The File of Sahibinden.com; A Phoenix Story
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The legendary bird, called “Phoenix,” “Simurg.” or “Zümrüdü Anka,” has an important place in Arab, Iranian and Turkish mythologies. According to the legend, the Phoenix is a wise bird that lives on Mount Kaf, an inaccessible mountain, and it can talk and think like people. But what makes the Phoenix unique is that it is immortal. When the Phoenix realizes that its death is coming, it builds a nest for itself and waits to die in it. The sunlight burns dry branches inside this nest, and after the Phoenix burns, it magically regenerates from its ashes. It begins a new life with all its wisdom. This legendary bird is seen as a symbol of power and wisdom because of its inaccessibility, unlimited knowledge and immortality. Basically, the birth of the Phoenix from its ashes tells the story of those who show effort and patience to recreate their own luck.
Competition Authority's (“Competition Authority” or “Authority”) Sahibinden.com Decision (“Sahibinden Decision”) numbered 18-36/584-285 and dated 01.10.2018 is of great importance because it contains many controversial issues, such as the market power provided by digital platforms and excessive pricing. Although a very short time has passed since the decision was rendered, the process has become even more interesting through a more recent judicial decision. With the new court decision, the Sahibinden Decision has become one of the rare decisions that has been annulled by the judiciary.
Brief Overview of Sahibinden Decision
The Competition Authority closely examined the activities of the referred undertaking in the Sahibinden Decision. Sahibinden.com provides an online platform service that is used for the sale and advertisement of many products, especially real estate and vehicles. Within this scope, individual and corporate customers use this platform to place advertisements or search for them. While individual customers do not pay any fees for the referred platform services, corporate customers pay a membership fee. The Competition Authority examined whether excessive prices are applied in the online platform service market for real estate and vehicle sales/rental services, pursuant to Article 6 of Law No. 4054, in its Sahibinden Decision. Interestingly, in 2015, the Competition Authority examined the activities of Sahibinden.com with the same claims, and no violation was detected. It was stated by the Competition Authority in 2015 that if excessive prices were applied by Sahibinden.com, the rising prices would trigger new entries into the market due to the characteristics of the relevant market, and it would have a positive effect, since existing competitors may reach new customers in the market, and this would increase the competition. However, in the Sahibinden Decision of 2018, completely different conclusions were reached.
In its 2018 Sahibinden Decision, the Competition Authority determined the relevant product markets as online platform service markets for real estate sales/rental services, and the online platform service market for vehicle sales services. The relevant geographic market was identified as Turkey.
Following the market determinations, the Authority examined whether or not Sahibinden.com is in the dominant position in the relevant markets. The Authority determined that the undertaking holds an important market power due to reasons, such as the number of visitors, prices, and income from corporate members. In addition, considering criteria, such as entrance barriers (network effect) in the relevant market, and the fact that Sahibinden.com offers a wide range of different platform services, it was determined that the said undertaking is in the dominant position.
The most controversial part of the Sahibinden Decision is that it concerns an excessive pricing evaluation. The Authority compared the prices and increased rates of the undertaking with its competitors. In the analysis made, it was determined that the prices of Sahibinden.com are high, and that their competitors in the market cannot exert enough competitive pressure in the market. In addition, it was evaluated that there is no potential competitive pressure due to barriers to market entry. For this reason, the Authority stated that the market in which Sahibinden.com operates does not have the opportunity to correct itself in the short and medium term; that is, high prices will not result in new competitors entering the market and, thus, no improvement will be achieved.
As a result of these statements, it has been determined that Sahibinden.com has abused its dominant position through excessive pricing.
Rebirth from the Ashes: Annulment Decision
An administrative application was made against the Sahibinden Decision by the referred undertaking, but this application was rejected. Thereupon, it was applied to the judicial remedy, and a lawsuit was filed against the Sahibinden Decision. The 6th Administrative Court of Ankara dismissed the Sahibinden Decision, with prejudice, through its decision numbered 2019/946 E., 2019/2625 K. (“Annulment Decision”).
The Annulment Decision is one of the few decisions that examines the decisions of the Competition Authority on the merits, and annuls due to deficiencies on the merits, of the decision. However, more importantly, the concept of 'excessive pricing,' which is quite controversial in terms of competition law, is examined in detail by the court. The court commented, in detail, about the concept of "excessive pricing" which the Competition Authority examined in only 3-4 of its decisions.
The court made a reference to the concept of "Economic Value Test" applied in the EU on excessive pricing, and stated that it should be examined as to whether a high profit margin was found by comparing the costs and prices of the products. If there is such an extreme difference between cost and price, as a second step, the difference should be compared with prices in competing products or similar markets. Thus, the court appears to have accepted the two-stage Economic Value Test. However, this test was not applied by the Competition Authority in the Sahibinden Decision on the grounds that some of the costs are also related to platform services outside the relevant markets, and it is not possible to separate them. The court noted that since excessive pricing is an area that is 'exceptionally' interfered with by the Competition Authorities, it should be demonstrated with data and facts “beyond question.” In this respect, it is understood that the court is looking for a very strict standard of proof for intervention that completely changes the pricing policy of an undertaking, such as excessive pricing.
The court then revealed the legal deficiencies in the Sahibinden Decision. In the Annulment Decision, it was stated that undertakings operating in different markets were compared with Sahibinden.com, but there was no price comparisons made with the different players in different countries and, especially, with global players.
In addition, the court accepted it as a deficiency that the statement of the Authority that Sahibinden.com will dominate the market in the long-term due to the advantages arising from operating in more than one market is only based on observations, and it is not supported by solid data. Another issue criticized by the court is that the Competition Authority believes that the undertaking, called the “Sahibinden” (meaning, “from the owner”) is more advantageous among consumers than its competitors. The court stated that this situation, which was based on a commercial prediction, and described as a result of the first entry into the said market, was not based on solid data, and was an opinion obtained in line with the opinions of its competitors. The court stated that such a determination could only be put forward through research.
Another issue the court determined to be an incomplete review is that Sahibinden.com offers platform services for other services aside from related markets and, so, it provides a more broad category of services as compared to its competitors, which strengthens its dominant position. The court criticizes that a business model chosen by an undertaking and its reflections may only be determined by a thorough analysis of the behaviors of its end consumers. Therefore, it criticizes the making of such a judgment without any analysis.
The most important criticism made by the court is that the margin between costs and prices in the Sahibinden Decision was not determined. In the aforementioned decision, it is stated that the costs of Sahibinden.com cannot be separated for the relevant markets. The court notes that this is an indication that the margin between prices and costs cannot be determined by the Authority. In addition, by stating that the Authority could compare the applied discount and non-discount prices, the Court determined that the Authority did not do this due to the difficulty of comparison. The Court criticizes that although the Authority did not make this comparison, its statement that the price difference between Sahibinden.com and its competitors will not be closed, even if the discounted prices are taken into account, was based only on observations made during the investigation period.
The last point drawing interest to the Annulment Decision is the conclusion of the Court regarding excessive pricing and barriers to market entry. The Court notes that according to the interpretation of the Authority, in order not to interfere with excessive prices of an undertaking, there cannot be barriers to entry, and competitors must put competitive pressure on the dominant undertaking. The Court makes the criticism that such an approach means that the commercial activity and the pricing strategy of the dominant undertaking are linked to the success or failure of its competitors. This situation is described as being illegal by the Court.
Sahibinden Decision is one of the few Competition Authority decisions that includes an excessive pricing determination. It is a decision that contains important statements, not only because it addresses the concept of 'excessive pricing,' which is a controversial subject, but also includes important statements related to market power, dominance, and the related market of online platforms. The business models of online platforms, which are active in many sectors, especially e-commerce, triggered serious discussions after this decision, because the business models and prices of online platforms differ from their competitors depending on this innovation. As a result of the narrow determination of the relevant market in the Sahibinden Decision, many undertakings providing online platform services felt the need to review their pricing policies.
The Annulment Decision includes at least as many colorful and important determinations as the Sahibinden Decision. Especially, the determinations made in terms of the standard of proof and the evaluations concerning the lack of market analysis will cause important discussions in the future. In this sense, the Annulment Decision is the harbinger of intense debates in the future on business models and prices of online platforms, such as Sahibinden.com.
For Sahibinden.com, the Annulment Decision means a rebirth. Just like the Phoenix story, it is the heralding of a period where it can start all over again. This important experience in terms of competition law will also be peerless for an undertaking with significant market power.
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