Excessive Pricing

June 2017 Mehveş Erdem
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Introduction

Excessive pricing is one of the highly debated topics in competition law. In brief, it could be defined as the designated price that is consistently higher than the fair price in the market. It is considered as a type of unfair pricing. Excessive pricing is interpreted differently in various legal systems, especially in the European Union (“EU”) and United Stated of America (“USA”). In the USA, excessive pricing is not considered as an abuse; whereas, in the EU, the competition authority in various cases considers it to be an abuse under Article 102(a) of the Treaty on the Functioning of the European Union (“TFEU”). Turkish competition law maintains a parallel stance as compared to EU practice.

Excessive Pricing

Excessive pricing could be both exclusionary and exploitative. When an undertaking resorts to excessive pricing with an aim to weaken its competitors’ position in the market, this action is regarded as exclusionary. This kind of behavior is mostly seen in vertical relationships. However, exploitative excessive pricing has a direct effect on customers. This direct effect is also considered to be grounds to accept excessive pricing as abusive behavior. Excessive pricing is accepted as a manner in which a monopolist undertaking abuses its dominant position. Even though it is considered as an abuse in EU and Turkish practice, excessive pricing is not regarded as a clear manner of abuse in each jurisdiction, there are certain conditions under which competition authorities must adhere to throughout their investigations.

When EU and Turkish practice is compared, one of the major differences lies in the wording of Article 102(a) of the TFEU and Article 6 of the Act on the Protection of Competition numbered 4054 (“Act”). Article 102(a) of the TFEU provides that imposing, directly or indirectly, unfair purchase or selling prices shall be considered as an abuse of an undertaking in a dominant position. Under EU practice, excessive pricing is interpreted under this Article. On the other hand, Article 6 of the Act, which is the equivalent of Article 102, does not contain similar wording. However, as Article 6 lists types of abuses by way of illustration, it is considered, in practice, that excessive pricing is an abuse that should be evaluated under Article 6.

In practice, there are differing views about excessive pricing and the conditions that are to be considered as abusive behavior. Excessive pricing has an unbreakable connection with monopoly and dominant position. In this respect, one of the views is that the prohibition of excessive pricing would also mean preventing an undertaking in a dominant position to maximize its profit. This view also points out that the supra-monopoly prices shall be considered as unfair[1]. Another aspect debated in practice is whether competition authorities would be able to monitor the constant increases in prices. It is also questioned whether the competition authorities are the right instrument to deal with excessive pricing[2].

EU Practice

The dominant view in the EU doctrine points out that exploitative excessive pricing, which directly manipulates and damages the customer, shall be interpreted under Article 102 (a). The first decision in which the European Commission (“Commission”) has evaluated excessive pricing is the General Motors decision[3]. The Commission, in its decision, considered a price that is excessive in relation to the economic value of the service provided as abusive.

Following the Commission’s decision, excessive pricing is, theoretically, established as abuse. However, many scholars believe that the Commission is reluctant to interfere with unfair prices[4], and is more amenable to investigate exclusionary abuses[5].

Other decisions in which excessive prices are analyzed are the United Brands decision[6], Bodson decision[7], Deutsche Post decision[8], SACEM decision[9], Helsingborg decision[10], and Rambus decision[11]. All of these listed cases put forth that the Commission and EU Courts evaluated excessive prices in markets where there is an entrenched dominant position; General Motors and Deutsche Post were legal monopolies, Bodson and Rambus were in dominant positions and, finally, SACEM and Helsingborg were national monopolies. The exception was the United Brands case; however, the Court did not decide that there was excessive pricing[12]. It is stated that excessive prices are considered in markets where new entry and expansion was unlikely to increase as a result of high prices and profits due to strong market barriers.

The recent development with regard to excessive pricing considers drug prices in the pharmaceutical industry. On 15 May 2017, the Commission opened an investigation into Aspen Pharmacare (“Aspen”) over claims of excessive pricing; this is the first time that the Commission ever questioned a drug company concerning unjustified prices. The Commission stated that it would investigate whether Aspen is breaking EU competition rules by enforcing excessive pricing on its medicines.

Turkish Practice

As provided, above, Article 6 of the Act does not suggest the clear wording of Article 102(a) of the TFEU; however, the first paragraph of Article 6 of the Act, stating that “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,” is regarded as legal grounds to consider excessive pricing as an abuse of dominant position.

The Turkish competition authority in the Belko decision[13] investigated allegations against Belko, which is an undertaking founded and controlled by the municipality and is engaged in import and the sale of coal; it is important to note that Belko owned the right to import and sell coal, exclusively. As a result of its investigation, Competition Board (“Board”) established that there was abuse. This decision is important to portray the Board’s point of view toward excessive pricing. The Board emphasized that it is important to differentiate in the market in which excessive pricing should be considered as abuse. In the Belko decision, the Board took notice of Belko’s exclusive right granted by law to import and sell, the market’s position where new entry was not possible, and the lack of regulation in order to prevent pricing exploitation, and that the low level of product demanded elasticity[14].

Another decision of the Board that was subject to excessive pricing, was the Botaş-Ego-İzdaş-İgdaş decision[15]. In this decision, the Board provided that in terms of the undertakings which are subject to pricing regulation, excessive pricing should not be regarded as abuse. It could be concluded that the Board was not in favor of analyzing excessive pricing for regulated markets.

It is clear that the Turkish competition authority finds excessive pricing as a type of abuse. However, it embraced different levels considering regulated markets and the presence of a monopoly.

Recently, the Board initiated an investigation following its preliminary inquiry against Sahibinden Bilgi Teknolojileri Pazarlama ve Ticareti A.Ş (“Sahibinden”) engaged in e-commerce on the grounds that it abused its dominant position through excessive pricing. This decision would be the first in which the Board would evaluate excessive pricing in the e-commerce sector.

Conclusion

Excessive pricing, which is a price consistently above the competitive level, is considered as an abuse under both Article 102(a) of the TFEU and Article 6 of the Act. Both the Commission and the Board seek for either a monopoly or an entrenched dominant position to assess excessive pricing. It is also clear that the Board is reluctant to evaluate pricing allegations in regulated markets.

The two new investigations against Aspen and Sahibinden will show the Commission’s and the Board’s points of view on excessive pricing in unique sectors, such as the pharmaceutical industry and e-commerce sectors.

[1] Ünal, Çiğdem, Aşırı Fiyat Kavramı ve Aşırı Fiyatlama Davranışının Rekabet Hukukundaki Yeri, Ankara 2009, p. 11,12.

[2] Ünal, p. 12.

[3] Judgment of the Court of 13 November 1975. - General Motors Continental NV v Commission of the European Communities. - Case 26-75;

http://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:61975CJ0026&from=EN

[4] Ünal, p. 44.

[5] OECD Policy Roundtables, Excessive prices, 2011; http://www.oecd.org/competition/abuse/49604207.pdf

[6] United Brands Co. v Commission Case C-27/76, 1978.

[7] Corinne Bodson v SA Pompes funèbres des régions libérées Case 30/87, 1988.

[8] COMP/36.915 – Deutsche Post AG – Interception of cross-border mail, 2001.

[9] F. Lucazeau v Societé des Auteurs, Compositeurs et Editeurs de Musique Cases 110/88, 241/88 & 242/88,

1989.

[10] COMP/36.568 – Scandlines Sverige AB v Port of Helsingborg, 2004.

[11] COMP/38.636 – Rambus; http://ec.europa.eu/competition/antitrust/cases/dec_docs/38636/38636_1203_1.pdf

[12] For more detailed information see, OECD Policy Roundtables, Excessive prices, 2011, par. 18-42; http://www.oecd.org/competition/abuse/49604207.pdf

[13] Decision dated 06.04.2001 and numbered 01-17/150-39. http://www.rekabet.gov.tr/File/?path=ROOT%2f1%2fDocuments%2fGerek%25c3%25a7eli%2bKurul%2bKarar%25c4%25b1%2fkarar3048.pdf

[14] Ünal, p. 68.

[15] Decision dated 08.03.2002 and numbered 02-13/127-54; http://www.rekabet.gov.tr/File/?path=ROOT%2f1%2fDocuments%2fGerek%25c3%25a7eli%2bKurul%2bKarar%25c4%25b1%2fkarar532.pdf

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