What is Abuse of Dominant Position?

In the context of competition law and antitrust rules, abuse of dominant position refers to a condition that occurs when a dominant corporation or entity in a certain market engages in anti-competitive behaviors that affect consumers and competition. The main goal of this idea is to stop monopolies or other dominating businesses from affecting consumers by limiting competition and manipulating markets.

Establishing dominance is the goal of all businesses that operate in the market. To accomplish these objectives, undertakings occasionally come up with strategies like making deals with their rivals and manipulating the competitive process to meet their needs. According to Article 6 of the Law on the Protection of Competition, undertakings are prohibited from intervening with the market in these situations to their own advantage.

An abuse of a dominant position won’t be deemed to have occurred for an endeavor that attained it within normal competitive circumstances. For instance, it won’t be considered as an abuse of a dominant position if businesses already operating in a market are forced to leave because they can’t compete with a business that is dominating within the legal bounds of the market. According to the law, an enterprise that has attained a dominating position will be able to exercise its authority to the extent that it is permitted by the market in which it sells its goods or services.

Abuse of the dominating position is governed under Article 6 of the Law on the Protection of Competition (LOPC) No. 4054. The article stats abuse of dominant position as:

Abuse of Dominant Position

Article 6- The abuse, by one or more undertakings, of their dominant position in a market for goods or services within the whole or a part of the country on their own or through agreements with others or through concerted practices, is illegal and prohibited.

Abusive cases are, in particular, as follows:

a) Preventing, directly or indirectly, another undertaking from entering into the area of commercial activity, or actions aimed at complicating the activities of competitors in the market,

b) Making direct or indirect discrimination between purchasers with equal status by offering different terms for the same and equal rights, obligations and acts,

c) Purchasing another good or service together with a good or service, or tying a good or service demanded by purchasers acting as intermediary undertakings to the condition of displaying another good or service by the purchaser, or imposing limitations with regard to the terms of purchase and sale in case of resale, such as not selling a purchased good below a particular price,

d) Conduct which aim to distort competitive conditions in another market for goods or services by means of exploiting financial, technological and commercial advantages created by dominance in a particular market,

e) Restricting production, marketing or technical development to the prejudice of consumers.

 

The examples of abuse of a dominating position stated in Article 6 of the Law on the Protection of Competition are only representative and can occur in a variety of scenarios. The following are the most common examples of abuse of a dominant position:

Types of Abuse According to The Competition Law:

The examples of abuse of a dominating position stated in Article 6 of the Law on the Protection of Competition are only representative and can occur in a variety of scenarios. The following are the most common examples of abuse of a dominant position:

A) Preventing, directly or indirectly, another undertaking from entering into the area of commercial activity:

 In accordance with Article 6, paragraph 2-a of LOPC , “directly or indirectly preventing an another undertaking to enter the area of commercial activity, or actions aimed at complicating the activities of competitors in the market,” were counted among abuse of a dominant position.

Competition-limiting behavior is when an activity that is dominant in the market prevents competitors from entering the market.

  The dominant undertaking’s actions intended to impede the expansion of its current competitors are also regarded as an abuse of its dominating position, in addition to preventing the entry of its rival into the market. Competition should be restricted by actions that make it harder than necessary for rival businesses to conduct their business. These actions should not be justified. The subject of abuse of a dominant position will then be raised.

B) Stopping the Delivery of Goods:

According to the freedom of contract principle, businesses in free economies are free to establish agreements. However, the abuse of a dominating position will be brought up if a company that has been supplying a firm with goods for a long time suddenly stops doing so, even though the demand has not changed and there is no valid reason to do so. As a result, it is not an abuse of a dominating position when products aren’t supplied to an enterprise that requests them for the first time.

Once more, in order to characterize the refusal to supply products as an abuse of the undertaking’s dominating position, the Board searches for the existence of a number of requirements. Some of these requirements include the essential nature of the commodities or rights in dispute, the elimination of market competition as a result of the rejection, and the absence of any legitimate rationale.

   It is deemed abuse “if it is a violation of competition” to stop receiving products as well as to stop giving goods, according to a Competition Board decision. (Disposition No. 02-24/244-99 (Decision Date: April 16, 2002) In addition, the Board determined in another ruling that systematic and concerted conduct that delay or stop totally the supply of goods constitute an abuse.Decision Number 03-76/925 Date of Decision: 4.12.2003

C) Predatory Pricing:

Dominant enterprises that want to make low-priced sales should think about the average avoidable cost and strive to steer clear of doing so in order to prevent predatory pricing issues.

The Guideline defines predatory pricing as a pricing strategy where a dominant undertaking accepts losses (or sacrifices profits) by setting a below-cost sales price in the short term in order to foreclose or punish one or more of its actual or potential competitors, or to otherwise prevent competitive behavior. This is done with a view to maintaining or strengthening its market power.

In determining and evaluating predatory pricing, the Board can take into account a variety of factors and data, such as:

Whether the dominating undertaking lost money because it set a lower price for all or some of its output for a specific period of time.

A dominant undertaking’s median avoidable cost, which might be considered when deciding whether it has suffered unnecessary losses.

the average incremental cost over a long period of time, which could be calculated in some situations. This avoidable cost is typically higher than average and is better suited for analyses done in markets with very high fixed costs and very low variable costs.

The Board has held that four factors must exist to constitute predatory pricing (Kale Kilit decision, No. 12-62/1633-598, dated 6 December 2012):

Financial superiority of the undertaking being examined.

Unusually low price.

Intention to impair competitors.

Losses borne in a short term in exchange for long-term profits.

D) Discriminatory Practices:

accordance with Article 6, subparagraph b of the LOPC, “Direct or indirect discrimination against buyers of equal status by asserting different conditions for the same and equal rights, obligations and actions” is considered an abuse.

In accordance with Article 102, Paragraph C of the EU Agreement, as a rule in a similar direction, “applying different conditions for equivalent transactions to other parties to the commercial relationship, putting them at a disadvantage in terms of competitiveness” is exemplified as abuse.

Regionally based direct pricing discrimination by a dominating undertaking is typical. In this scenario, the dominating undertaking’s goals are to either eliminate its local rival from the market or boost its profit margin by taking advantage of its willing customers. Giving discounts to some of its customers is one way that a powerful enterprise discriminates in prices.

The Competition Board claims that discrimination often takes place when a product is supplied to various customers at various prices while having the same cost or is sold at the same price despite having varying costs. Selling the same goods for a much higher price in a different region, for example, would be considered discrimination. Discrimination may occur not only based on price, but also when additional criteria are applied. The scenario in question will be given a unique evaluation based on the specifics of each individual actual incident.

E) Tying and Bundling:

Tying typically refers to situations when customers are obliged to buy two products from a dominant undertaking—one called the tied product and one called the tying product—in order to complete their purchases. Technical tying and contractual tying are two ways to execute tying. Technical tying involves integrating what would be considered two independent products.

The Board examines a number of factors when deciding if there is a tying:

-The tied product is different from the product being tied.

-Anti-competitive foreclosure is probably going to result from the tying practice.

In accordance with LOPC article 6, subparagraph 2-c, “Limitations being brought regarding the buying and selling conditions in case of a re-selling, a good or service being bought along with another good or service, or conditioning that a good or service that is demanded by the buyers who are in a position of intermediary undertaking will be displayed by the buyer, or a bought good not being sold under a certain price,” is especially considered as an abuse of a dominant position.

F) Exclusive Dealing:

A supplier or manufacturer may commit to an exclusive dealing arrangement with a buyer or distributor, preventing the buyer or distributor from buying or selling goods from rival suppliers. It essentially entails an exclusivity agreement where the buyer consents to only deal with the supplier’s items and refuses to carry or advertise competitors’ products. When this behavior has anti-competitive implications, it may raise concerns under competition law.

Exclusive Dealing Types:

Exclusive Supply Agreements: 

In these contracts, a supplier commits to offer a buyer with products on an exclusive basis, and the buyer also agrees not to purchase comparable goods from other suppliers.

Exclusive Distribution Contracts: 

A supplier names a specific distributor as the sole distributor of its products in a given region. Normally, it is forbidden for this distributor to sell items from rival vendors.

Exclusive Retailer Agreements:

Suppliers may enter into exclusive agreements with merchants, preventing them from stocking competitive products.

Examples:

Example 1: Exclusive Distribution deal: A big grocery store chain & a soft drink producer negotiate an exclusive distribution deal that prohibits the chain from selling similar soft drink supplies from rival companies.

Example 2: Exclusive Supply deal: In order to limit competition from other smartphone makers, a smartphone manufacturer enters into an exclusive supply deal with a key component supplier. This agreement pledges the supplier to selling only to them.

Example 3: Exclusive Retailer Agreement: A high-end fashion label gets into a contract with a luxury department store that prohibits its subsidiary from carrying other rival luxury fashion labels.

CONCLUSION:

Regulations prohibiting the abuse of dominating positions are essential for the protection of competition, the protection of customers from high prices and a lack of options, the encouragement of innovation, and ethical business practices. These regulations ensure that markets remain open, accessible, and competitive for the benefit of consumers and businesses, especially small ones. They achieve this by preventing dominant enterprises from abusing their market position to obstruct competition.