On 19 April 2021 the Competition Board released its reasoned determination pertaining to its completely fledged investigation into no matter whether 6 fertiliser suppliers(1) violated Article 4 of Legislation 4054 on the Safety of Competition, which prohibits, amid other points, anti-aggressive agreements and concerted procedures (Fertiliser Suppliers, 26 November 2020, 20-51/718-317).
This selection comprises crucial Competitiveness Board assessments and results as to how inadequate documentary evidence can be supported by economic proof to verify the existence of an anti-aggressive agreement when the industry demonstrates parallel and simultaneous value improves.
This report examines the facts encompassing the scenario, as established by the Competitors Board, and how the board utilized economic proof to reach its choice.
In October 2018 the Levels of competition Board initiated a preliminary investigation ex officio into the worried undertakings to look at reported value improves in the fertiliser marketplace. Within just the scope of the preliminary investigation, the Levels of competition Board performed onsite inspections and gathered evidence that led to a totally fledged investigation in February 2019. Just one doc in certain, referred to as ‘Evidence-20’, was of decisive impact in major the case handlers to counsel that the Competition Board initiate a completely fledged investigation into the undertakings.
Proof-20 was an internal marketplace intelligence report by Bandirma Gübre Fabrikalari AS (BAGFAS), which was in the form of an e mail. The email had been forwarded from BAGFAS to EGE Sanayii AS (which was section of the same group of corporations), in whose premises it experienced been learned throughout the onsite search. In the electronic mail, it was observed that 1 of BAGFAS’s staff experienced informed EGE management that Istanbul Gübre Sanayii AS (IGSAS) (a competitor underneath the exact same investigation) reportedly advised Gemlik Gübre Sanayi AS (GEMLIK) (a further investigated competitor) that IGSAS was to maximize its price ranges, so that GEMLIK would, in convert, also maximize its costs. On the other hand, the wording of Evidence-20 was ambiguous and did not allow for the Competitors Board to ascertain the particular resource of this kind of market place intelligence or when the cost will increase had allegedly taken area. So, the Levels of competition Board made the decision to collect more proof inside of the scope of the totally fledged investigation in order to understand the specifics of the alleged increase or determine irrespective of whether any increase had actually occurred.
Next the initiation of the completely fledged investigation, the case handlers done even further dawn raids on the six undertakings. When these dawn raids revealed useful information and facts regarding the dynamics of the industry, they did not uncover any further proof relating to what Evidence-20 proposed (ie, that GEMLIK and IGSAS experienced exchanged a long run price tag method). Accordingly, an in depth market place check was done with a look at to fully knowing how the fertiliser industry labored. The case handlers used the comprehensive facts that they had been equipped to acquire regarding the qualities of the current market, mixed with the information gathered from the investigated undertakings by details requests pertaining to the true charges realised in the market.
The Competitiveness Board identified that although there ended up approximately 1,200 undertakings in Turkey engaged in the production or import of fertilisers, the six which ended up below investigation represented 80% of the current market. For that reason, the Levels of competition Board concluded that the fertiliser sector had an oligopolistic composition with a smaller amount of big players.
The Competitors Board further proven that there was a substantial dependence on imports of raw materials and concluded goods. The undertakings – which include the investigated suppliers, some of which also imported completed fertilisers – bought their raw product inputs and completed merchandise from the very same foreign players. Consequently, the investigated undertakings experienced a similar price and price construction:
- Considering that imports essential payments to be manufactured in a foreign currency (typically US dollars and euros), the price ranges in the fertiliser industry had been hugely dependent on trade rates. The threats surrounding improvements in the exchange charges have been borne by the sector gamers and could directly affect profitability.
- The non-exclusive dealership technique in the sector had resulted in a transparent sector. Sellers labored with multiple fertiliser suppliers at the identical time. Therefore, sellers had considerable info about the cost and payment phrases used by unique companies and utilised this information to negotiate with suppliers.
- Another element that created the industry transparent was that fertiliser suppliers generally made use of the exact port and warehouses, or the exact same cargo discharge expert services. As a result, the suppliers could attain worthwhile facts with regards to their competitors’ provide channels and ailments, such as the country of origin, form and amount of the product or service. This information and facts was deemed to impact the pricing conduct of the undertakings.
- The seasonality of the merchandise induced need to noticeably maximize for the duration of certain durations (substantial seasons), which translated into seasonal fluctuations in rate.
- The fact that the competition had been also frequent suppliers of each and every other enhanced transparency in the current market.
Centered on these findings, the Levels of competition Board established that the items were being homogenous and that the marketplace was clear and traceable.
The Opposition Board to start with assessed the pertinent solution industry and founded numerous segments for the fertiliser products and solutions. On the other hand, the Level of competition Board also emphasises the homogeneity of the goods a lot of instances all over the decision. Dependent on the final decision, it can be assumed that the Opposition Board referred to the items in those unique segments instead of all of the goods, irrespective of the segment, when it dealt with the challenge of homogeneity. That is to say, the Level of competition Board might have set up that every segment involved homogenous solutions.
The Competition Board then appeared into the undertakings’ market place shares in distinctive segments of the fertiliser market place. It found that though there appeared to be reliable marketplace leaders in specified segments, the market shares of the undertakings in the appropriate section have been generally unstable, which could sign a competitive marketplace.
The Opposition Board went on to compare the undertakings’ prices. It re-emphasised that the selling prices ended up extremely dependent on price fluctuations overseas, as perfectly as international forex exchange costs. In addition, the Opposition Board pressured that Gübre Fabrikalari TAS (GUBRETAS) was the most cost setter in the marketplace given that it furnished the most beneficial selling prices to farmers (by means of the Agricultural Credit history Cooperative, which comprised the premier consumer group), thanks to the structural backlinks involving the cooperative and GUBRETAS. All those rates in flip were in a natural way regarded as the cost cap in the sector due to the fact the most considerable parameter determining competitiveness in the market was value. In light of these conclusions, the Competition Board established that the prices and costs remained identical among the undertakings, at least individuals in the similar segment.
Given that Proof-20 instructed the trade of a future pricing technique amongst GEMLIK and IGSAS, and explicitly set out the alleged long term selling price, the Opposition Board initial looked into irrespective of whether the alleged foreseeable future rate could be noticed in the selling prices of GEMLIK and IGSAS. In performing so, comparisons had been created of both of those the mentioned selling prices and the real selling prices realised in the industry. The board concluded that the alleged upcoming price tag experienced not been realised in the sector.
The Levels of competition Board then as opposed the rates of GEMLIK and IGSAS and observed parallels involving them. However, the Levels of competition Board emphasised that this may perhaps have been the end result of the character of a clear marketplace, wherever the merchandise was homogenous and the competitors’ rates could simply be believed, even tracked day-to-day, many thanks to the non-special dealership program noticed in the market (as explained higher than).
Following evaluating the sector shares and price ranges, the Competitors Board said that although the wording of Evidence-20 recommended an details trade amongst GEMLIK and IGSAS, the involved proof was in the kind of a market place intelligence report of a third-bash competitor (ie, BAGFAS) learned in a further competitor’s (ie, EGE’s) premises. Hence, it was concluded that the mere statements of 3rd get-togethers and the rate parallels in and of on their own were being insufficient to establish an data trade concerning the undertakings.
Regardless of the now in depth evaluation, the scenario handlers asked for that the Level of competition Authority’s Economic Analyses and Investigate Section (EARD) conduct further economic analyses pertaining to the selling prices. Relying on the final result, the scenario handlers evidently planned to perform even further dawn raids to obtain far more proof to expose all of the facts encompassing Proof-20 or propose that the Competitiveness Board build the violation.
The Competition Board mentioned that some of the most noteworthy behavioural analyses for the detection of cartels are the exams that assess a structural split. A structural split, if recognized, may perhaps signal a violation. The Level of competition Board emphasised, by referring to a specific authority,(2) that, typically speaking, the outcomes of financial analyses simply cannot be regarded as decisive and final proof, although they issue to a violation.
As these types of, the EARD was to identify no matter whether the pricing trends could be explained by the exterior and internal price shocks on the assumption that the need circumstances ended up homogenous. If the shocks were inadequate to demonstrate the traits, there may well have been a violation which experienced but to be unveiled.
In this context, the Normal Least Sq. Based Cumulative Sum (OLS-CUSUM) test was the favored structural crack test, as it was considered to be far more suitable in situations in which there is a suspicion of a cartel in a provided marketplace but the suitable authority simply cannot be positive as to the existence and the time period in which the cartel existed. The pursuing elements ended up taken as the variables of the check for this distinct situation:
- overseas trade rates
- the producer selling price index (for the energy)
- urea and ammonium rates (inputs for the fertiliser) and
The EARD analysed the value collection on a month to month foundation by using into account the earlier 71 months and concluded that the test did not expose any structural breaks in the price ranges, which would normally show an express or tacit settlement between the investigated undertakings. The EARD then ran an additional examination, regarded as the ‘Ramsey Regression Equation Specification Error Test’, with a look at to confirming the accuracy of the types subjected to the OLS-CUSUM examination. The EARD verified that the improvements in the undertakings’ costs could be described with the higher than indicated variables and concluded that the rates did not show any opportunity violation.
As a consequence of the financial analyses done and documentary proof gathered by the Competitiveness Board, it was recognized that the investigated undertakings experienced not violated Regulation 4054.
The Level of competition Board’s explanations as to the benefit of the financial proof gathered in the investigations are of certain significance for potential Level of competition Authority investigations. As this sort of, the Opposition Board indicated that even in scenarios in which the authority is unable to gather documentary proof to prove a violation, financial proof can be applied to ascertain irrespective of whether the undertakings have most likely violated competitiveness regulation. On that entrance, the Level of competition Board also referred to selected authorities that propose that the results of an economic evaluation (ie, economic proof) usually are unable to, in and of them selves, be regarded as decisive or last evidence to verify a violation. On the other hand, the final results might signal a potential violation, which could require a lot more documentary proof.
This detailed assessment of economic proof by the Competition Board need to not come as a surprise, as its lately printed Handbook of Economic Analyses Employed in Turkish Competitors Board Selections(3) sets out the benefit and usefulness of economic exams which it conducts in investigations and merger command proceedings.
Ekrem Kalkan, opposition economics counsel, contributed to the preparation of this short article.