances at the EU level. The Authority is also separately carrying out a broader study of the digital economy, with a view to promulgating a Digitalization and Competition Policy Report that will lay the foundation of enforcement priorities and regulation of the digital economy – which also includes online marketplace platforms. The stance taken in the current Report, and in particular the adoption of the gatekeeper terminology, hints that the expected regulatory instruments on the digital economy will closely follow the EU’s Digital Markets Act.

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