Market Definition and Economic Approaches in Competition Law

Entrance

Competition law is one of the most important branches of law aimed at safeguarding the functioning of a free market economy. The Law No. 4054 on the Protection of Competition ("RKHK") outlines the basic framework of competition law in Turkey, while paralleling Articles 101 and 102 of European Union law. One of the most critical issues for protecting competition the definition of the market. This is because determining whether an undertaking is in a dominant position, whether agreements restrict competition, or whether concentrations distort competition depends on a correct definition of the market.

This article will address the legal and economic dimensions of the market definition; a detailed examination will be conducted in light of legislative regulations, Competition Board practices, and doctrinal opinions.

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I. The Importance of the Market Definition in Competition Law

The definition of a market serves three fundamental functions in competition law:

1. Determining Dominant Position: The market power of an undertaking can only be revealed through the accurate definition of the relevant product and geographic market.

2. Impact of Agreements: Whether agreements between undertakings restrict competition is assessed by considering the competitive conditions in the defined market.

3. Concentration Control: Whether mergers and acquisitions distort competition is examined according to the structure of the relevant market.

Therefore, an incorrect market definition can either lead to unnecessary interventions or cause anti-competitive behaviors to go unnoticed.

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II. Legal Framework

1. Law No. 4054 on the Protection of Competition

• Article 3: Although the law does not contain a direct definition of "market," it refers to the concept of "relevant market."

• Articles 4 and 6: When assessing whether agreements restrict competition and constitute abuse of dominant position, the relevant market shall be taken into account.

• Article 7: In mergers and acquisitions, it is examined whether competition is significantly reduced, taking into account the relevant market.

2. Parallelism with EU Law

The European Commission's 1997 "Declaration on the Definition of the Relevant Market"serves as a guideline in Turkish competition law. Indeed, the Competition Board frequently refers to EU practice in its decisions.

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III. Elements of Market Definition

1. Product Market

The product market is the area comprised of goods or services that can be substituted for one another. Here, demand-side substitution and supply-side substitution come to the forefront.

• Demand-side substitution: This is the tendency for consumers to switch to other goods when the price of one good increases.

• Supply-side substitution: The ability of producers to switch to producing different products at a lower cost in the short term.

For example, within the carbonated beverage market, cola and soda are generally considered to be in the same product market. However, energy drinks can be defined as a different product market.

2. Geographic Market

A geographical market is a region where competitive conditions are homogeneous. This can be at the national, regional, or international level. In the practices of the Competition Board, definitions are sometimes made on a nationwide basis in Turkey , and sometimes on a province-by-province basis

3. Time Dimension

A specific period is taken into account when defining a market. This factor is particularly important for seasonal products.

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IV. Economic Approaches

The definition of a market is not merely a legal matter, but is based on economic analysis. Competition law utilizes the criteria of economics.

1. SSNIP Test (Small but Significant, Non-Temporary Price Increase)

• When the price of a product increases by 5–10% permanently, it is examined whether consumers switch to alternative products.

• If they are gravitating towards those products, they are within the same market.

• It is the most commonly used test in both EU and Turkish practices.

2. Demand Elasticity Analysis

• It measures how much demand changes in response to price changes.

• Products with a high rate of substitution are included in the same market.

3. Supply Elasticity

• Manufacturers' ability to diversify their products can be a decisive factor in defining the market.

• For example, if a company can quickly produce a competing product using its existing machinery, these products can be evaluated in the same market.

4. Approaches in Relevant Board Decisions

The Competition Board generally refers to the SSNIP test in its decisions, but in most cases, due to the limited availability of economic data, it conducts sectoral assessments. For example:

• In the Turkcell/Telsim decision, the mobile communications services market was recognized as a separate product market.

• In the Migros/Tansaş merger, regional market definitions were made taking into account the organized retail sector.

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V. Application Areas of Market Definition

1. Dominant Position and Abuse of Power

Whether an undertaking holds a dominant position can be determined by calculating its market share. The narrower the definition of the market, the higher the undertaking's market share appears.

2. Agreements Restricting Competition

The impact of agreements between competitors on competition is assessed according to the structure of the defined market.

3. Condensations

In mergers and acquisitions, whether concentration distorts competition can only be determined through a correct definition of the market.

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VI. Market Definition in Light of Turkish Competition Board Decisions

The Competition Board has defined markets using different methods in different sectors:

• In the banking sector, credit cards and debit cards are considered different product markets.

• In the pharmaceutical industry, market definitions have been established based on active ingredients.

• In the media sector, the advertising market and the publishing market have been evaluated separately.

This diversity shows that the definition of the market is shaped according to the dynamics of the sector.

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VII. Criticisms and Problems

• Lack of Data: The absence of reliable statistics in most sectors in Turkey makes it difficult to apply economic tests.

• Dynamic Markets: In rapidly changing markets such as digital platforms, the traditional definition of a market is insufficient.

• EU Harmonization Issues: Although there is harmonization with EU practices, sometimes narrower or broader definitions are used in Turkish practices.

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VIII. Proposed Solutions

1. Increasing the number of sectoral reports and improving data transparency by the Competition Board will facilitate market definition.

2. In the digitalized economy, new economic models should be used to accurately analyze platform markets.

3. The scope of application for economic tests should be expanded through collaboration between the Academy and the Board.

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Conclusion

Market definition is a concept at the heart of competition law. An incorrectly defined market either conceals competition violations or leads to unfair interference. Although Turkish competition law has adopted a market definition approach in line with the EU, there is a need to strengthen economic analyses in practice.

In the decisions of the Competition Board, the definition of the market plays a decisive role across a wide range of areas, from determining dominant position to examining mergers. In the coming period, the definition of the market will become even more important, especially in the context of digital markets and the platform economy.