Games of Competition

By Barış Ekdi

If you are a highly successful business person, there is no doubt that you know competition better than your competitors and play the game better than them. When it comes to the law, it seems natural and reasonable for most of us to leave the matter to our lawyers, right?

However, when you look at the twenty years of experience in this book, thinking this way can be very costly, for example, it can cost you ten percent of your revenue. Simply, if you are operating in a market, it is inevitable that your path will intersect with competition law at some point. If you have underestimated it, when Competition Experts come knocking on your door, you will see that your lawyers cannot change the simple mistakes you made in the past, they can only try to minimize the fines or damages you will face. Like some of you, they will quickly memorize the relevant legislation, which you have always been avoiding, and you will realize how essential it is for a business person to have at least a minimal understanding of competition law.

The author of the book, Barış Ekdi, who served as a Competition Assistant Expert, Competition Expert, Chief Competition Expert, Training Director, and Department Head at the Competition Authority for 16 years since its establishment, and has been practicing competition law on the "other side of the table" since 2013. Having written two theses, two book chapters, and various articles on competition law throughout his professional career, and also being awarded the Orhan Kemal Short Story Prize with his short stories, Barış Ekdi is now undertaking a very ambitious task: to tell the stories of Competition Authority decisions in a storytelling format, to teach the foundations of competition law in an entertaining way, to provide you with an idea of when you should consult a competition lawyer before taking action, to prevent potential mistakes and fines, and even to help you stay one step ahead of your competitors and take necessary measures against anti-competitive actions of other players in the market.

The book takes you from the beginning of modern competition law to the present day, showing you how easily you can violate the basic provisions of competition law (and therefore what you should avoid), the exemptions provided, what you need to do before any merger or acquisition, as well as the procedure, how your emails - even your silence - can be used against you, and providing examples from relevant cases to show you how you may face trillion-dollar fines if you hesitate when experts come knocking on your door. The "stories" in each chapter are written to answer the questions of "what is this?", "why is it necessary?", "what is the underlying logic?", and "how is it practically implemented?"

Therefore, starting from America and visiting the Bulb Blasting Cartel in Switzerland, the Gazz Brothers at Tilmen Hotel, the Lace-Weaving Grannies Cartel in Şirince, and the rebellious teacher in Kulu, you will have the opportunity to take a look at various markets ranging from poultry to traffic signaling, from coal to media, from cement to cinema, from LPG to dialysis services, and as a business person, you will see strategic mistakes made, and as a consumer, you will see how the decisions made by companies affect you. Similarly, when you see lawyers who unknowingly confess the violations of their clients by pulling expressions from economics textbooks, companies, chambers, bureaucrats, and politicians who unwittingly encourage violations of the law while trying to defend themselves, you will better understand why business people need to be careful and knowledgeable about competition law.

• Language: English
• Publisher: Barış Ekdi
• Release date: Jul 3, 2023
• ISBN: 9798201746216

Book preview

After the raid...

It has been two hours since the Competition Experts have left his office, yet he remains unable to shake off the overwhelming shock of the recent events. The day he had just proved to be one of the most anxiety-inducing in his entire life, leading him to question whether he had momentarily slipped into a nightmarish realm or suffered a sudden heart attack. Throughout the past two hours, his mind has been consumed by a continuous replay of the morning's events, desperately searching for an escape route from the turmoil he has endured.

The chain of events was set into motion shortly after his arrival at the office that morning. Before the sun had even peered over the horizon, two sternly dressed experts materialized at the company's doorstep. Flashing their identification and authorization documents to the attendant, they swiftly made their way into his room. With a few curt sentences of introduction, they declared themselves as conducting on-site inspections. Instructing him to vacate his desk and computer, they meticulously combed through his digital files, rifled through drawers, and scrutinized the contents of his cabinets. They proceeded to repeat this process other managers’ offices, while printing or copying selected documents in due course. The company had lawyer who arrived five minutes after the experts could only pose a few queries regarding the matter, relegated to a mere spectator in the unfolding scenario.

During all this commotion, he found himself unable to even glance at his mobile phone. Finally, when he had a momentary respite, he stepped away and answered a call from his friend, who worked as a manager in a rival company. His friend's hushed voice filled him with dread as he shared the unsettling news: The Competition Experts raided our company. They are checking our computers and piles of paperwork. They even inquired about your company and other competitors. Be aware, they could come to your company anytime. I wanted to give you a heads-up.

After hearing his friend his heart seemed to clench, and he barely replied: Thank you, they have already arrived... . Then he heard his friend cursing at the other end of the line.

He returned his room, trying to calm down. Hoping to convince himself that his anxiety was unfounded and that he had committed no wrongdoing, he observed the experts meticulously scrutinizing his computer. To his astonishment, they managed to recover the correspondence and files he had thought were permanently deleted several weeks ago. Like a haunting revelation, the once-discarded emails and files reappeared, emerging from the printer, one by one.

As he desperately hoped that it was all just a terrible nightmare, his heart sank when he noticed one of the experts retrieving an envelope he had carefully concealed at the bottom of his drawer. Anxiety gripped him as the expert, noticing the sealed envelope, approached and requested him to open it. In that moment, a wave of dizziness washed over him, leaving him breathless. In a hushed voice, he murmured, I'm sorry, but there are personal documents and photos inside. To his surprise, the expert responded, I apologize as well, but we must fulfill our duty. If you have private documents, of course you will keep them, but we cannot ascertain their nature unless you open the envelope, can we? Could you please do so? The expert's tone was gentle yet unwavering. With a heavy heart and hands trembling, he reluctantly unsealed the envelope and handed it over. Inside lay explicit photos of himself with his girlfriend, kept hidden in his office to prevent his spouse from discovering them. He silently pleaded for the contents not to be scattered around by the expert, while handing over the envelope. The expert had a glance at the photos; and returned the envelope, contents intact, sparing him from further humiliation.

However, the ordeal was far from over. The folders the experts had accumulated on his desk loomed before him like a haunting reminder. Each document was meticulously scrutinized, with the experts posing a barrage of questions, diligently jotting down notes, and stamping each page for his signature. They then requested photocopies of the documents, with one expert overseeing the diligent photocopying process while the other prepared the minutes based on their freshly acquired notes.

As the workday drew to a close, he signed the minutes and bid farewell to the experts. Without delay, he delved into the pages of the Competition Law, hastily printed from the internet by the lawyer. The weight of his responses to the experts' inquiries gnawed at his heart, filling him with a sense of unease. The assessment of the situation conducted with the lawyer did little to inspire optimism.

After seeing off his lawyer, he rested his head in his hands, leaning his elbows on the desk. His gaze fixated on the partially open door of his room, lost in a state of blank contemplation. Frustration surged within him as he reflected upon the events that had transpired since the morning. He couldn't help but acknowledge the simple mistakes he had made, potentially costing the company up to ten percent of last year's revenue. The personal repercussions loomed ominously, and the possibility of customers or competitors filing compensation cases added to his mounting anxiety. With a heavy sigh, he pushed aside the files before him, overwhelmed by the weight of it all.

As he lifted his eyes once more, his thoughts turned to a book he had acquired and placed on his bookshelf some time ago. Spotting it amidst the shelves of a bookstore, he had been enticed by its intriguing title, "Games of Competition. However, when he realized that the book was about competition law, he had brushed it off, thinking, I face competition every day, and no one understands it better than me in this market. Law must be dull and a waste of time. Why should I bother and why am I paying all these lawyers and consultants ? If any issues arise, I can always toss it to the experts, and that will be over." Thus, he left the book to gather dust on a forgotten corner of his shelf.

However, as he began reading the book, he soon realized he was mistaken. Page after page, he was astonished to discover that many businesspeople had made the same errors. Even in the very first chapter the author had cautioned the readers on this common misconception, derived from his seminars in chambers of industry and commerce: Most businesspeople believe they already possess a firm grasp on competition, assuming they can leave the legal matters to their lawyers. However, when it reaches the legal stage, it's often too late.

Regret washed over him as he gazed upon the book he now held. Oh, how I wish, he lamented, I had read this book in a timely manner, before all of this unfolded!

Shall we come again tomorrow?

Years before this raid, this question had lingered in the ears of the vice president of the newly established authority: Shall we come again tomorrow?

He opened his mouth to scold the novice officer who had asked the question, but didn’t say a word when he realized the situation. This assistant expert, who graduated from one of Turkey's prestigious universities and started working two weeks ago after leaving thousands of people behind in the recruitment exam, was not seeking mischief. On the contrary, he had asked the question with great sincerity and naivety. He struggled to hold back his laughter as he responded:

Of course, my son, of course, he said. You are no longer a student; you are now a civil servant. You will come to work every working day, unless you are sick or on leave. Why do you ask?

Well, the teenager replied, We've been coming here for almost two weeks, but it feels like we're not doing much... When shall we actually start working?

The part where they didn't do much was actually not quite right.

The group of 19 individuals, almost all recent graduates, had already taken to their assigned rooms on a vast floor, claiming their desks. Each morning, they would commence their shifts alongside the other officers, briefly retreat to the dining hall for a snack during the lunch break, and then retire to their designated floor until the evening. They even joked amongst themselves that if they were all poisoned during lunch, no one would notice until the evening. The days passed with idle activities, such as impromptu chess tournaments. Then they turned their attention to the narrow corridor in the brand new building. Could they possibly play bowling on the squeaky glowing marbles?

Wait, you've just started. Soon you'll be immersed in tasks and long for these times, said the Vice President, reflecting on the last few months:

Although the law was enacted and the authority was established -on paper - almost two and a half years ago, the government had appointed the board members, who would flesh out the organization, only a few months ago. They had immediately started a process to recruit future competition experts. Although there was some familiarity with the competition law among some academicians and bureaucrats, enforcement of this law was a kind of enigma. So, these youngsters would be the pioneers in this regard. As a result, the vice president requested a rapid training program; no expense was spared. Over the next few weeks, the assistant experts underwent comprehensive training, and then they were led to the authority’s library, where they were informed about the most crucial aspect of competition law:

Competition law is a constantly evolving legal discipline, shaped by case law. As such, it always builds upon previous decisions. In a way, by applying the concise law booklet and other directives you currently hold, you will contribute to the development of jurisprudence. That's why we have already gathered all the necessary EU legislation and additional materials we believe you may need in the library. The oversized white bindings contain decisions from the EU Commission, while the magenta-colored bindings house the rulings of the Court of Justice of the EU. You also have law and directive booklets pertaining to Turkish legislation. So, it is time to set to work, now…

As I stared at the white and magenta bindings that rippled across the shelves, I felt as if I had been unwittingly thrown into the sea to learn how to swim. And I was not alone in this sentiment. Despite being scattered across different parts of the country, and even the world today, the 19 of us eagerly dove into that sea with excitement on that day. We were thrilled to be doing something unprecedented in Turkey...

Consequently, the training for the assistant competition experts concluded and the Authority announced the initiation of competition law enforcement in Turkey in the Official Gazette,¹ on November 4, 1997.

The aftermath unfolded like a loose thread: The Competition Authority swiftly distinguished itself among government institutions. It was equipped with robust legal powers and resources, and had executives from both the public and private sectors, as well as academia. The fact that many of its experts had not previously served in any government position would prove to be a significant advantage for the institution's future successes, as you will see in the following sections.

In December 1997, the initial raids and preliminary investigations began, followed by the drafting of the first reports. While fulfilling its mandated duties, the Authority also hosted distinguished speakers in its Thursday Conferences, initiated to foster a culture of competition. During one of these conferences, a Presiding Judge from the Court of Cassation, after providing extensive information on unfair competition law in the Competition Authority Conference Hall, paused and looked at the board members, then the experts, and finally the audience, stating, ...In short, the necessary provisions regarding unfair competition were already present in Article 54 of the Turkish Commercial Code and its subsequent articles. Moreover, the courts have been effectively applying these provisions for many years. So, why do we need a new competition law, such an institution, this many people, this building, and this conference hall just for the sake of European Union membership? Besides, the Turkish Commercial Code itself is fundamentally based on German law. I truly don't understand why this law, this institution was necessary. Where did this competition law come from?

Back then, perhaps due to their astonishment or out of respect for the guest, no one provided an answer to this question. Now, if with your permission, I will provide an answer to the question of where this law came from, and why it was necessary...

Shoe or the magpie on the roof?

We, as a nation, often take pride in saying,¹ Don't look at the West, our ancestors were already practicing it during the Ottoman period, then Europe adopted it, and now they're selling it back to us. While there may be some truth to these claims, it is interesting that instead of reflecting on why we have fallen behind and how to avoid repeating those mistakes, we continue to dwell on historical accomplishments. Yes, Fatih Sultan Mehmet used massive cannons before Europe when he conquered Istanbul, and the coffee culture in Europe thrived thanks to the coffee sacks left behind by Ottoman soldiers who retreated after the siege of Vienna. However, it is ironic that we now live in a country where an American coffee chain has the most branches. The Dutch ‘borrowed’ the tulip from the Ottomans; then they ended up selling it to the Istanbul Metropolitan Municipality. You can find many examples as such…

In the early years, there was a similar perspective when it came to competition law. On the anniversary of the Competition Authority, the Prime Minister once addressed the topic, stating, Although competition law in the modern sense started in America in the 1890s, our ancestors were among the first to practice elements of competition law through the Ahilik (brotherhood) organization and guilds during the Ottoman period. For instance, shopkeepers did not compete with each other. If one had a successful sale, they would direct their customers to their neighbor who hadn't made a sale yet. If a shopkeeper sold poor-quality goods or deceived customers, the shoes he produced would be placed onto his roof as a symbol of punishment.

However, there was a slight problem in this narrative: what was described pertained more to unfair competition, and some of the guild rules were actually aimed at suppressing competition. All of this was a reflection of the pre-industrial revolution production relations. Unlike a market economy, competition was naturally restricted in an environment where the state imposed price controls, where master-apprentice relationships prevailed, and market oversight was partly conducted through guild organizations. Market entry necessitated successfully navigating the gradual process of becoming a master, and the apprentice would then either take over his master's business or seek opportunities elsewhere. Therefore, there was indeed a conflict between guilds or ethical practices and competition law.

On the other hand, while there were various provisions in the Code of Hammurabi, Ancient Greece, Ancient Rome, England, and various European countries that prohibited monopolistic behaviors such as hoarding, blocking market entry, and stockpiling products, we had to wait for the development of market economy, trade, and industry in the modern sense for competition law. This means we had to wait for the United States in the second half of the 1800s, when Robber Barons were rampant...

During this period, we witnessed the dominance of Standard Oil, owned by the well-known Rockefeller, which held 90% of the US petroleum production and sales, while Carnegie in the steel industry acquired or sidelined his competitors. Vanderbilt, in a similar fashion, employed various tactics to undermine his rivals in the railroad transportation sector and coerce them into selling their shares to him. As a result, it seemed that there was no force capable of restraining these companies after the collision of the Industrial Revolution with ruthless capitalism. However, in 1890, the US Senate, following several states and Canada, enacted the first well-known competition law in the modern sense.² Senator Sherman, who was the father of the bill, made the following remarks about the bill in the US Congress:³

"It is this kind of combination we have to deal with now. If the concentrated powers of this combination are entrusted to a single man, it is a kingly prerogative, inconsistent with our form of government, and should be subject to the strong resistance of the state and national authorities.

If we will not endure a king as a political power, we should not endure a king over the production, transportation and sale of any of the necessaries of life. If we would not submit to an emperor, we should not submit to an autocrat of trade with power to prevent competition and to fix the price of any commodity…"

A few months later, a text consisting of the following two provisions, known as the Sherman Antitrust Act, was adopted:⁴

Sec. 1. Every contract, combination in the form of trust or other- wise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is hereby declared to be illegal. Every person who shall make any such contract or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor, and, on conviction thereof, shall be punished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, at the discretion of the court.

Sec. 2. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a misdemeanor, and, on conviction thereof; shall be punished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court.

Over the following years, several amendments were made to this legislation. Presently, the maximum fine that can be imposed on companies violating the law is set at $100 million. However, if the unlawfully obtained profits or the damages suffered by victims exceed $100 million, the offenders may be subject to fines up to twice the amount of the gain or damages. Additionally, the affected parties have the right to file lawsuits against the other party and seek compensation up to three times the damages they incurred. The law also imposes fines of up to $1 million for an individual, along with up to 10 years in prison.

On the other hand, the implementation of the Sherman Law in the United States had an unexpected effect on the markets. While the law prohibited cartels and monopolization, it did not address merger and acquisition activities. Consequently, this led to one of the largest waves of mergers and takeovers in U.S. history. In response, the Clayton Act was enacted in 1914 to regulate and control mergers and acquisitions. The Clayton Act also addressed issues related to exclusivity and vertical agreements within the scope of competition law. Furthermore, it established the Federal Trade Commission.⁵

Following the end of World War II, the United States first exported its antitrust law to Japan and Germany, and later competition law was incorporated into the Treaty Establishing the European Economic Community (EEC). As of today, competition legislation exists in various forms in nearly every country, with only a few exceptions among less developed nations.

Making both ends meet…

…Is a challenging task. Not only from an economic standpoint but also when it comes to legal systems, bringing the two sides of the Atlantic together is no easy feat. However, it never crossed my mind to ponder on this until that lunch in Bruges... I was attending a one-month intensive training on the EU competition law at the College of Europe. We were engaged in discussions about the contrasting approaches to competition law in the United States and Europe, with a faculty member as our guest. During that time, the professor sitting at our table made a thought-provoking remark:

During the formation of the European Communities, a delegation from the founding countries visited the United States and thoroughly examined various aspects of the country. For instance, they discovered that in the U.S., highways connecting states were given special attention in terms of facilitating movement of people, trade, and ensuring safety, leading to their federal status. However, in Europe, they found the road infrastructure to be lacking in this regard. As a solution, they attributed this function to railways. They also recognized the significance of infrastructure elements like energy and telecommunications for the development of a common market and introduced the concept of "Trans-European Networks." In many other areas as well, Europe silently emulates the United States, adapting certain structures to its own needs, even if it may not openly acknowledge it.

My interpretation of that speech in 1999 led me to the conclusion that the European Economic Community aimed to establish a Federal European State where member states would gradually transform into states from that point onward. In fact, the economic community formed by the initial six members has evolved over time, progressing from a customs union to a common market, and eventually becoming a union that harmonizes various areas beyond just the economy. Along the way, numerous unforeseen developments, such as the collapse of the Eastern Bloc, have propelled Europe into a multi-geared journey. Nevertheless, it is undeniably true that we now face a Europe that has achieved considerable harmonization in many aspects.

This has significant implications for competition law. Articles 85 and 86 of the Treaty of Rome, which established the European Economic Community, prohibit companies from entering into agreements that restrict, distort, or impede competition in trade between member states—reminiscent, to some extent, of the provisions in Sherman's Law. Similarly, these articles prohibit companies from abusing their dominant position to hinder, distort, or restrict competition in trade between member states. Interestingly, similar to the Sherman Act of 1890, the Treaty of Rome did not incorporate a provision concerning mergers and acquisitions.

At this juncture, an important question arises: While the agreement imposes numerous obligations on member states in almost every article, what could be the reason for Articles 85 and 86 specifically placing an obligation on private enterprises and business associations to refrain from distorting, preventing, or restricting competition? Furthermore, under these articles, it is the EU Commission itself, rather than the member states, that oversees this domain and imposes penalties on companies rather than on member states. Why is this the case?

In reality, the answer is quite straightforward: the purpose of the agreement was to establish a common market. To achieve this, member states committed to phasing out tariffs and other trade barriers over time. However, would this commitment from member states alone be sufficient to attain the desired goal? Let's consider a hypothetical scenario: After the removal of customs barriers, Italian companies enter the Belgian market and start competing with Belgian companies, while Belgians are also competing in the Italian market. After some time, they realize that their profit margins have decreased due to this competition, prompting them to reach an agreement to maintain the status quo within their respective territories!

This type of agreement serves as a prime example of classic market sharing, which is considered a typical cartel arrangement in competition law. However, without the presence of Articles 85 and 86 in the Treaty of Rome, it would have been difficult to prevent private enterprises from erecting their own barriers, excluding foreign competitors from the market, and dividing markets according to their own interests. While member states were dismantling customs barriers, the absence of these articles could have potentially allowed for the replacement of these barriers with new ones, hindering the establishment of a common market. Hence, the responsibility fell to the Commission to take action and enforce competition law to prevent such practices.

Nonetheless, despite sharing similar principles, significant differences have emerged in practice over time between the United States and the European Union.

For instance, while the United States has experienced an evolutionary development in its legal system through the flexibility of case law, the European Union has often approached certain issues in a formalistic, rigid, and restrictive manner, primarily influenced by Continental European law. This approach has led to the emergence of the exemption system in the EU, which has encountered challenges and necessitated the introduction of group exemptions to address its complexities. A similar process has also been witnessed in Turkey, which we will discuss further.

Another notable difference lies in the sanctions imposed for competition law violations. In the EU and Turkey, the primary sanction is monetary fines, reflecting the principle of economic punishment for economic crime. In contrast, the United States treats the formation of cartels as a severe offense equivalent to infringing upon the rights of its citizens, similar to tax evasion or misappropriation of funds. As a result, individuals involved in cartel activities may face up to 10 years of imprisonment, in addition to fines. Consequently, individuals who violate competition law impacting US markets,