A. Introduction
Turkish Law introduced the concepts of “agreements between undertakings/decisions of associations of undertakings” with Act no. 4054 on the Protection of Competition (“Act”) in reference to anti-competitive agreements and decisions between cartels, internationally referred to as “Cartels Law“. The Act addresses the associated infringements under three categories:
- Agreements, Concerted Practices and Decisions Limiting Competition (the Act, art. 4)
- Abuse of Dominant Position (the Act, art. 6)
- Mergers and Acquisitions (the Act, art. 7)
However, this article will focus on infringements arising from “Agreements, Concerted Practices and Decisions Limiting Competition“.
Before addressing infringements, we may need to introduce certain concepts to understand the subjects of Competition Law, which is a complex area, and how infringements may occur.
Competition is a race between free market actors performing economic activities. In this context, free market actors refer to the subjects of Competition Law, i.e. undertakings. As a subject of Competition Law, an “undertaking” has two basic characteristics, as stated in article 3 of the Act, and the entities that do not embody those characteristics are referred to as “units“, not subjects for Competition Law. These characteristics are as follows:
- Constituting an economic whole
- Deciding/acting freely within an economic whole
Accordingly, article 4 in the Act stipulates, “Agreements and concerted practices between undertakings, and decisions and practices of associations of undertakings which have as their object or effect or likely effect the prevention, distortion or restriction of competition directly or indirectly in a particular market for goods or services are illegal and prohibited.”
As indicated above, the concept of “Association of Undertakings” should be explained in conjunction with the concept of undertaking, which is the subject of Competition Law. In article 3 of the Act, an association of undertakings is defined as “any association with or without a legal personality, which is formed by undertakings to accomplish particular goals”.
In contrast to international legislation, the legal status of an association of undertakings, whether it has a separate legal entity, or the binding obligations for the legitimacy of legal existence do not matter.
However, if an association of undertakings constitutes an economic whole and can make economic decisions independently, then it also carries the characteristics of an undertaking, which is a significant distinction.
B. Potential Infringements
Article 4/1 in the Act defines what constitutes an infringement; thus, any agreements between undertakings or decisions of associations of undertakings that prevent, distort or restrict competition or that have this purpose are deemed as infringements. However, in practice, there are often problems in the detection and evaluation of infringements with respect to “agreements” or “decisions of an association of undertakings”.
Basically, an agreement is a consensus on a subject, situation, quantity, etc. with mutual and compatible declarations of will. Under Competition Law, an agreement between two or more Competition Law subjects, i.e. undertakings, operating in the same market is referred to as a “Horizontal Agreement”, whereas an agreement between undertakings operating in different markets is referred to as a “Vertical Agreement”. Regarding such agreements, the existence of an infringement of Competition Law is investigated “case by case”, and their content is identified over time.
As such, when independent undertakings make horizontal and vertical agreements and serve to cartelization by making more profits, driving other undertakings out of the market, subjecting them to adverse price discrimination, and preventing, distorting or restricting competition by eliminating uncertainty, which is the main element of a free market economy, they are deemed to have been involved in an infringement.
In this context, it may be necessary to clarify which types of acts qualify as infringements. In accordance with different types of infringements specified in the Act, the agreements/decisions of associations of undertakings in this context refer to those that limit or eliminate the ability of market players to operate freely, destroy their economic autonomy, and aim to eliminate market uncertainty. Pursuant to the Act, an anticompetitive/infringing agreement/decision has the following characteristics:
- Price fixing: It prevents competition, as prices should be set under free market conditions. Concerted price fixing eliminates competition.
- Market allocation: Undertakings may restrict competition by dividing the market into specific geographical regions or customer segments.
- Restriction of production or sales: Restriction of production or sales by members leads to the prevention of competition.
- Prevention of innovation, technology and development: Members of an association of undertakings may hinder development and innovation so that they do not compete with one another.
The Act does not specifically regulate concepts such as “cartels law” or “cartel agreement”. However, an infringement is deemed to have occurred when an association of undertakings takes a decision, makes a recommendation, and develops a strategic plan for its own interests by preventing, disrupting, and restricting a free market economy and eliminating market uncertainty.
The identification of an infringement does not necessitate the involvement of each undertaking in an association of undertakings in such a decision/recommendation/agreement/strategic planning as it is sufficient for an undertaking or undertakings with a market share and power to prevent market competition to act on such decisions. In other words, an infringement occurs when a group of undertakings, capable of harming a sector and adversely affecting the free market economy, aligns with a decision of an association of undertakings, even if not all members act on that decision.
Competition law encourages undertakings to operate under circumstances of free competition to ensure the effective functioning of markets. One of its basic principles to ensure such protection is to prohibit acts of undertakings or associations of undertakings that prevent or restrict competition.
Still, there are certain exceptions regarding the prevention of competition. Article 5 of the Act permits such agreements under certain conditions. Accordingly:
- Economic efficiency: Agreements or decisions are not deemed anti-competitive if they increase overall economic efficiency and benefit consumers.
- Innovation and development: Technological progress and innovation may be encouraged if they do not harm market competition.
However, these exceptions apply to limited situations and should be evaluated based on the case on hand.
C. Conclusion
The Competition Authority exercises significant public authority over undertakings, closely monitoring decisions and agreements by associations of undertakings to protect the free market economy and ensure competition in line with the principles of freedom and uncertainty under the Act.
These types of agreements, decisions, etc. include all kinds of cooperation and agreements that may adversely affect the market order, and effective supervision is applied to prevent such infringements. Indeed, the decisions taken by associations of undertakings may have an anticompetitive effect not only on the affiliated market but also on an entire sector, which may trigger a chain of violations. Thus, the market’s functioning is disrupted, leading to adverse consequences for consumers at the bottom, such as higher prices, limited product diversity, lack of innovation, and inefficiency, as well as for market actors at the top, including the risk of being driven out of the sector.
Protection of competition necessitates the proper analysis of the effects of the decisions and agreements of associations of undertakings. In view of market dynamics, the Competition Authority constantly monitors the activities of associations of undertakings and intervenes when necessary. Its inspections ensure the enforcement of the law and the continuity of free competition. The prevention of anticompetitive activities not only provides economic benefits, but also contributes to more efficient and fair functioning of markets while increasing social welfare.
Consequently, the decisions and agreements of associations of undertakings should respect competition law and should be adopted only for the efficient functioning of the market and for the benefit of consumers. While anticompetitive actions may provide short-term benefits, they seriously threaten competition and social economic welfare in the long run. Therefore, in accordance with the rules in the Act, the activities of associations of undertakings should be continuously monitored to prevent them from facing legal sanctions due to infringements. The protection of competition is not only a legal obligation but also a necessity for a healthy economic system.
