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THE LAW OFFICE: Recent developments in competition law

| 10/4/2008 12:00:00 AM | GARY LACHMAN

GARY LACHMAN

It all started with a cold beer.  Regulations designed to protect consumers from commercial monopolies and price-fixing schemes are generated by the Competition Board in Turkey.  The Board is diligent in its pursuit of discovering and fighting anti-competition trade practices.  Particularly suspect are so-called vertical agreements between manufacturers, distributors, and retail points of sale. Yet until recently, almost all vertical agreements were allowed.On May 25, 2007, the Board issued a new rule that stated that only those vertical agreements in which the supplier's market share is less than 40% will benefit from the exemption.  It was not the Competition Board's intention to be unreasonably harsh with respect to pre-existing business arrangements for popular and successful companies.  The Board's raison d'etre after all is to promote free trade within the Turkish economy while regulating the market to prevent unfair competition.  The Board was faced with a situation where they had the rules but not the tools to waive fines in cases where, from a practical point of view, it would be against the consumer's best interests even though technically there was a breach of the law.  This quandary was addressed by a new amendment to the Competition law in February that provided for exemption under certain conditions. 

Cold beer?

Why did it all start with a cold beer?  Simply because the Board is particularly concerned with the point of sale; in other words, the bar, restaurant, or store where the product is sold to the customer.  Recently, a series of Board decisions regarding exclusivity focused on companies with significantly high market shares in the retail food and beverage markets. The Board believes that if a supplier dominates its market and works with its retail vendors on exclusive terms, this leads to an artificially low product selection with higher costs for consumers and creates impossibly high barriers to entry for potential new competitors.  With the Efes/Bimpaş Decision in 2005, the Board withdrew the exemption for the exclusive purchase agreements signed by Efes and Bimpaş with their retail vendors. Efes was found to be dominant in the “beer market” in Turkey, and Bimpaş as the only other brewery with a considerable market share. Efes and Bimpaş were providing retailers with special refrigerators on condition that they wouldn't put any other beer brands inside. The market was characterized as having high-entry barriers because it was apparent that the only means by which foreign brands could enter the market was to enter into licence agreements with Efes or Bimpaş. The Board characterized the beer market as “duopolistic” because brand exclusivity, either by agreement or otherwise (like the refrigerators), at the “final sales points” level obstructed competition in the market. The Board required both companies to cease all contractual and practical applications that imposed brand exclusivity.  Soon after this decision, the Competition Board demonstrated its serious stance on anti-competitive practices with decisions against Coca Cola and Mey İçki, the preeminent maker of Rakı. The Board has clearly proscribed any brand exclusivity in relation to final sales points, including outright non-compete clauses, penalties or termination in the event of failure to meet sale/purchase quotas, and in prohibiting the use of displays such as those provided by Efes or Bimpaş that exclude competing products. © Gary S. Lachman

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