Narrow MFN Clauses from Competition Law and Economics Prespective
Kerem Cem Sanlı, Cihan DoğanDigital platforms have become significant for the operation of the global economy, as they bring numerous benefits for consumers and undertakings, but the widespread use of most favored nation (MFN) clauses in e-commerce poses important challenges for policymakers. Ordinarily, such clauses have been implemented in traditional industries; however, the economic dynamics of e-commerce have made these clauses a cornerstone for digital platforms, as they enable platforms to adhere to competitive price guarantees. Unlike traditional MFN clauses, platform MFN clauses, which include restrictions on consumer purchase price, have a significant restrictive impact on the market and are often the subject of complaints from commercial users, such as retailers, restaurants, and hotels. Thus, platform MFN clauses have been the subject of scrutiny by competition authorities in recent years, and under some conditions, these clauses have been found problematic. MFN clauses are examined under narrow and wide headings, and primarily wide MFN clauses (depending on the existence of market power) are prohibited. Nevertheless, narrow MFN clauses are considered legal; however, under certain conditions, narrow MFN clauses may also harm the competitive environment in the market. This is particularly the case for scenarios of high market power of the platform for which the narrow MFN clause is accepted, and the direct channel serves as an important alternative for consumers. This study aims to examine the conditions under which such clauses can pose competition law risks and to distinguish scenarios in which the competition law interference of narrow MFN clauses is likely.
Rekabet Hukuku ve İktisadı Bağlamında Dar Platform EKM Koşulları
Kerem Cem Sanlı, Cihan DoğanPlatform iş modelinin çevrimiçi ticaret içerisindeki yerinin artmasının önemli sonuçlarından biri de en çok kayrılan müşteri koşullarının piyasada yaygın bir şekilde kullanılmasıdır. Bu koşullar, esasen geleneksel piyasalarda da kullanılmaktadır. Fakat, çevrimiçi ticaretin ekonomik dinamikleri, bu koşulları dijital platformlar için önemli hâle getirmiştir. Geleneksel en çok kayrılan müşteri koşullarından farklı olarak, doğrudan tüketicinin alış fiyatına ilişkin bir sınırlama içeren platform en çok kayrılan müşteri koşulları, piyasada önemli etki göstermekte ve perakendeci, restoran ve oteller gibi ticari kullanıcıların şikâyetlerine sık sık konu olmaktadır. Bunun sonucu olarak platform en çok kayrılan müşteri koşulları, son yıllarda rekabet otoriteleri tarafından inceleme konusu olmuş ve bazı şartlar altında bu koşullara rekabeti sınırlayıcı olduğu gerekçesiyle müdahale edilmiştir. Verilen kararlar incelendiği zaman, en çok kayrılan müşteri koşullarının, dar ve geniş olmak üzere iki başlık altında incelendiği ve daha ziyade geniş en çok kayrılan müşteri koşullarının (piyasa gücünün de varlığına bağlı olarak) yasaklandığı görülmektedir. Öte yandan, dar en çok kayrılan müşteri olarak adlandırılan sözleşme hükümleri ise çoğunlukla hukuka uygun görülmektedir. Ne var ki muhtelif bazı koşullar altında, dar en çok kayrılan müşteri koşulu da piyasadaki rekabet ortamına zarar verebilir. Bu durum özellikle, lehine dar en çok kayrılan müşteri koşulu kabul edilen platformun piyasa gücünün bulunması, doğrudan kanalın tüketiciler için önemli bir alternatif olduğu kurgularda söz konusu olur.
Most favored nation (MFN) clause is a contractual provision in which a seller agrees to give the buyer the best contractual terms it makes available to any other buyer. Through these clauses, the seller guarantees that other (rival) buyers will not be treated more favorably than the contracting buyer. The expanding position of the platform business model in online commerce led to the widespread use of MFN clauses in markets where platforms operate. Although such clauses are also used in traditional markets, the economic dynamics of online commerce have made these clauses indispensable for digital platforms.
Unlike traditional MFN clauses, platform MFN clauses, which include restrictions on consumer purchase price, have a significant impact on the market and are often the subject of complaints from commercial users, such as retailers, restaurants, and hotels. As a result, platform MFN clauses have been scrutinized by competition authorities in recent years, and under some conditions, such conditions have been intervened on the grounds that MFN clauses restrict competition.
MFN clauses are generally divided into distinct narrow and wide categories. Narrow MFN clauses link the price (and other terms) quoted on a platform to those available directly on the retailer’s own sales channel. This ensures that the platform price will not be less attractive than the price established in the retailer’s own sales channel. Wide MFN clauses link the price (and other terms) quoted on a platform to any other sales channels, including rival platforms and the retailer’s own sales channel (e.g., the retailer’s website). Thus, a wide MFN provides the same protection as one that is narrow, but on a wider scale.
Among the different decisions of competition regulators, primarily wide MFN clauses (depending on the existence of market power) are prohibited. In contrast, narrow MFN clauses are, in principle, considered legal; however, under certain conditions, narrow MFN clauses may also harm the competitive environment in the market. This is particularly true of scenarios of high market power of the platform for which the narrow MFN clause is accepted, and the direct channel serves as an important alternative for consumers.
Narrow MFN clauses are distinguishable from wide MFN clauses, as they do not link the prices of different platforms; therefore, narrow MFN clauses are, in principle, less restrictive in terms of potential effects in the market. Moreover, in cases where a narrow MFN clause is implemented, the increased commission rates of the MFN beneficiary will probably experience competitive disadvantage as rival platforms will not be negatively affected by this price increase. Subsequently, narrow MFN clauses, in principle, do not allow a platform to increase commission rates without any competitive loss; however, in certain scenarios wherein the market is highly concentrated, narrow MFN clauses could also be problematic from the perspective of competition law.
First, narrow MFN clauses may have a similar effect as wide MFN clauses. This will be the case particularly when the retailer attaches significant importance to the competitiveness of its direct sales channel. In cases wherein the cost of sales through the retailer’s own direct sales channel are lower than sales through a platform, the retailer is expected to attribute greater value to the competitiveness of its sales channel.
Second, narrow MFN clauses reduce competitive pressure from the direct sales channel. Narrow MFN clauses can remove the competition in the market in cases wherein the direct sales channel is the only source of competitive pressure. In such cases, narrow MFN clauses can be considered problematic.
Third, narrow MFN clauses may reduce the consumer surplus arising from the competition in the market. This has two dimensions. First, consumers not using the platform must pay a higher price when purchasing from the direct sales channel. Second, retailers attaching significant value to the direct sales channel may not become active in the platform. In such cases, consumers will have less choice.
In any case, market dynamics have a crucial influence on the assessment of narrow MFN clauses. In the presence of inter-platform competition, the negative effects of narrow MFN clauses will likely be negligible. In the absence of interplatform competition, the use of narrow MFN clauses will be more problematic as they eliminate the only viable source of competitive pressure.
