What Is Wage Compression?
Dominant undertakings are obliged not to distort competition in a particular good or service market with their behavior Wage Compression. However, in some cases, it is seen that the dominant undertakings prevent other players operating in the market and limit their options. One of these situations is price compression.
‘Price squeeze’ (or ‘margin squeeze’) is an anticompetitive practice that occurs when the margin between the integrated provider’s downstream price and the price of the input it sells to its competitor narrows. In case of price squeeze, the current competitor in the downstream market either cannot compete effectively against this narrowing margin or has to leave the market.
The practices for price tightening examined by the competition authorities are almost similar. Price compression application, especially in the telecommunication sector; It is seen in many sectors such as water, railway, postal services, medical products, pay broadcasting platform (Pay TV), fuel sectors [2] .
‘Price Compression’ Under Abuse Of Dominant Position
Article 6 of the Law No. 4054 on the Protection of Competition (“Law No. 4054”) titled ‘Abuse of Dominant Position’ prohibits abuse of dominant position and lists the main cases of abuse. Although ‘price compression’ is not explicitly specified as one of the cases of abuse in Article 6, it is listed as a form of abuse in the Guidelines for the Assessment of Exclusionary Abusive Behavior by Dominant Undertakings (“Guidelines”).
Price compression defined in the Guide is based on the Competition Board’s (“Board”) decision dated 19.11.2008 and numbered 08-65/1055-411 [3] . As stated in the Guide, price compression is “ the margin between the price of the upstream product and the price of the downstream product of an undertaking operating in vertically related markets and dominating the upstream market, allowing even an equally active competitor to engage in profitable business in the downstream market. determination that does not allow”.
An undertaking that is vertically integrated and dominates the upstream market may cause price compression by raising the price of the upstream product, lowering the price of the downstream product, or both at the same time. Thus, the dominant undertaking may transfer the market power it has over its product in the upstream market to the downstream market, thereby restricting competition in the relevant market.
Conditions Required For Price Squeezing
Before making any determination regarding the violation of competition rules, certain economic and legal conditions regarding the structure of the vertically integrated and dominant undertaking and the market in which its competitors operate should be simultaneously present .
As noted in the Guidelines, the Board considers a number of considerations in determining whether the behavior under review is likely to lead to anti-competitive foreclosure through price tightening. These are: (i) the undertaking must operate in interconnected upstream and downstream markets in a production chain, (ii) the upstream product must be indispensable to operate in the downstream market.
The undertaking must dominate the upstream market.The upstream and The margin between downstream products must be so low that a competitor as effective as the undertaking dominating the upstream market cannot make a profit and operate permanently in the downstream market.
Leading Judgments of the Court of Justice of the European Union on Price Squeezing
ABAD; Telefónica SA and Telefónica de Espaha S:A:U: v. In its decision, the Commission dismissed the appeal that Telefónica and Telefónica de Espaha (“Telefónica”), a former state monopoly in the Spanish telecommunications market, abused its dominant position in the wholesale broadband market.
The CJEU found that Telefónica was unfairly pricing its competitors, thereby abusing its dominant position, through a margin squeeze between retail broadband access market prices and those in wholesale broadband access markets at the regional and national level [8] . In addition, the 152 million Euro fine imposed on Telefónica by the Commission and approved by the General Court was also upheld by the CJEU.
Leading Decisions of the Board on Price Squeezing
Due to the high number of complaints regarding the price squeeze application in the telecommunications sector, it is observed that the Board conducts frequent investigations. Therefore, it is not surprising that the first decision[9] made by the Board on price tightening was related to the telecommunications sector.
However, in the said decision, detailed examination of price compression was not included. The complaint was rejected on the grounds that Türk Telekomünikasyon A.Ş. (“Türk Telekom”) carried out this campaign with the permission and approval of the regulatory authority, the Telecommunications Authority.
Decision of the Board on Türk Telekom and TTNet[10]
One of the Board’s important decisions on price tightening is Türk Telekom and Türk Telekom subsidiary TTNet A.Ş. (“TTNet”). In this decision, the Board decided that the economic integrity of Türk Telekom and TTNet abused their dominant position in the wholesale broadband internet access services market through price compression in the retail broadband internet services market, thus violating Article 6 of Law No. TL administrative fine was imposed.
Another reason that makes this decision important is that the Board stated that three issues should be clarified regarding price tightening. The first of these is how to calculate the insufficient margin in price compression. The second issue is that price squeeze is different from destructive price, It is not necessary for the retail price to be destructive for price compression to occur, and price compression detection can be made even
Conclusion
Price compression is one of the cases of abuse under competition law. As mentioned above, an undertaking that is vertically integrated and dominates the upstream market may cause price compression by raising the price of the upstream product, lowering the price of the downstream product, or both at the same time. Thus, the dominant undertaking may transfer the market power.
It has over its product in the upstream market to the downstream market, thereby restricting competition in the relevant market. Although price compression is frequently seen in the telecommunication sector, price compression applications are also encountered in other sectors. Finally,