E-Marketplace Platforms Industry Review Preliminary Report Part 1: “Captain, an object is approaching”
"Nothing is perfect."
Antoine de Saint-Exupéry, The Little Prince
Introduction
Charles Dickens begins his novel A Tale of Two Cities with one of the greatest opening lines of all time: “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us…” The change that competition law has been undergoing in recent years is truly astonishing. Digitalization, in particular, necessitates the rewriting of competition law rules. Competition law is at the center all questions regarding e-commerce and digital platforms. The aforementioned platforms, which have become prominent due to innovations in technology over the past 10 years, are primarily known today for their negative aspects in terms of competition law. For instance, the market power of these platforms and the "market foreclosure" effect created by that power, comes to the fore as an important problem. In fact, these platforms have become the main gateway to reach markets and consumers. Undertakings that do not comply with the rules set by the platforms are at risk of being left out of the market.
While these discussions were taking place all over the world, the Turkish Competition Authority initiated a large number of sector inquiries, especially in 2020, when the COVID-19 pandemic began. One of them was the E-Marketplace Platforms Sector Inquiry which was launched on 11.6.2020 and made a huge splash. A comprehensive Preliminary Report (“Report”) of approximately 354 pages was published concerning this Sector Inquiry.[1]
In addition to being considerably comprehensive, the Report also contains critical findings. However, one of the most significant factors making the Report this important is the competitive concerns expressed about undertakings operating in the digital economy all over the world.
The investigations carried out on WhatsApp/Facebook data processing policies in Germany and the investigations carried out by the European Union Commission against undertakings such as Facebook, Apple and especially Amazon renders the report important. The Report in question, which deals with the new market structure in the e-commerce market for Turkey, is already breaking new ground with several of its suggestions.
In this context, the main findings and perspectives presented in the aforementioned Report will be discussed in this first article, and the policy recommendations as well as competition investigations to be launched against e-marketplaces following the Report will be covered in the second article.
The Main Approach and Prominent Competitive Concerns in the Report
The Report emphasizes the growth that the e-commerce sector has experienced since 2016. It primarily sheds light on the functioning of retail e-commerce, together with the change experienced in the field through digitalization. In addition, the Report sets forth substantial findings concerning e-marketplaces, which have become the most important sales channel as a result of the transformation in the e-commerce sector. It particularly underscores the fact that while the volume of e-commerce grew by 64%, the growth in the volume of e-marketplaces reached 112% in 2020. For this reason, the focus of the Report is on revealing the competitive and anti-competitive effects of e-marketplaces’ commercial practices. The Report aims to provide appropriate policy recommendations regarding such practices as well.
In this framework, the Report examines the concept of e-commerce and the related e-marketplace model in its first section. In this section, the development of e-commerce and the effects of COVID-19 on this development are also covered. In the second section, the business models of two globally important e-marketplaces, Amazon and Alibaba, are examined. Then in the third section, the current dynamics of e-marketplaces in Turkey are discussed. In this third section, the market shares of the undertakings, their concentration in the relevant markets and the concept of market power are analyzed. The fourth section consists of findings pertaining to various market disruptions along with explanations of the economic characteristics of e-marketplaces. The Competition Authority’s considerations concerning the operation and development of e-marketplaces and the current structure of competition in the market are also touched upon in this section. The fifth section is the section in which competition problems are assessed under three main headings: issues having the potential to hinder cross-platform competition, issues having the potential to hinder intra-platform competition, and consumer concerns. These competitive concerns are also divided into sub-headings.
Issues having the potential to hinder cross-platform competition are analyzed under the following sub-headings:
- most favored customer conditions
- exclusivity
- practices limiting multiple access on the consumer and seller side
Issues having the potential to hinder intra-platform competition are analyzed under the following sub-headings:
- discrimination between sellers operating in the marketplace
- product and seller rankings of the marketplaces
- data collected by the marketplaces
- related services offered by the marketplaces
- unfair business practices
- the tendency of marketplaces and sellers to take part in hub and spoke cartels
Consumer Concerns are analyzed under the following sub-headings:
- price related concerns
- consumer dependency and loyalty practices
- data related concerns
- concerns related to a decrease in innovation
The last section of the Report focuses on the policy recommendations for the above-mentioned problems. The exceptionally innovative content of these policy recommendations makes them thoughtworthy. The policy recommendations are presented under three main headings:
- Reviewing and updating secondary legislation in order to eliminate the uncertainties in the implementation of the existing competition law rules as regards platforms and to enhance implementation
- Adopting a “Platform Code of Conduct” regulation to deal with the asymmetric bargaining power dominating the sector, and to serve as a reference in bilateral relations
- Determining the undertakings operating as gatekeepers and implementing ex ante legislation which embodies the behavior they are obliged to avoid
Before moving on to policy recommendations, the theoretical framework for e-marketplaces is also covered in the last section. This part highlights the future projections as regards the development of the platforms, the results achieved and, most importantly, the problems resulting from the market power of some e-marketplaces. The Report hereby aims to understand public opinion on policy recommendations and ultimately shape them. In many ways, the policy recommendations to be presented in the section below signal a change in the current approach of the Competition Authority. Therefore, the implementation of these recommendations will be the beginning of a new era not only in terms of competition law practices, but also in terms of the functioning of e-marketplaces in the relevant markets.
Findings Regarding the Theoretical Framework and Current Outlook
Constituting the basis of the policy recommendations, this section, with its critical evaluations, is perhaps the most outstanding part of the Report. The Report considers that e-marketplaces suit the multilateral market model and differ from traditional markets due to their unique features.
Along with the strong network effects, economies of scale and scope in the markets in which the aforementioned platforms operate, even the data-based operation of these platforms is considered a significant barrier to market entry. These barriers increase the level of competitive concerns of the Competition Authority. The said market is unable to easily correct itself due to this structure, which also causes a vicious circle in the market power of the undertakings with a strong position in the market. According to one striking finding of the Report, this vicious circle transforms “competition within the market” into “competition for the market.” As a result of the fact that “the winner takes all,” monopolization in the market becomes inevitable. Not only this monopolization, but also the market power of e-marketplaces increases the losses by enabling the undertakings to dictate unfair conditions to sellers and consumers and by allowing their exclusionary practices.
Some findings of the Report are related to the current situation and the changes that the relevant market is going through. The evaluations and findings regarding the rapid growth of e-commerce and therefore e-marketplaces during the COVID-19 pandemic are probably the most substantial ones. For consumers, e-marketplaces constitute a different market than physical stores and brands' own websites.
The fundamental element of competition among e-marketplaces is the size of their active customer base. The more active users an e-marketplace has, the more competitive advantage it has over other competing marketplaces. However, it is also known that consumers prefer a limited number of marketplaces; that is, the number of platforms they are active on is limited.
Moreover, the Report examines the growth of crucial players in the relevant market. In this context, it can be observed that the development of the e-marketplace Trendyol has drawn the attention of the Competition Authority. Trendyol has achieved a steady increase in parameters such as the consumer base, the number of visits and the number of purchases since 2018. The growth of other substantial players in the market such as N11, Hepsiburada and Amazon are also touched upon by the Report. The Competition Authority estimates that the aforementioned market has just started its development, and that concentrations will increase through the acquisitions over time.
The final determination regarding the future concerns the position of the sellers in the market. In this context, the Report underlines that there is a high risk of discrimination in marketplaces that are hybrid in nature, as they adopt a business model that both operates as a platform and sells its own products. Accordingly, the hybrid marketplaces will be able to favor themselves and exclude competing sellers.
Likewise, expansion of e-marketplaces’ activities to other relevant markets causes conflicts of interest as well. The Report expresses concern that the entrance of the marketplaces to such relevant markets as cargo/logistics and payment systems may raise competition concerns for both sellers and undertakings in the markets. However, according to the Report, such expansions are not observed very frequently.
Conclusion For Part 1
The Competition Authority's long-awaited and perhaps the most significant sector inquiry, E-Marketplace Platforms Sector Inquiry, is expected to be completed in 2022. However, the Preliminary Report, although intended merely to express initial findings and determinations, in fact contains conclusive results in many respects. At the core of the Competition Authority’s assessments are the considerable transformations the relevant markets have undergone and the competitive concerns that these changes hold for the future. The results of this study will lead to the adoption of brand-new codes of conduct and bring about great changes in commercial practices in these markets. Indeed, the Report’s radical findings regarding the current state of the market and competitive concerns are sufficient to challenge the status quo.
While the e-commerce market and its most important players, the platforms, are going through an astounding change, the Report offers different perspectives regarding the future, reminding Dickens's "Tale of Two Cities." It should be admitted that, regardless of the final outcome, the Report has already deepened our understanding of the issue.
- See https://www.rekabet.gov.tr/tr/Guncel/e-pazaryeri-platformlari-sektor-inceleme a197b17532afeb11812e00505694b4c6 (Date Accessed: 9.12.2021).
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