Exchange of Information In The Context of Competition Law

In the realm of competition law enforcement, the exchange of information between companies operating within the same sector has emerged as a prominent issue in recent years. While such exchanges can potentially reduce strategic uncertainty and enhance market transparency, they also pose a risk of restricting competition. Competition authorities intervene, citing concerns that these exchanges may undermine companies' ability to make independent decisions and adversely affect market dynamics. This article aims to examine this issue from the perspective of competition law.

I. Information Exchange

Information exchange in competition law refers to the process of sharing commercial information between companies operating in the same sector, either directly with each other or through third parties. However, this process carries a significant risk of market distortion, as the exchanges between competitors, by enhancing market transparency, can reduce uncertainty regarding strategic variables such as prices, quantities, demand, or costs. In line with the Competition Authority's approach, sharing company-specific information—such as prices, stock levels, production, and costs—which are key tools for competition, or disclosing such information to the public through a regulation, can negatively affect competition.

Methods of Information Exchange

As addressed according to Horizontal Cooperation Agreements Guidelines (the "Guidelines") and doctrine, information exchange is generally carried out through two main methods: 

• Direct information exchange and

• Indirect information exchange. 

  
  

Direct information exchange occurs when companies share commercial information directly through various channels, enabling competitors to align pricing or production strategies, which can lead to anti-competitive effects. Indirect information exchange is a less transparent method, where information is shared through third parties, such as trade associations, market research firms, or suppliers and distribution networks and while harder to detect, can still impact competition. It is more common in certain sectors and closely monitored by competition authorities, particularly when direct exchanges are difficult to identify.

Under Turkish law, especially according to the Guidelines, the scope of information exchange includes not only direct exchanges between competitors but also indirect exchanges carried out through third parties such as trade associations, market research organizations, and similar entities, or through suppliers or distribution networks.

Effects of Information Exchange

In line with the Competition Authority's approach, information exchange directly influences competition based on market transparency. In transparent markets, greater knowledge of competitors can foster cooperation. Sharing competition-sensitive data, such as prices, quantities, demand, and costs, enhances transparency and reduces uncertainty. The pre-exchange transparency level determines the potential for competitive distortion; lower transparency increases the anti-competitive effects of information sharing. Moreover, information exchange may result in more cooperatives outcomes in the market. 

The risk of violating competition rules significantly varies depending on the type of shared data; particularly, the sharing of sensitive information such as prices, costs, and production increases this risk noticeably. However, when assessing competition violations, it is not only the content of the data that matters, but also the characteristics of the market in which the companies operate. Factors such as the transparency, stability, and number of participants in the market are crucial in determining how data sharing impacts competition. Finally, the anonymization of information, depending on the characteristics of the market or situation, may not fully eliminate the risk of a competition violation.

The transmission of information that restricts competition has the same effect, regardless of whether it occurs unilaterally or reciprocally. If a business receiving data that makes the competitive environment more transparent does not explicitly state that it has refrained from accepting the data or inform the competition authorities, it may be considered part of a joint action due to the effects of the data exchange.

Cartel Risk

Under the Guidelines, if the exchange of information between competitors is aimed at price or quantity determination, it will be considered a cartel under competition law, which can be established either explicitly or secretly, and will be penalized.

Exchanges of information containing commercial information between businesses and/or third parties can serve as a foundation for cartel formations. In transparent markets, sharing information enables competitors to predict strategic moves and align their actions, heightening the risk of cartel formation through potential agreements and easier monitoring. This risk is particularly high in markets with few competitors, homogeneous products, high entry barriers, low innovation rates, and high transparency, where conscious parallel behaviors may arise even without formal agreements. For example, in a case where five enterprises share market data, the sixth and seventh enterprises, which are excluded, will not receive this information, leading to market closure and disadvantaging the excluded parties.

As a matter of fact, in its decision dated 18.05.2022 and numbered 22-23/379-158, the Competition Board imposed an administrative fine on the grounds that two companies operating in the mineral water production sector were in a cartel due to the direct exchange of forward-looking information with each other. On the other hand, in the Competition Board's decision dated 05.01.2023 and numbered 23-01/12-7, an administrative fine was imposed due to mediating indirect information exchange between resellers. 

II. Information Exchange from a Competition Law Perspective 

Information exchanges between competing enterprises and/or third parties, such as market research companies, are primarily addressed under Articles 4 and 5 of the Turkish Competition Law No. 4054 (“Law”) and the Guidelines. Indeed, in the evaluations made by the Competition Board regarding information sharing, whether the related exchange constitutes a restrictive agreement, act, or decision under Article 4 of the Law is assessed; while whether such exchanges can benefit from exemptions without creating a legal violation is examined within the framework of Article 5, considering the specific circumstances of each case.

Legally Compliant Information Exchanges

Information exchange holds significant potential to bring various benefits both to the market and consumers. For instance, the transparency facilitated by information exchange enables new market entrants to better understand market conditions, conduct informed assessments, and compete more effectively with established companies. Additionally, sharing information regarding product development techniques, efficiency-enhancing methods in the production process, and similar innovative endeavors helps enterprises improve their processes.

Nevertheless, information exchange is addressed in paragraph 45 on page 8 of the Guidelines as follows: 

“However, any direct or indirect communication between competitors that has the purpose or effect of creating conditions of competition different from the usual conditions in the market is considered as an infringement and is prohibited”. 

According to Article 5 of the Law, agreements, actions, and decisions regarding information sharing between undertakings must fulfill all of the following conditions to qualify for exemption:

• The development and improvement of goods' production or distribution, or the provision of services, or achieving economic or technical progress, 

• The benefit to the consumer, 

• Ensuring that competition is not eliminated in a significant part of the relevant market, 

• No more restriction of competition than is necessary to achieve the objectives mentioned in the first two points.

  
  

Based on examples provided in the Guidelines, information exchanges that meet the above conditions, such as reducing costs due to the instability of demand or benefiting consumers by increasing choices, can be considered compliant with Article 5 of the Law.

Illegitimate Information Exchanges

Exchanges that do not meet all of the above conditions can be considered under Article 4 of the Law as agreements, acts, or decisions that have the aim or effect of directly or indirectly preventing, restricting, or distorting competition in a particular market. These actions may result in hindering new entrants, pushing competitors out of the market, and causing cartelization in the market.

Accordingly, pursuant to page 9 and the subsequent pages of the Guidelines, once the existence of an agreement is established, assessments regarding information exchange will be evaluated based on the following criteria:

• Whether the information exchange leads to a restrictive collaborative outcome in the market,

• Whether the information exchange is intended to restrict competition,

• Whether the information exchange has the effect of restricting competition,

• The timeliness, market coverage, public availability, and competitive sensitivity of the shared information, as well as the frequency of information exchange.

Sanctions

Article 16 of the Law stipulates that enterprises and enterprise associations engaging in prohibited conduct under Articles 4, 6, and 7 of the Law may be subject to an administrative fine of up to 10% of their gross annual turnover for the fiscal year preceding the final decision.

The Regulation on Administrative Fines for Anti-Competitive Agreements, Concerted Practices, and Decisions, and Abuse of Dominant Position sets out the procedure for determining the administrative fine. According to the Regulation, after determining the base fine, it can be adjusted by taking into account aggravating and mitigating factors. The base fine is calculated based on the annual gross turnover of the enterprises. For cartel violations, a rate of 2% to 4% is applied, while for other competition law violations, a rate of 0.5% to 3% is applied.

III. Conclusion

In conclusion, information exchange between enterprises within the framework of competition law has a complex dynamic that can both encourage and restrict competition. While certain information exchanges can be legally permissible under Article 5 of the Turkish Competition Law, they must meet stringent conditions to ensure that they do not significantly restrict competition or harm consumers. On the other hand, exchanges that aim to distort market dynamics or limit competition are prohibited under Article 4 and may lead to severe sanctions, including administrative fines.

For further inquiries or legal assistance, feel free to contact Durukan+Partners team.

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