Competition and Antitrust

Introduction

As the volume of e-commerce has been increasing, online platforms have become important suppliers/service providers. In comparison to conventional sales channels, these platforms provide various advanced options and opportunities for consumers thanks to their superior technological infrastructures; thus, these are favored and preferred more and more among the consumers. Thereby the volume and the market share of e-commerce have increased against conventional sales channels. Considering the increasing market power of online platforms, competition authorities in many countries started to work on this newly emerging sales channel[1].

Of late, reputable competition authorities have begun to introduce new concepts like “Most Favored Nation Clause,” or “Most Favored Customer Clause” that have been already a part of the daily terminology of online platforms for quite some time. Recent investigations of international e-commerce giants like Amazon or Booking initiated hot discussions about Most Favored Nation Clause (“MFN”) amongst experts of EU competition law.

Similarly, the Turkish Competition Authority has initiated an investigation of Booking.com, and this investigation is pending[2]. However, the Turkish competition authority has already announced its first verdict in the investigation of an MFN case against a reputable local popular online platform called “Yemeksepeti” (official name; Yemek Sepeti Elektronik Iletişim Tanitim Pazarlama Gida San. ve Tic. A.Ş). The recent decision against Yemeksepeti is considered to be the footsteps of MFN practice in Turkey, which has been discussed in the EU for a long time.

Assessment of MFN Practice in respect of Competition Law

In the Competition Law Dictionary Most Favored Customer Clause has the following meaning: “a favorable commercial condition or a term of a client will be offered to all other clients that are classified as MFN (MFC).”[3] According to the Competition Law Dictionary, the MFN Clause is considered to be among the “Facilitating Practices.” The main anti-competitive effect of MFN is to reduce the intensity of cheating in a cartel agreement.

MFN practice can be described broadly as follows: a supplier has to offer the same favorable conditions that it already offered to other buyers, to the pre-defined MFN (MFC) buyer, if the conditions of the former are better than those of the latter[4]. In this respect, theoretically, this is a vertical price limitation that is enforced by the buyer, and curbs the pricing flexibility of the supplier in favor of the MFN[5]. Therefore, the MFN Clause jeopardizes Art. 101 of the Treaty on the Functioning of the European Union (“TFEU”) and Art. 4 of the Law on the Protection of the Competition (“LPC”) as it restrains the competition in the market. It should be noted that even if the MFN Clause relies on an actual economical reason, it still can be viewed as a restriction against the competition in the market[6]. To this end, while evaluating whether the MFN (MFC) Clause restricts the competition or not, all related issues and grounds of the case should be considered and reviewed in detail.

The MFN Clause successfully binds competitors to cartel agreements by increasing the cost of cheating; namely, the cost of price-cutting, given that price-cutting to any client should be reflected to all MFN’s with the same conditions. This phenomena increases the cost of price-cutting more than it was intended so that any attempt to violate the cartel agreement that has been set between the competitors, becomes more costly. This diminishes the chance of any attempt of cheating; thus, violating competition law by facilitating a non-competing environment. There are other adverse effects of the MFN Clause on the ideal of having a perfectly competitive market, apart from what we have discussed thus far[7].Maybe the most important effect of the MFN Clause is that it demotivates the bargaining will of a buyer in the long-term given that any discounts that will come out of this bargaining process will have to be reflected by the seller to other MFN’s that are direct competitors in the same market. This “free- rider effect” will curb the motivation of any buyer in the market to negotiate with a seller in the long-run, thus enabling a more stable price level and a non-competing environment in a specific market.

After considering all of the above-stated arguments, it is possible to conclude that the MFN Clause is a vertical price limitation that renders price-cutting a very costly attempt to cheat the agreement by any seller/supplier, thus eliminating the pricing flexibility of the suppliers/sellers in the market. Especially when the MFN Clause is honored by most of the players in a specific market, it creates a transparent market structure that eases the determination of any cheating player in a cartel agreement. Such a transparent market structure makes it easier to sustain the competition violations in the market and, therefore, it is anti-competitive.

Accordingly, several investigations have been launched regarding the MFN Clause within the EU market. The Commission’s decision of 2013 on E-book[8], which was subject to several commitments, was followed by other investigations[9] in different countries regarding online reservation services providers, such as Booking and HRS. In addition, Amazon’s MFN/price parity policy is also being investigated by the United Kingdom Competition & Markets Authority, the Federal German Cartel Office, and the EU Commission[10].

Thus, we may conclude that the MFN Clause will continue to be evaluated within the scope of competition law.

Yemek Sepeti Decision and Initiation of the Discussions of the MFN Clause in Turkey

In Turkey, the MFN Clause is evaluated for the first time in detail with the Yemek Sepeti decision. The Competition Board ruled that Yemek Sepeti abused its dominant position with its MFN practices, and infringes upon the competition[11]. The prominent issue is that the Competition Board decided that MFN Practices should be abandoned, which was even more important than the imposition of an administrative fine in the amount of TRY 427,977.70.

The Turkish Competition Authority ruled that all MFN Clauses should be excluded from the agreements within 120 days, as the restaurants should not be forced to apply the same favored offers granted to the other competitive platforms, Yemek Sepeti, and such practices create an exclusionary effect. Thus, similarly with the EU competition law, the Turkish Competition Authority aims to exclude MFN Clauses from the agreements, and eliminate barriers before the free determination of prices by the restaurants.

Conclusion

The MFN practices that have been heavily discussed under EU competition law are an important issue especially for the online platforms. MFN practices adopted by online platforms that are in a dominant position, such as Booking and Amazon, were ruled to be considered abandoned as they have anti-competitive effects. Thus, other online platforms may be subject to such investigations within the EU market considering the consistent decisions on MFN Clauses.

The first investigation regarding the MFN Clause in Turkey is the Yemek Sepeti investigation. Within the scope of this investigation, the Turkish Competition Authority ruled that MFN Clauses prevent restaurants from giving more favorable offers to competitive online platforms other than Yemek Sepeti, and such exclusionary conduct is anti-competitive. Therefore, MFN Clauses are excluded from these agreements. The determination of the the Turkish Competition Authority may provide insight into the investigation of Booking. It is accepted that the Turkish Competition Authority will retain its position on MFN Clauses that it had adopted through Yemek Sepeti decision.