E-Marketplace Platforms Industry Review Preliminary Report Part 2: “Shahmaran’s Story”
You can read the first part of "E-Marketplace Platforms Industry Review Preliminary Report Series" here.
Introduction
Shahmaran, a Mesopotamian myth, is believed to take place in Tarsus. According to the myth, the shah of snakes is the immortal and omniscient "Shahmaran." Shahmaran is described as a beautiful woman living in her cave with her snakes. She lived seven floors below the ground, she had a body of a snake and a human head. A woodcutter was the first to encounter the Shahmaran, the queen of snakes, who lived with her omniscient snakes called Meran. One day, a woodcutter named Camasb, after he got betrayed by his friends, was trapped in a cave he entered to collect honey. After crawling through a hole he saw in the cave, he discovered a beautiful garden. This garden and the cave are where Shahmaran lived.
Shahmaran liked this young woodcutter and let him live with her. Shahmaran, perhaps out of loneliness, fell in love with him. The snakes warned Shahmaran that people are ungrateful, and he would betray her confidence, but Shahmaran did not listen to the snakes. She taught him the secrets she knew, including how to make medicine. However, Camasb missed the family he left behind. Shahmaran allowed the woodcutter to return to his family, as long as he did not tell anyone her whereabouts. However, foreseeing what will happen, Shahmaran told the young woodcutter that one day he would give her away, and that this would be the death of her. Camasb kept his word and did not tell anyone the whereabouts of the cave for years. However, one day the sultan fell ill. The vizier claimed that the cure for this disease was the meat of Shahmaran. Shahmaran's cave was sought all over the country. When the vizier learned that Camasb knew the whereabouts of the cave, he had Camasb tortured for the knowledge. Eventually, Shahmaran was caught in her cave. Before she died, Shahmaran told Camasb: "Boil my head and let the sultan drink it to be saved, let the vizier drink my body, so that he dies, boil my tail and drink it, so that you become a Luqman." Camasb did what he was told; the evil vizier died and the Sultan was saved. Camasb, who knew more about medicine than anyone, became immortal and came to be known as Luqman, only to live with his guilt forever.
The Shahmaran legend contains important elements of humanity in many aspects. Perhaps its most important message is that knowledge does not always bring good to its holder. Similarly, many findings of the Competition Authority’s E-market Place Platforms Industry Review and its Preliminary Report reveal that the commercial data obtained by the aforementioned platforms raise competitive concerns to a large extent. So, at the end of this review, many things will radically change for these undertakings and we will see brand new approaches, especially regarding data-driven competitive concerns.
This article will further examine the competitive concerns raised in my previous article on this subject.
1. Fundamental Findings of Competition Issues
The main purpose of the report is to examine the competitive concerns that arise in practice and cannot be addressed with basic competition law instruments. In particular, due to the structural characteristics of the market, the market power of incumbent undertakings enables them to easily monopolize.
The aforementioned section of the Report begins by stating a fundamental difficulty. Specifically, there are concerns arising from platforms that are difficult to address with traditional competition law instruments. Traditional instruments are not suitable for the operation of the platforms, and the characteristics of the relevant market provide monopoly power to incumbent undertakings. In this context, the Report examined competitive concerns under three headings.
Fundamental Concerns for Cross Platform Competition
Competition among e-marketplaces is especially critical to attain the expected benefits from the platforms. However, due to the network effects in the market, incumbent undertakings that are gatekeepers can easily push their competitors out of the market with anti-competitive behaviors. Among the important findings in the Report is that the Most Favored Customer Clauses (“MFC”), which are widely used in the aforementioned market, exclusivity conditions, and the prevention of data portability, are the main practices that can target cross-platform competition. Notably, MFC clauses enforced by the gatekeepers will reduce competition based on the commission rate and may cause price rigidity over time. The report also finds that there is no efficiency gain to justify the broad MFC clause implementation by gatekeepers.
Another finding is related to the vendor and consumer data of the aforementioned gatekeepers. The Report also emphasizes that there should be no technical or behavioral barriers for the transfer of this data, which provides significant market power, to other platforms.
Fundamental Concerns for Intra-Platform Competition
The report emphasizes the bargaining power of e-marketplace platforms vis-à-vis vendors, and as a result, it determines that the commercial terms are determined unilaterally by the platforms. Thus, the Report states that it is important to establish a business environment that will operate in line with the principles of "objectivity," "transparency," "clarity" and "predictability."
E-marketplaces also operate as vendors on their own platforms. For this reason, the aforementioned undertakings are also in the position of competitors with the vendors using the platform. This situation, especially for gatekeeper marketplaces, raises competitive concerns expressed as “favoritism towards itself”.
In the report, examples of favoritism by e-marketplaces mentioned in the report include the following: "giving priority to their own product in listings and rankings,", "obtaining an unfair advantage in sales, by using the vendors’ data" and "providing unfair advantages to vendors using its related services over other vendors." In order to eliminate the information asymmetry in favor of the marketplaces, the report suggests that the "listing, ranking, and related service usage" conditions should be determined "objectively" and shared with the vendors in a "clear," "understandable" language, in a "transparent" and "easily accessible" way.
The report states that the gatekeeper marketplace(s) must not create technical or behavioral barriers to access and transfer of their data to other platforms, so as not to restrict multiple access opportunities for consumers and vendors.
Fundamental Concerns for Consumers
The main concern for consumers in the Report is in regard to the fallacy of free service. Consumers, just like in other platform economies, actually pay with their data for services they think are free. For this reason, consumers do not show sensitivity in terms of services they pay with data compared to paid services. Thus, exploits such as excessive data collection by platforms and violation of consumers' privacy become possible.
The report also determines that consumers are harmed by information asymmetry at the point at which data is collected, how it is used, and how it is presented by the marketplaces, and that this makes consumers vulnerable to manipulation and exploitation. In order to prevent this, the report states that e-marketplaces’ adoption of "clear," "transparent," "easily accessible" and "adaptable to preferences" policies based on "objective" criteria in areas open to manipulation and exploitation such as listing, ranking and product comments would be beneficial.
2. Policy Recommendations
The report offers three policy recommendations as a solution. These are as follows:
- Strengthening Secondary Competition Law Legislation
- Platform Code of Conduct Regulation
- Gatekeeper Regulation
In this context, the report states under the heading of strengthening secondary legislation that clearer provisions should be included in the secondary legislation, especially on MFC practices. In addition, it also states that new regulations should be adopted in the secondary legislation regarding exploitative practices and especially excessive data collection of platforms.
Another area of policy change is the aim of publishing brand-new guidelines on the Platform Code of Conduct. Published guidelines are proposed on the basis of “objectivity,” “transparency,” “clarity” and “predictability” to serve as a reference in bilateral relations on the grounds that commercial terms may be determined unilaterally and unfairly due to the asymmetric market power of the platforms.
Finally, a legislative proposal is made on the Gatekeeper Regulation. The aforementioned legal regulation aims to determine the undertakings that have the characteristics of Gatekeepers, and the behaviors that Gatekeepers are obliged to avoid. In this regard, some of the proposed obligations are noteworthy.
Particularly noteworthy are radical suggestions such as prohibiting these undertakings from imposing MFC clauses on vendors, non-use of non-public data obtained from the activities of the vendors in platforms’ own products in competition with the products of these vendors. Similarly, the Report's recommendations include forbidding undertakings or companies belonging to their group from granting advantages to their own products in the rankings on their own platforms, or creating technical or behavioral obstacles to the transfer of the data provided by their vendors, or consumers, to other platforms. The most important suggestion made in this context is the notification of all acquisitions made by the undertakings that have the characteristics of gatekeeper to the Competition Board, regardless of the notification thresholds included in Communiqué No. 2010/4 on Mergers and Acquisitions Calling for the Authorization of the Competition Board.
The last recommendation of the report was quickly put into practice by the Competition Authority. With the recent amendment[1] made in the Communiqué regarding the proposal on this subject, the definition of "Technology undertakings" was introduced and the turnover thresholds to be applied for undertakings operating in some markets, including digital platforms, were differentiated. In this way, the turnover thresholds for the acquisition of digital platforms operating or having R&D activities or providing services to users in Turkey were lowered. Therefore, this amendment aims to closely monitor the transactions regarding the acquisition of the previously-mentioned platforms.
- Communiqué Amending Communiqué Concerning the Mergers and Acquisitions Calling for the Authorization of the Competition Board published in the Official Gazette dated 04.03.2022 and numbered 31768
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