Competitive Concerns Arising from MFC Applications and Their Impacts on Online Commerce

Att. Nur Duygu Bozkurt

Introduction: The Issues and the Debate Surrounding MFC Practices

In today’s rapidly growing online commerce sector, facilitated through electronic marketplaces, websites, and platforms, competition law issues are becoming increasingly intriguing, especially with practices like the best price guarantee. The Most Favored Customer (MFC) clause has become an indispensable part of online commerce. How extensively do competition authorities intervene in MFC clause practices? In the book titled “Competition Law Violation Through Best Price Guarantee in Online Commerce” I analyze MFC clause practices and the best price guarantee in detail, addressing both their positive and negative aspects. This involves a comprehensive examination of the perspectives of competition authorities in Turkey and other countries, accompanied by an analysis of relevant board decisions.

It is worth noting that while MFC practices have a broader definition, the best price guarantee constitutes a subset of this concept. In other words, MFC practices can be added to contract clauses not only through the best price guarantee but also by specifying different conditions.

The first section of the book delves into various types of best price guarantees, focusing on market structures and network effects of platforms. Different distinctions are made regarding the impact of MFC clauses based on the entity affected, sales level, timing of impact, and nature of the commitment. The analysis highlights the positive reception of narrow MFC provisions compared to wide MFC provisions. The narrow MFC clause regulates the application of terms and conditions imposed by the provider on the buyer through their own sales channel. In terms of online sales channels, narrow MFC conditions ensure that the prices and conditions offered by the provider on their own online sales channel are also applied to other buyers benefiting from the MFC condition. On the other hand, the wide MFC condition extends beyond the provider’s own sales channel to regulate the application of conditions imposed on the buyer by the provider’s competitors. wide MFC conditions, in the context of online sales channels, guarantee that the terms offered by the provider to itself and other buyers are applied to other online sales channels and resellers (the buyer’s competitors) as well.

Moreover, the importance of platform MFC conditions and their potential to raise more competitive concerns in online commerce compared to other types are discussed.

Subsequently, the focus shifts to examining the restriction of competition through best price clauses. Horizontal agreements, vertical agreements, concerted practices, and abuse of dominant position concerning MFC practices are thoroughly explored. While MFC practices typically arise in vertical agreements, arrangements that may lead to collaborations among competitors are emphasized depending on the situation. Examples such as the U.S. v. Apple Inc. case and, Kitapyurdu and Yemek Sepeti decisions provide depth to the discussion.

The next section concentrates on how best price guarantee practices adversely affect competition. It explores how gatekeeper platforms’ best price guarantee practices negatively impact competition in the market, creating an environment where these platforms can reduce the competitive chances of other enterprises.

Following this, a detailed examination of group exemption and individual exemption conditions is conducted. It is explained that even if competition is restricted by best price provisions in online commerce, group exemptions may apply in some cases, while individual exemptions may apply in others. This underscores the importance of adopting a flexible approach in competition rules.

In conclusion, this study aims to serve as a valuable resource for understanding the impact of best price guarantee practices on competition and evaluating the approaches of competition authorities. With the latest decisions and regulations, it strives to provide a better understanding of the competitive dynamics of online commerce.

Under what circumstances do MFC practices pose a risk?

When evaluating whether MFC practices carry competitive concerns, the Turkish Competition Board examines the position of the party benefiting from the MFC condition in the market, considering the effects that arise within the scope of the market and the characteristics of the MFC condition. This assessment holds significant importance in terms of understanding the competition dynamics in online commerce and the role of platforms.

Examining the types of MFC conditions reveals that wide and narrow MFC applications have different effects. While a wide MFC condition directly limits the consumer’s purchase price, a narrow MFC condition includes a more specific restriction on competition. Competition authorities generally decide that wide MFC applications restrict competition more and therefore require intervention. However, narrow MFC applications are often considered less problematic and are evaluated as legally compliant.

Considering the legal framework in Turkey and the EU, it is understood that MFC applications are assessed based on market power. It is stated that MFC applications considered risky when the market share exceeds 30% can benefit from the exemption mechanism for enterprises with a market share below 30%. However, factors such as the adoption of applications by the market and the existence of price rigidity in the market should also be considered.

In conclusion, considering the legislative regulations of the EU Commission and other international competition authorities, it is expected that legislative changes will be made in Turkey, aiming to ban wide MFC applications and clearly define the limits of narrow MFC applications. Given that these regulations aim to protect competition and ensure the sustainability of online commerce, it is expected that they will contribute to the competitive and fair development of online commerce in the future.

When making legislative changes, it is crucial to accurately distinguish between wide and narrow MFC condition practices to understand the dynamics of online commerce and create a sustainable competitive environment. In this context, future legislative regulations should focus on building a competitive and fair structure that aligns with the evolution of online commerce. The draft regulation regarding changes planned in the Law No. 4054 has already been shared. As evident in this draft, the use of the MFC clause for enterprises exceeding certain thresholds has been prohibited, both in the E-commerce Law and in the draft. Understanding the history of these changes and the dynamics of the new legislative system will be crucial for accurately analyzing and interpreting MFC clause applications up to this point.