The Turkish Competition Board (“Board”) has issued a number of guidelines to supplement and provide guidance on the enforcement of Turkish competition law rules. In particular, Relevant Market Definition Guidelines (“Guidelines”), issued in 2008, are closely modelled after the European Commission Notice on the Definition of Relevant Market for the Purposes of Community Competition Law (97/C 372/03).

The economic concept of “market” used in competition law analysis represents a technical antitrust term. It is different from the concept used in a trade sector as a commercial term. Indeed, the Guidelines take this difference into account and use the term “relevant market” to delineate the market concept used for competition law purposes.

Relevant Market

The concept of relevant market is important for the purposes of dominant position and concentration analyses, because an extensive or restrictive approach concerning the relevant market would have direct effects on the finding of a dominant position. Dominance can basically be defined as the power of one or more undertakings in a particular market to determine economic parameters (such as price, supply, the amount of production and distribution) single-handedly, i.e. independently of their competitors and customers. To assess whether a company is in a dominant position, the market in which the investigated/reviewed act/transaction should therefore be defined beforehand. This is because the market(s) in which the relevant activity takes place and their inter-connections are indicative of the degree of effect on competition.

Defining the relevant market usually requires large-scale and detailed economic analyses. This usually proves to be a challenge for the competition authorities, given the huge variety of markets and economic activities. Therefore, it is usually not possible to reach a definite conclusion easily.

Competition authorities usually apply a two-fold analysis to define the relevant market: (i) defining the relevant product (or services) market, and (ii) defining the geographical market. While the analysis covers the time element as well, this dimension of the relevant market is fused into the more fundamental two-dimension analysis.

  1. Relevant Product Market

A relevant product market covers all of the products and/or services which are deemed as interchangeable or substitutable by the consumer, for the products' characteristics, their prices and their area of use. The definition takes us to the concept of “demand substitution”, which represents the most immediate and effective disciplinary force on the suppliers of a given product/service. The Board’s decisional practice and Guidelines also indicate “supply substitution” as another main criterion for the relevant product market definition exercise. A detailed analysis of the demand and/or supply conditions is usually required for a correct market definition.

  1. Demand Substitution

“Demand-side substitutability” or “demand substitution” is the most important and widely-used concept in defining the relevant market, both at the Turkish and European levels. That is because the fastest and most straightforward reaction to a price increase would come from the demand side. That reaction may take the form of stopping the purchase of the good/service and purchasing substitutable products/services instead. The competition authorities usually apply the SSNIP test - “small but significant and non-transitory price increase” - to analyze the substitutability of similar products/services to the products/services in question.

  1. Supply Substitution

Supply substitutability may also be taken into account, to the extent its effects are equivalent to those of demand substitution. Supply substitutability focuses on the question of whether suppliers can switch production to the substitutable products in the short term without incurring significant costs or risks.

The concept of supply substitution can be an important factor in defining the relevant market, but past experiences suggest that competition authorities are usually inclined to concentrate more on demand-based analyses. Supply substitutability may, as mentioned in the Guidelines, be taken into account in those cases where its effects are equivalent or at least comparable to those of demand substitution in terms of effectiveness and immediacy.

  1. Relevant Geographic Market

The definition of geographic market takes account of the relevant company’s location and the nature of the relevant product. The most important element in the definition of a geographic market is the homogeneity of competition parameters across different geographical areas.

The Guidelines summarize the main principles used in the geographic market definition exercise. These are as follows:

  • Past evidence of diversion of orders to other areas;
  • Quantitative tests that are particularly developed for defining the market;
  • Basic demand characteristics, for instance national preferences, preferences for national brands, the need for a local presence etc.;
  • Views of customers and competitors;
  • Current geographic purchase patterns;
  • Trade flows/pattern of shipments. This information may be used alternatively, provided that the trade statistics are available with a sufficient degree of detail for the relevant products. Trade flows and, especially, the rationale behind them may provide useful insight into the analysis;
  • Barriers and switching costs associated with diverting orders to companies located in other areas, for instance transport costs, restrictions arising from the nature of the relevant products, access to distribution in a given area, regulatory barriers still existing in certain sectors etc.

  1. Natural Market

Occasionally, the concept of “natural market” comes into play in defining the geographic market. “Natural market” refers to cases where certain factors dictate the limits of a geographic market. The following two examples can be used to illustrate the concept of natural market:

  1. Electricity retailers can only sell electricity to customers in the cities where they hold rights/concessions to do so. Their natural market is limited to the cities where they can legally operate.
  2. Cement or ready mixed concrete producers can operate effectively only within their own hinterlands; i.e. 250-300 km of distance of their location. Therefore, they cannot provide their products to areas outside of this distance-range.

In both cases, the geographic market cannot be determined differently from the natural market.