How did you come to be interested in the regulation of digital markets?
I am a full-time professor in competition law at Bilgi University in Istanbul. I first became interested in the application of competition law in digital markets when a PhD student of mine, Cihan Dogan, wrote his PhD thesis on the topic in 2020. We later co-authored a book together (“Regulation of Digital Platforms in Turkish Law”). Ever since, I have been following these increasingly prominent issues closely.
How is Turkey responding to emerging competition issues?
Tukey has responded to emerging competition issues on two fronts. First, the Turkish Competition Authority (TCA) has been very vigilant on the enforcement of competition law, specifically Article 6 (abuse of dominance) to digital platforms. The TCA has conducted almost 20 investigations against digital platforms (both local and global) most of which are completed with infringement decisions. These investigations involve both local (Sahibinden, Nadirkitap, Yemeksepeti) and global players (Meta, Google I-IV, Trendyol, Booking) and relate to very different abusive behaviors, such as data portability, unfair pricing, MFNs and self preferencing. Alongside these investigations, the TCA has also conducted market studies concerning digital marketplaces, digital advertising, and digital payments. There is also an ongoing study on mobile ecosystems.
Another front is legislation. Two drafts regulating digital platforms have been prepared, one by the Ministry of Trade, the other by the TCA. The former one is an amendment on E-Commerce Law, numbered 6563, and has been enacted by the Parliament and is in force. The other, draft revision of the Turkish Competition Act, is expected to be enacted by the legislature in 2024, according to the “medium term programme” of the presidency of Turkey.
Do you think there is still scope to influence the revision of the Turkish Competition Act?
There is still room to influence the revision of the Turkish Competition Act. In fact, we have been told that the draft has already been changed since the last public appearance. The forthcoming legislative process is not clear, but it is fair to assume that the last version (which we have not analyzed) will be circulated to collect public opinion. After collecting the opinions, we expect that there will be changes, as well. Also, when one considers the usual legislative activity, in most cases, some last-minute revisions take place in the Parliament.
Were the E-Commerce Act and the proposed amendment of the Competition Act preceded by an impact assessment? If not, how do you assess these acts?
Unfortunately, there was no impact assessment. Only the preamble of the E-Commerce Act, which mainly regulates the behaviors of the platforms in marketplaces, generally refers to some e-commerce statistics that indicate the prevalent use of platforms in e-commerce.
When one considers the provisions of the act, limitations of advertisement and promotion budgets (separate limitations); prohibition of certain activities (especially in financial services); and, most importantly, obligation to pay license fees, it seems likely that the act will produce counterproductive results. It will hamper investment and economic growth.
The draft Competition Act refers to the market studies conducted by the TCA. Of course, there are other market studies, as well. Hence, it is likely that the draft will be affected by the outcomes of these studies. We could, in theory, expect better and more informed legislation on that front.
Which studies are you referring to, specifically?
The TCA has conducted several studies in digital markets and, upon these studies, extensive market studies reports have been published. The e-marketplace platforms-industry inquiry preliminary report was the first report of that kind, which was followed by the final report. Another one was related to the e-payment system; the full name of the report is the “Financial Technologies Concerning Payment Services Inquiry Report.” A third one relates to the online-advertising industry. The preliminary report has been published and it is going to be presented and discussed with the public on the 20th of December in Ankara. There is another study, which is not yet completed, concerning mobile ecosystems. This was initiated in April 2023 and is still being conducted. Apart from these reports, the TCA has launched and completed numerous investigations on digital platforms and, as a part of these investigations, it has carried out micro market studies, as well. Therefore, it is fair to say it is one of the authorities that has extensive information on the features and the dynamics of these markets.
Do you think Digital Markets Act-style provisions are appropriate or necessary in the context of Turkey? Are there any unique challenges that your jurisdiction faces in this space, to which policymakers should respond differently?
This is hard to answer. Of course, the same theoretical economic considerations (network externalities, economies of scale and scope, big data and customer ignorance) also hold true in Turkish markets. Besides, Google, Meta, and Microsoft dominate certain digital markets in Turkey, as well. However, to what extent these considerations require economic regulation is an open-ended matter.
Hence, without delving into this grand matter, there are at least three arguments that can be made for the Turkish case, which point to the fact that a DMA-type regulation of platforms is not urgent.
The first is that the EU’s enforcement of the DMA would likely yield positive externalities for third-country markets like Turkey. As the companies subjected to the DMA prohibitions have global operations, it is likely that the compliance efforts will change the market practices globally and this will affect Turkish markets, as well (this is not unique to Turkey, though it is still important).
Second, as we have limited information about the probable economic consequences of DMA-type regulations, it would be wiser to monitor the early enforcement practice in the EU and make legislation only if these consequences are likely to create better market outcomes.
Third, as already mentioned, the TCA is already very active in digital markets and, given this vigorous enforcement practice, it is hardly urgent to call for a new regulatory tool. The TCA can quickly respond to market failures and has done so with several interlocutory injunctions in digital markets (Trendyol, Meta, and Yemeksepeti).
I should note that the e-commerce regulation, which is in force at the moment, is a platform regulation that is different from DMA. Hence (as the rules are partly DMA-style), I did not consider this regulation while responding to this question. If we consider this regulation, we can say that (apart from the fact that it is not a good law) there are serious informational problems on the side of enforcers, as this law is implemented by the Ministry of Trade.
You say that the E-Commerce Law is not a good law. Could you elaborate a bit?
There are various provisions in the law (or in the amendment) that make the legislation seriously problematic from a competition-policy perspective. I will provide some examples.
The first is the private-label prohibition (additional article 2/1(a)). The E-Commerce Law prohibits platforms to sell their own PLs on the platforms. This prohibition is applied to all platforms independent of market power or the size of the platforms. The concern is understandable—i.e., self-preferencing or discrimination in favor of PL. However, this prohibition is evidently unproportional. These concerns can easily be addressed by less drastic and intrusive measures, such as the platform PL unit may be prohibited from using platform data. In fact, the law governs this issue and the medium-sized platforms are prohibited to use sellers’ data in cases where they also compete with the seller. (additional article 2/2(a)). This prohibition will certainly result in welfare losses, since creating and selling PL brands will not only increase consumer choices but also enable platforms to offer goods in line with consumer preferences with competitive prices. This prohibition interferes with these consumer benefits.
A second example is the limitation on the advertisement and the promotion/discount budgets (additional article 2/3 (a and b). Relevant provisions impose a limit on the advertising and discount spending budget of large-scale platforms. In both provisions, the budget cap is determined according to the same formula and is therefore equivalent. Accordingly, the platform may spend 2% on advertising or discounts for up to 30 billion Turkish liras of the net transaction value arising from sales it brokered in the previous year, and 0.3% for the following portion above that limit. The amounts determined accordingly constitute the upper limit of discount and advertising budgets. To explain with an example, for a platform with a net transaction volume of 50 billion Turkish lira, 60 million Turkish lira (0.3% of 20 billion) will be added to the base expenditure limit of 900 million Turkish lira. In this case, the advertising budget will be 960 million Turkish lira. According to the continuing paragraph, the discount-budget cap will be determined in the same way. Therefore, advertising and discount-budget limits will be equivalent.
What is the rationale for these two provisions? When looking at the rationale, the basic logic is similar. The economic power of the platform allows it to implement exclusionary strategies against its rivals. The incumbent platform makes it difficult for competitors to operate by excessive advertising. This justification bears traces of the theory of “raising rivals’ costs” in the economic literature. The reason for the discount-budget limitation is the proposition that large-scale platforms cause predatory pricing through discounts, leading to the exclusion of competitors. Therefore, both restrictions discourage strategies and behaviors that weaken competition in the markets in which platforms operate. This will encourage entries. That is, at least, the suggested logic in the preamble.
One does not need to elaborate the problems associated with these rules. It is not only hard to interpret and apply the law as it is, since some of the concepts are vague and indeterminate, but also the rules will certainly have anti-competitive effects and therefore decrease social welfare. Take the advertising-budget limitation. The first problem concerns the scope of the concept of advertising. Although the law and secondary regulation seek to specify which activities will be considered within the scope of advertising, it is inevitable that there will be a problem of determination and interpretation, which will likely create transaction costs and increase uncertainty. Moreover, advertising is a socially beneficial activity due to its informational and quality-signaling functions for branded products. Limiting the advertising budget will cause a social cost in this respect. Advertising benefits not only the platform, but also the sellers, and limiting it may also harm the sellers.
For a moment, it may be thought that it is reasonable to incur these costs, because competition in the market will increase by preventing excessive advertising. However, although the law refers to the phenomenon of excessive advertising, there is no scientific study on this subject. Therefore, it is unclear whether this type of risk actually exists. As a matter of fact, the economic theory of raising rivals’ costs through excessive advertising has not found much response in practical application. In this respect, the economic basis of the ban in question is also weak (even if we think for a moment that there is a real problem in this regard). In addition, it is unclear how the criterion on which the monetary limitation on the advertising budget is based is determined. Considering that the same criterion is used for advertising and discount budgets, we can say that this is determined largely arbitrarily.
Similar criticisms also apply to the discount-budget limitation. Moreover, the benefit of the discount to both consumers and sellers is not controversial, when compared to the advertising benefit. Failure to provide a discount results in a net consumer loss. We can easily say that, due to this limitation, the products sold on the platform will increase in price and the amount of output will decrease.
A third example is the obligation to obtain a license from the Ministry of Trade and to pay an annual license fee. The law foresees gradually increasing license fees for all platforms exceeding a certain size, based on net transaction volume. According to the system in the law, this license fee, which must be paid annually, increases as the net transaction volume increases. What’s interesting here is the amount of increase. To put it concretely, a platform with a net transaction volume of between 15 billion and 30 billion Turkish liras is obliged to pay a fee of 0.03% of the net transaction volume, while a platform with a net transaction volume of more than 90 billion liras is obliged to pay a license fee of 25% of the net transaction volume. Considering that the fee is calculated on net transaction volume, not turnover, these fees clearly constitute a barrier to economic growth. For large platforms, these costs not only cause price increases for their services, but also serve as a disincentive to compete.
There are other examples, as well, which indicate that the law’s primary goal is not to protect competition but rather competitors, and that efficiency and productivity is not its concern. Therefore, from a competition-policy perspective, this is clearly a bad law.
Do you expect there to be any conflicts between standard competition law and ex-ante regulation? Conversely, might there be any synergies?
Well, if we consider the E-Commerce Law, there are two risks: conflict and overregulation. In certain cases, platforms will be both subjected to the investigations of the Trade Ministry (E-Commerce Law) and of the TCA. And there is a chance that both laws may inflict financial costs on the platforms, as the fines can be applied simultaneously. And interestingly, these rules are not totally aligned with each other, which will create uncertainties for the platforms. Unfortunately, the E-Commerce Law does not set out specific provisions as to which law should prevail in the event of a conflict.
If the Turkish legislature enacts the draft Competition Act, then the situation will become much worse. Three laws will regulate the behavior of platforms and, unless the draft Competition Act sets out specific (well-tuned) provisions for overlap/conflict, there will be chaos.
Do you have any sense about likely effects of the E-Commerce Act and the draft amendments to the Competition Act on, for example, innovation, consumer prices, and foreign direct investment in Turkey?
I have sought to elaborate the likely effects of the E-Commerce Law above. As I said, the law is anticompetitive, will likely hamper competition, and increase prices on the digital markets. It will slow growth and innovation.
It is hard to foresee the economic effects of the draft amendment to the Competition Act.
One thing is sure, these laws will increase the compliance costs of platforms and, given that two laws are regulating similar behaviors, there will be some overlaps and overenforcement, which will create additional uncertainties that already exist in these regulations.
It is not hard to predict that FDI will be negatively affected by the E-Commerce Law. Also, regulating digital platforms with two similar laws will also have adverse effects on FDI.
What could Europe and the United States learn from your jurisdiction’s approach, and what could your jurisdiction learn from the U.S. and EU?
The enforcement practice of the TCA is quite innovative, in the sense that new harm theories for article 6 (abuse of dominance) are easily adopted and applied. Hence, the cases against Google, Trendyol, and Meta can be exemplary for other jurisdictions.
What could we learn from the EU/US? As there is limited enforcement practice in the United States, I do not think that there are many exemplary cases in the U.S. practice, whereas EU practice is a different story. The TCA has already been inspired by the EU practice in various matters, like cases against Google. Besides, as said above, Turkey can benefit (and learn) from the early enforcement practice of the DMA and prepare its legislation accordingly.
How high would you rank digital regulation on the government’s policy-priority list? Is digital regulation part of a broader policy strategy in Turkey?
Turkey has serious economic problems, and concentration in digital markets is not even on the list of problems. So, from a macro perspective, regulating digital platforms does not seem to be in the priority list. However, there is a general tendency toward regulating markets, as Turkey moves away from the free-market approach. And for some reason, regulation of the digital world (including other aspects) has been deemed important. And regulating digital platforms can be regarded as a part of this general approach. Besides, the draft regulation in the Competition Act is prepared by the Competition Authority and, perhaps to increase its authority and control on the markets, the authority pushes for the legislation. As a consequence, a proposal for a new regulation took part in the medium-term plan of the presidency.