The E-Marketplace Platforms Sector Inquiry Final Report and What It Brings

April 2022 Ece Şahin
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Introduction

Due to their increasing share in the economy and rapid growth rate, e-marketplace platforms have come under the increasing scrutiny of the Turkish Competition Authority (“Authority”) as well as many competition authorities around the world. The first step of the Authority’s inspection of e-marketplace platforms was the initiation of a sectoral inquiry in June 2020. In line with the information and documents obtained during this inquiry, the E-Marketplace Platforms Sector Inquiry Preliminary Report (“Preliminary Report”) was published on July 2021. Following that, a finalized version of the policy recommendations from the Preliminary Report was published on the website of the Authority on April 2022 under the name of the E-Marketplace Platforms Sector Inquiry Final Report (“Final Report”).

The Final Report deals with various matters, such as e-commerce business models, e-marketplace platforms, platform behaviors giving rise to competition concerns and the like in great detail. This Article focuses on the main competition concerns and policy recommendations highlighted throughout the Final Report.

The Authority’s E-Marketplace Platforms Perspective: Main Determinations on the Competition Concerns

In the Authority’s own words, the sector inquiry on e-marketplace platforms was initiated to manage competition concerns that are difficult to manage with the traditional tools of competition law.[1] These competition concerns are classified in three groups: (i) inter-platform competition, (ii) intra-platform competition and (iii) consumer protection.

Inter-Platform Competition

The Final Report primarily states that inter-platform competition among the e-marketplace platforms is crucial.[2] Whereas the network effects[3] enhance market power of gatekeeper platforms, it is becoming much difficult for other platforms to gain market power. Accordingly, the Final Report concluded that the anti-competitive behavior of gatekeepers is capable of totally abolishing inter-platform competition.[4]

Another issue named in the Final Report relating to inter-platform competition is the prevention of data portability. The Authority determined that the most favored customer and exclusivity clauses of the agreements executed between platforms and users are preventing data portability. This statement is significant as it sets forth that data held by e-marketplace platforms is a matter of competition law. In the same vein, the Final Report explicitly mentions that seller and consumer data that are accessible to gatekeeper e-marketplace platforms can provide an important competitive power and advantage. This is why the presence of technical and behavioral obstacles for data portability is considered as a competitive concern by the Authority.[5]

Intra-Platform Competition

Intra-platform competition concerns are triggered when the e-marketplaces play a dual role as the owner of a platform and a seller in the same platform. In this case, the e-marketplace becomes a competitor of the sellers of its platform. Inevitably in such a situation, the platform acquires bargaining power against third-party sellers, due to its power to set one-sided commercial conditions. The Final Report states that third-party undertakings are competitively disadvantaged when the e-marketplaces play a dual role.[6]

The Authority also determined that when the e-marketplaces play a dual role as explained above, a competition infringement known as “self-preferencing” becomes likely. Examples of self-preferencing can be providing ranking advantages to an e-marketplace’s own products or using third-party seller data in product development and marketing stages.[7] The Final Report suggests that to eliminate the information asymmetry, listing, ranking and similar service conditions should be objectively determined; the conditions should be drafted in a clear and neat language, and they should be shared with the sellers in a transparent and easily-accessible way.[8]

Ensuring Consumer Protection by Means of Addressing Competitive Concerns

The Final Report sets forth that competition law has an important role in the protection of consumers. It highlights that consumers are usually tricked into believing that e-marketplaces provide free services. Yet, there is a famous saying: “if you are not paying for the product, then you are the product.” The Final Report states that consumers neglect to carry out proper research for services that are provided for free, which makes them vulnerable to data exploitation. It is clear from the Final Report that competition law has an important role to play in consumer protection, especially with regards data exploitation and the protection of privacy.

The Final Report emphasizes that consumers should be encouraged to make well-informed decisions about their usage of e-marketplace platforms. For this reason, clear, transparent, easily accessible and manageable consumer policies should be adopted, especially about ranking, listing and reviewing.

The Future of E-Marketplace Platforms: Final Policy Recommendations

The conclusion part of the Final Report encompasses final policy recommendations. Based on these policy recommendations, it is apparent that the term “gatekeeper” is now part of Turkish competition law doctrine. It also states that the Authority is working on primary and secondary legislation to regulate gatekeepers. In addition, a Platform Code of Conduct is in the making, which aims to eliminate the asymmetrical bargaining power of platforms.

It should be noted that a policy recommendation of the Final Report has already been accomplished by the Board with the publication of the Communiqué Amending the Communiqué Concerning the Mergers and Acquisitions Calling for the Authorization of the Competition Board,[9] even prior to the publication of the Final Report. Hence, merger and acquisition transactions of the undertakings that are within the scope of the technology undertaking definition are subject to the Competition Board’s approval, even if the transaction does not meet the relevant thresholds.

Legislation for Undertakings with Significant Market Power

The Final Report states that current competition law rules are not enough to regulate gatekeepers, which are undertakings providing fundamental platform services with significant market power. Thus, preparation of ex-ante regulations aiming to set forth the obligations of gatekeepers are among its final policies. The Final Report explains that work on legislation on this matter is ongoing, and it should be finalized in the near future.[10]

It is foreseeable that the business models and commercial practices of digital platforms are going to change when the new legislation enters into force. The Final Report provides examples of areas in which regulations are planned, such as prohibition of including most favored customer clauses to contracts with sellers, and the obligation to provide efficient, qualitative and real time performance tools to the sellers for free.

The Platform Code of Conduct Regulation

In the conclusion of the Final Report, a regulation called the “Platform Code of Conduct” is proposed. This regulation is to be enforced for undertakings without considering whether they have a dominant position in the market. The basis of this proposal is the existence of an asymmetric bargaining power between the platform that owns the e-marketplace and the sellers who are the users of the platform service. It is recommended that a Platform Code of Conduct be adopted to avoid escalating the imbalance of bargaining power. The Platform Code of Conduct is intended to serve as a reference for objectivity, transparency, openness and predictability. The Final Report further notes that the Platform Code of Conduct regulation needs to be implemented on a wide scale, including in non-dominant e-marketplaces.[11]

The Platform Code of Conduct regulation aims to ensure predictability in the contracts to be concluded between platforms and the sellers. For example, one of the proposed rules is that the conditions for suspending a seller’s account should be explained in the terms and conditions of the contract, along with their justifications. As another example, a proposed rule requires that the listing and ranking criteria of the e-marketplace should be expressly written in the contracts to be concluded with sellers.

Strengthening Secondary Legislation

The Final Report discusses the need to strengthen secondary legislation. According to the Final Report, competition law rules should be applied more predictably and strictly in terms of e-marketplaces. In order to ensure such an application, it states that the secondary legislation regulating how the competition law rules will be implemented should be strengthened in such a way as to eliminate the uncertainties observed in terms of platform economies.[12] In addition, the Final Report advises that it would be beneficial to lower the Authority’s intervention threshold and change the principles of approach with secondary legislation arrangements.[13]

In the Final Report, it is stated that there is a need for regulation with secondary legislation, especially in terms of the most favored customers and exclusivity practices.[14] Additionally, it is also stated that it would be beneficial to regulate the competition concerns identified in cross-platform, intra-platform and consumer aspects of competition with secondary legislation, because these regulations are thought to contribute to the interpretation of Article 6 of the Law on the Protection of Competition numbered 4054.

Conclusion

It is apparent that the e-marketplace platforms gained a crucial role in the economy. The Authority, realizing the significance of the e-marketplace platforms, started scrutinizing their operations. As a result of this scrutiny, the Final Report is published. The Final Report not only determines the competition concerns raised by platform services and e-marketplace platforms, but also it includes several policy recommendations. In the near future of Turkish competition law, new laws and regulations concerning e-marketplace platforms are expected to be introduced.[15]

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