Ercüment Erdem Prof. Dr. H. Ercument Erdem

The New Cartel Decision of the Competition Board

September 2020

Introduction

The Turkish Competition Board’s (“Board”) recent decision dated 19.03.2020 and numbered 20-15/215-107 regarding the ready mix concrete producers in the Yozgat region (“Decision”), holds significant importance as it contains detailed analysis regarding numerous horizontal infringements and, particularly, “cartels.” In its Decision, the Board discussed whether the ready mix concrete producers in Yozgat infringed Article 4 of Turkish Competition Law Numbered 4054 (“Law No. 4054”) by engaging in a cartel. The following undertakings were subject of the Decision: Coşkunlar Hazır Beton İnş. Taah. San. ve Tic. A.Ş. (“Coşkunlar”), Irgatoğlu Hazır Beton Nak. San. ve Tic. Ltd. Şti (“Irgatoğlu”), Sorgun Emek Hazır Beton Madencilik Akaryakıt Nakliye Oto. İnş. Taah. Turizm San. ve Tic. Ltd. Şti. (“Sorgun Emek”), Taş Hazır Beton ve Beton Ekipmanları Nak. İnş. Taah. Harf. Petrol San ve Tic. Ltd. Şti. (Taş”), Tamer Nak. İnş. Ve İnş. Malz. Mad. Otom. San .ve Tic. Ltd. Şti. (“Tamer”), Üç Yıldırım Hazır Bet. Ve Bet. Ekipmanları İnş. San. ve Tic. Ltd. Şti. (“Üç Yıldırım”), Yozgat Güven Beton Pazarlama Nak. San. ve Tic. Ltd. Şti. (“Yozgat Güven”) and Yozgat Koç Hazır Beton Elemanları Nak. San. ve Tic. Ltd. Şti. (“Yozgat Koç”).

Legal Background

The legal basis of the cartel prohibition is Article 4 of the Law No. 4054 which prohibits all forms of agreements between undertakings, decisions by associations of undertakings and concerted practices 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. Article 4 of the Law No. 4054 does not provide a definition of “cartel”.

On the other hand, the Cartel Regulation on Fines to Apply in Cases of Agreements, Concerted Practices and Decisions Limiting Competition, and Abuse of Dominant Position (“Regulation on Fines”) and the Leniency Regulation include the same definition of “cartels”. The relevant definition reads as the agreements restricting competition and / or concerted practices between competitors for fixing prices; allocation of customers, providers, territories or trade channels; restricting the amount of supply or imposing quotas, and bid rigging.

Furthermore, Guidelines on Horizontal Cooperation Agreements states that information exchange among competitors is considered a cartel and fined as such if it shows the nature of an agreement with the object of fixing prices or quantities. Also exchanges of information which facilitate the operation of a cartel by enabling parties to monitor whether the participants comply with the agreed terms are also considered as part of the cartel.

Apart from these definitions, the legislation does not define the conditions of a cartel behavior. The case law is instructive in that sense.

Relevant Product and Geographic Market

In line with the past Board decisions, the related product market is defined as the “ready mix concrete” market. The related geographic market is defined as “Yozgat City Center and Sorgun District.” Notably, the Board explained that ready mix concrete is not a convenient product to stock, and the transportation of this material to far destinations, is not possible. Therefore, the determinant factor for the geographic market definition is the duration of time commencing after production. As a result, the Board considered approximately 50 km in distance from the ready mix concrete production facilities in order to determine the geographic market and concluded that Yozgat City Center and Sorgun District are the geographic markets for the infringement.

Infringement

The investigation commenced upon a complaint alleging the ready mix concrete producers in Yozgat, through cooperation, applied a single price, avoiding competition. Consequently, the ready mix concrete prices have increased from 150 TL/m3 to 175 TL/m3, although a cost increase was out of the question.

The Board determined that a number of documents seized in the raids that were conducted indicate that the ready mix concrete producers held meetings and made decisions regarding ready mix concrete production and sales. Those documents explicitly indicate the presence of the undertakings’ intent for a joint objective or resolution, as well as their dependency upon this joint objective.

Moreover, it is indisputable that the undertakings are parties to a joint agreement, since they are in communication, share competitively sensitive information regarding product price, amount, customer data, maturity choices, etc., and established two different undertakings for online sales purposes.

According to the Decision, Irgatoğlu, Tamer, Coşkunlar and Koç Beton, which are active in the Yozgat region, have established an undertaking named Güven Beton, in 2018, that conducts activities only in sales and marketing. Irgatoğlu, Ekiciler, Üç Yıldırım, which are active in the Sorgun region, established an undertaking named Sorgun Emek Beton, in 2018 which, similarly, conducts activities only in sales and marketing. The customers who were interviewed by the Competition Authority stated that before the establishments of Sorgun Emek Beton and Güven Beton, the ready mix concrete product could be obtained at different prices, and from different undertakings. On the other hand, following these establishments, the customers have been directed to the newly formed undertakings that were referred to as “the union.” Moreover, in one of the customers’ projects, different undertakings provided the ready mix concrete, although the provider was Güven Beton.

The ready mix concrete producers, on the other hand, stated that the objective of the establishments was to obtain cost savings and efficiencies through forming a sales center that meets big customer demands.

Notwithstanding, considering the documents at hand, the Board holds a completely different opinion. For instance, the Board explains, in detail, that Documents 13 and 14 show that the undertakings made decisions regarding the production and sales of ready mix concrete. Accordingly, only two production facilities were to conduct production, some of the vehicles of the undertakings were to be rented by Güven Beton, and the decisions were to be ratified by persons determined by the four undertakings. Moreover, the unit and pump prices and the producer that will mold the product were determined for sales from Yozgat city center to the villages. In these documents, the only active undertaking identified in Yozgat was determined as Güven Beton.

The remaining documents confirm Article 4 infringements, as well. For instance, Document 19 determines in detail the manner in which the income-sharing that was obtained by Sorgun Emek Beton. The price tariffs that were to be implemented in villages in the Sorgun region is enumerated in Document 20. As a result, the Board determined that Güven Beton and Sorgun Emek Beton were the joint sales points of the undertakings.

The Board referred to the Guideline on Horizontal Cooperation Agreements, and questioned whether the subject matter infringement may be assessed under the relevant legislation. Accordingly, it stated that the objective of the joint sales agreement should be understood and decided whether it is executed for efficiency reasons or to form a cartel.

According to the Board, the agreement between undertakings concerned the information sharing regarding price, sales amount and types, customer data, maturity options, income data and on an undertaking basis. In addition, the documents directly concerned price fixing, market and customer sharing. Furthermore, Sorgun Emek Beton and Güven Beton followed the compliance to the agreed subjects and they controlled the punitive sanctions. Therefore, the infringing parties should be assessed as a “cartel.” Accordingly, the assessment of the de facto or potential effects of the infringement were not necessary.

Sanctions

In line with the Regulation on Fines, the Board determined the base fine as “2%,” which is regulated for cartels. Accordingly, 2% of the annual gross revenues of the undertakings, generated at the end of the fiscal year preceding the final decision, or if that cannot be calculated, at the end of the fiscal year closest to the date of the final decision, shall be taken as the basis point.

The Board applied an aggravating ratio for the infringement duration and reducing ratio considering that Güven Beton and Sorgun Emek Beton provide services to an important project concerning the fast train services from Ankara to Sivas, and the subject matter activities are important for the Yozgat region’s economy which has a low income.

Conclusion

The Decision is remarkable, since the Board made a “cartel” determination, instead of any other infringement type. The Turkish case law, including an explicit cartel determination, is rare since the Board is generally reluctant to hold decisions identifying a cartel infringement. Instead of that it refers to infringements such as information exchange or concerted practice. Therefore, it is very important to assess Board decisions identifying a cartel infringement and compare these with the decisions identifying other types of Article 4 infringements. Accordingly, the decision lights the way in terms of the conditions that the Board looks for identifying a cartel infringement.

From the decision it is understood that the Board made detailed analysis of the documents and determined that these are agreements which comprise the information sharing regarding price, sales amount and types, customer data, maturity options, income data on undertaking basis. Therefore, the condition of “agreement” of a cartel behavior has been put forward. The Decision also indicates that the Board assessed the monitoring mechanism as a condition to cartel, in line with its past decisions of Cherry Cartel[1] and Sivas Driver Course[2]. The Board also marks the difference between the horizontal cooperation agreements and cartels by stating that the documents at hand indicate that the undertakings made decisions on strategic subjects and these validate the competitive concerns defined under “joint sales agreements” in the Guidelines on Horizontal Cooperation Agreements.

As a consequence, the detailed analysis in the Decision lights the way, in terms of understanding the Board’s approach to Article 4 infringements and particularly “cartels”.

[1] Decision dated 24.07.2007 and numbered 07-60/713-245.

[2] Decision dated 09.12.2010 and numbered 10-25/350-124.