Margin Squeeze in Turkish Competition Law

Pursuant to the Guidelines on the Assessment of Exclusionary Abusive Conduct by Dominant Undertakings, margin squeeze is a pricing strategy of a vertically integrated company that is (i) active both in the downstream and upstream market of a production/service chain, and (ii) in a dominant position in the upstream market. A company dominant in the upstream market may cause margin squeeze by (i) increasing the price for the upstream product; (ii) decreasing the price for the downstream product; or (iii) doing both simultaneously. When such a company narrows the margin between the wholesale price of the input it controls in the upstream market and the price of the product in the downstream market, the profit margin for competitors in the downstream market is squeezed. Moreover, this anti-competitive conduct of the dominant company leads to abuse of dominance as the vertically integrated dominant company may exclude actual or potential competitors in the retail market, restrain their activities or market shares and prevent competition by transferring its market power on the input in the wholesale market to the retail market. Accordingly, the five key elements for a margin squeeze abuse are (i) vertically integrated firm, (ii) essential (indispensable) inputs for competition at another level of the supply chain, (iii) market power at one level of the supply chain, (iv) insufficient margin for downstream competitors, and (v) harm to competition and consumers.

In evaluating whether the dominant undertakings pricing policy renders its downstream market competitors’ activities uneconomic or not, there are two alternative methods—namely, the as-efficient competitor test and the reasonably efficient competitor test. The Turkish Competition Board (Board), in Turkcell (06.02.2020; 20-08/82-49), stated that the as-efficient competitor test evaluates the possibility that whether the dominant undertaking in the upstream market could operate profitably in the downstream market if it were obliged to pay the same amount of input cost and whether the as-efficient competitors would be excluded from the market by this way. Whereas for the reasonably efficient competitor test, the Board stated that it is used to evaluate whether a competitor could compete with a dominant undertaking by making a normal amount of profit in the downstream market and the data used is hypothetically based upon the theoretical costs of a reasonably efficient competitor.

For more information on margin squeeze in Turkish competition law, please feel free to reach out to ELIG Gurkaynak at +90 212 327 1724 or through gonenc.gurkaynak@elig.com.