Predatory pricing is an anti-competitive pricing strategy in which an undertaking in a dominant position risks losing money by setting a sales price below its cost in the short term in order to protect or increase its market power, to drive one or more of its current or potential competitors out of the market, or to prevent the competitive behavior of the competitor. In the application of predatory pricing, although consumers benefit from low prices in the short term, the restriction of competition may lead to undesirable results such as high prices, low quality and a decrease in consumer preferences in the medium or long term.[1]
In order for predatory pricing, which is an anti-competitive pricing strategy, to be in question, the existence of an undertaking in a dominant position is first necessary. What should be understood from dominant position is stated in Article 3 of the Law on the Protection of Competition. Accordingly; Dominant position is the power of one or more undertakings in a certain market to determine economic parameters such as price, supply, production and distribution quantity, acting independently of their competitors and customers.
According to the definition of dominant position in Law No. 4054, when making a dominant position assessment, the extent to which the undertaking under review can act independently from competitive pressures is essentially investigated. The Guide also takes into account the fact that each case’s specific circumstances must be taken into account in order to determine the extent to which the undertaking under review can act independently from competitive pressures, and explains that the following elements should be taken into account:[2]
– The position of the undertaking under review and its competitors in the relevant market,
– Barriers to entry and growth in the market,
– Bargaining power of buyers.
In Article 6 of Law No. 4054 on the Protection of Competition, titled “Abuse of Dominant Position”, it is regulated that it is unlawful and prohibited for one or more undertakings to abuse their dominant position in a goods or services market in the whole country or in a part of it, either alone or through agreements with others or through joint actions. In the second paragraph of the same article, “Actions aimed at preventing another enterprise from entering the field of commercial activity, directly or indirectly, or obstructing the activities of competitors in the market” are specifically stated as one of the cases of abuse.
In the seventh paragraph of the Guidelines for the Assessment of Exclusionary Abusive Behaviors of Undertakings in a Dominant Position, it is stated that in order for a behavior examined within the scope of Article 6 of Law No. 4054 to constitute a violation, the undertaking performing the behavior must be dominant in the relevant market and the behavior must be an abuse, and that in cases where the Board can clearly show that one of these two basic elements is not present, it may not include an analysis regarding the other element. In this context, as reflected in various court decisions, in order for an action to be evaluated as a violation within the scope of Article 6 of Law No. 4054, the presence of two elements together is required, and the absence of either condition means that there will be no violation of Article 6 in terms of the incident subject to analysis. Therefore, the analysis can start with the assessment of any condition, and if the existence of the condition is demonstrated, the analysis will continue, and in its absence, it can be concluded that there is no abuse of dominant position. Secondly, in order for predatory pricing to be an issue, the dominant undertaking must set prices below its costs. It should be noted that not all types of underpricing, but only underpricing that may cause the closure of a rival undertaking with equal effectiveness in the relevant product market, can be considered abuse of dominant position.[3]
Thirdly, the dominant undertaking must set prices below its costs in order to ensure that rival undertakings in the same product market are excluded from the market. The Competition Board has ruled as follows regarding the issue;
In this context, first of all, it is necessary to determine whether the behavior under review is below-cost pricing. In order to speak of abuse of dominant position in the event of detection of below-cost pricing, it is required that the relevant product market be likely to be closed to a competitor with equal effectiveness. In cases where it is determined that the behavior under review is not below-cost pricing, it can be concluded that the behavior in question is not predatory pricing without considering the possibility of market foreclosure.
Finally, in order for predatory pricing to be the case, the dominant firm must first determine the price below its costs and ensure that rival firms are excluded from the market, and then compensate for the loss it has suffered during the low price period by increasing prices. Therefore, the low price determined below costs in predatory pricing is only valid for a short period. The main goal of predatory pricing practices is to apply high prices by excluding competitors from the market in violation of competition law. In this way, profit maximization will be achieved.[4]
It should be noted that these four conditions must be present at the same time for predatory pricing to exist. If one of the conditions is not present, predatory pricing cannot be mentioned.
The sanctions to be applied in case of detection of predatory pricing are regulated in the Law on the Protection of Competition. According to Article 16 of the Law titled Administrative Fines; undertakings detected to have engaged in predatory pricing shall be subject to an administrative fine of up to ten percent of the annual gross income of the undertaking to be penalized, associations of undertakings or members of these associations, which is formed at the end of the fiscal year preceding the final decision or, if this cannot be calculated, the annual gross income of the associations of undertakings or members of these associations, which is determined by the Board at the end of the fiscal year closest to the date of the final decision.
REFERENCE
Competition Board, Competition Terms Dictionary, https://www.rekabet.gov.tr/tr/Sayfa/Yayinlar/rekabet-terimleri-sozlugu/terimler-listesi?icerik=9ae7b79f-1351-4f01-95b3-3e67499a3400
Competition Board, Decision No. 22-08/116-46, dated 10.02.2022
Law on the Protection of Competition and Related Legislation
[1] Competition Board, Competition Terms Dictionary, https://www.rekabet.gov.tr/tr/Sayfa/Yayinlar/rekabet-terimleri-sozlugu/terimler-listesi?icerik=9ae7b79f-1351-4f01-95b3-3e67499a3400
[2] Competition Board, Decision No. 22-08/116-46, dated 10.02.2022
[3] Competition Board, Decision No. 22-08/116-46, dated 10.02.2022
[4] Competition Board, Decision No. 22-08/116-46, dated 10.02.2022