When Kazakhstan opened up its economy, domestic firms seized the moment, growing their operations, courting investors and expanding at pace. Yet the same reforms have left considerable public resentment in their wake. Citizens reserve their sharpest criticism for the steep prices now charged in sectors that the state recently privatised and largely stopped policing, transport and aviation foremost among them.
Kazakhstan liberalised its domestic aviation market in 2012, abolishing the competitive tender that had governed the allocation of internal routes. In 2015, the state withdrew entirely from regulating fares on domestic passenger services. Airlines now set their own fares by reference to supply and demand, applying dynamic pricing under which a fare holds, rises or falls according to the strength of demand, the timing of the booking, the day of operation, the departure time and comparable factors. As public frustration intensifies, government officials and members of Parliament have pressed for renewed intervention, urging firm price caps and, in the more far-reaching proposals, structural remedies such as the separation of Air Astana and FlyArystan into distinct legal entities for subsequent privatisation.
At the same time, several structural barriers continue to hold competition back. Among the most significant:
- Customs duties. High import duties apply to aircraft and spare parts.
- Fuel costs. A chain of unproductive intermediaries inflates the price of aviation fuel, which alone accounts for roughly a third of the total cost of carriage.
- No competition among service providers. A single operator typically controls jet-fuel storage, refuelling and airport services, embedding a monopoly premium in the fuel price and driving carriage costs higher.
- Restricted infrastructure access. Carriers face limited access to the assets of natural-monopoly operators and to airports’ fuelling complexes.
- An uneven playing field within the EAEU. Domestic carriers compete with Russian airlines on unequal terms, because the law grants Russian carriers a zero VAT rate.
The Legal Framework – Republic of Kazakhstan
The Entrepreneurial Code
Article 174 of the Entrepreneurial Code (the “Code”) prohibits dominant undertakings from abusing their dominant or monopoly position. It bars any conduct or omission by a market participant holding such a position that restricts access to the relevant goods market, that prevents, restricts or eliminates competition, or that prejudices the lawful rights of another market participant or of consumers at large. Setting or maintaining a monopolistically high (or low) price, or a monopsonistically low price, falls squarely within that prohibition.
The Methodology for Identifying a Monopolistically High (Low) Price
Giving effect to Article 175(1) of the Code, the Methodology treats a price as monopolistically high where a dominant or monopoly market participant sets it above the sum of the costs necessarily incurred in producing and selling the goods plus profit, and above the price that competitive conditions would produce on the relevant or a comparable market.
The European Union
European Union law contains comparable prohibitions. Article 82 of the Treaty establishing the European Community (the “Treaty”) expressly forbids a dominant undertaking from imposing, directly or indirectly, unfair purchase or selling prices or other unfair trading conditions. The provision treats any abuse of a dominant position within the common market, or a substantial part of it, as incompatible with that market in so far as it may affect trade between Member States. Such abuse may consist, in particular, in:
(a) imposing, directly or indirectly, unfair purchase or selling prices or other unfair trading conditions;
(b) limiting production, markets or technical development to the prejudice of consumers;
(c) applying dissimilar conditions to equivalent transactions, thereby placing trading partners at a competitive disadvantage; and
(d) making contracts conditional on the acceptance of supplementary obligations that, by their nature or by commercial usage, bear no connection to the subject of those contracts.
Because the competition regimes of most Member States derive from the Treaty establishing the European Community, equivalent provisions run throughout the EU. In pursuit of a harmonised competition policy, however, EU law may in practice leave the unlawful overcharging of consumers unaddressed.
The United States
The United States merits separate treatment, because its case law all but rules out remedies aimed at excessive pricing, placing it sharply at odds with the Kazakhstan approach. American antitrust law does not treat high or excessive prices as an infringement in themselves, provided the dominant firm raises no barriers to new entrants. High prices may instead signal that a market rewards investment, drawing in fresh capital and new competitors whose arrival drives prices back down. On a related view, a firm that overcharges may harm only itself: unless it can genuinely compete, it forfeits customers to rivals and ultimately its own position. The enforcement agencies therefore see no occasion to regulate prices. US law, in the end, reaches only abuses aimed at competitors, whether by dominant or by ordinary firms, and stays its hand where the conduct harms consumers alone.
Screening Candidates for Investigation: Competing Criteria
Competition authorities across the OECD begin by screening candidates for investigation, applying among other tools the hypothetical-monopolist test. The criteria vary, and the OECD expert community has offered authorities several recommendations to guide how far enforcement should reach.
Evans and Padilla (2005: 119) set the most demanding threshold, requiring three conditions before an authority intervenes: the firm holds a near-monopoly that owes nothing to past investment or innovation and that insurmountable legal barriers protect; its prices significantly exceed average total cost; and those prices threaten to foreclose new products and services on adjacent markets.
O’Donoghue and Padilla (2006: 638) propose a marginally lighter three-part test, confining intervention to sectors that high entry barriers protect, that a single firm dominates with substantial market power, and in which investment and innovation matter comparatively little.
Recommended practice therefore leads OECD authorities to draw the criteria narrowly, to apply clear-cut tests when identifying a candidate, and to demand compelling evidence before proceeding. Paulis (2007) reduces the inquiry to a single question: does the market exhibit high, insurmountable entry barriers, such that competition cannot function at all?
Kazakhstan law takes a different course. Article 174 of the Code sets out a series of prohibitions whose breach attracts liability, yet it lays down no criteria for screening candidates and provides for no hypothetical-monopolist test. It simply forbids conduct or omissions by a dominant or monopoly market participant that restrict market access, that prevent, restrict or eliminate competition, or that prejudice the rights of others.
Kazakhstan law thus offers no screening criteria, and practice supplies none. That gap raises an obvious question: does the competition authority apply any recognised screening test before launching a full investigation into abuse of dominance through a monopolistically high price?
Whether a market warrants investigation ought to turn on its need for investment. Where a sector is investment-hungry, high tariffs may be justified as the means of attracting capital and recouping risky outlays. High prices that coincide with an absence of investment by the dominant firms, by contrast, may mark a genuine candidate. Dominance alone is no infringement and need pose no problem, provided high and opaque entry barriers do not accompany it.
One case file illustrates the concern. Reviewing an investigation into a Kazakhstan airline, we found that the authority had opened proceedings on nothing more than a passenger complaint to the Civil Aviation Committee, bypassing the screening test that OECD practice contemplates. Too often the formal trigger is a complaint that discloses no concrete sign of any infringement. The complaints here identified neither route nor fare nor date of purchase, and never explained how the complainant’s rights had suffered; they amounted to generalised grievances about expensive fares. Kazakhstan law should therefore adopt more objective grounds for selecting candidates, displacing populist and political motives whose only object is to appease consumers under the banner of “consumer protection.”
The effect is perverse: an excessive-pricing investigation deters investors, thins the field of competitors, and entrenches the dominance it set out to curb. The market grows less competitive, not more.
A deeper difficulty precedes all of this, namely how to define an excessive price at all. Without clear criteria, the authority is left to interpret, and uncertainty follows. Populist or political motives may drive an investigation, answering consumers’ hopes for cheaper goods while bearing no objective relation to the state of the market. Competition authorities, moreover, command far less expertise than sector regulators on the questions that matter most: what tariff a market should bear, and which costs count as legitimately incurred. Lacking sector knowledge and working with limited investigative resources, they are poorly placed to dictate pricing or to judge the price levels that sustained investment requires. In several OECD countries the prevailing view holds that the sector regulator takes the long view, treats relatively high prices as necessary to spur investment, and that the competition agency should accordingly stand back.
Divergent Investigative Methods under Kazakhstan and European Law
Both regimes contemplate several methods for detecting an excessive price, and Kazakhstan law guides the authority in choosing among them. Article 175 of the Code and the Methodology adopt substantially the same approach, prescribing three methods in a fixed sequence:
- Comparative analysis. The authority first compares the price set by the dominant or monopoly participant with the price of the goods on the same market.
- Benchmarking. Where the same market yields no comparison, the authority turns to a comparable market, including one outside Kazakhstan.
- The cost-based method. Where no comparable market exists, or none can be identified, the authority analyses the participant’s costs and profit and arrives at a justified price.
Experience across many companies, Kazakhstan’s aviation undertakings among them, tells a different story in practice. The authority reaches first for the cost-based method, passing over comparative analysis and benchmarking even though Article 175 prescribes them ahead of it, and then rests its finding of a monopolistically high price on the cost analysis alone. The reason is not hard to discern. Comparative analysis or benchmarking might well show the airlines’ tariffs to be perfectly competitive against comparable carriers at home or abroad, denying the authority the result it seeks. The cost-based method, by contrast, opens up the firm’s profits and costs to granular scrutiny. The authority probes individual cost lines, from staff and executive pay to equipment procured from contractors, and assembles the argument that profits run high and executive pay higher still, fuelling consumer resentment in the process.
Conclusions: The Pros and Cons of Excessive Price Investigation
Because intervention against excessive prices belongs to exceptional cases, and because every method of proving abuse carries flaws, an authority should test the allegation through as many of these methods as it can. It should seek robust evidence that overcharging is genuinely occurring rather than rest on a bare comparison of price against cost, and it should examine closely why prices might diverge from, or materially exceed, the competitive level. Where the tests fail to converge, or where the price barely differs from those of competing firms, the authority should drop the allegation.
In Kazakhstan, price regulation also carries a pronounced political charge. Under pressure from consumers and voters, politicians routinely promise cheaper goods and services, air fares among them, and press the government or the authority to impose controls and cap domestic fares, even where the market’s limited scale offers no objective basis for such measures.
A familiar objection compounds the point: action against excessive prices tends to slide into price regulation that proves difficult to administer. Periodic intervention in a dominant firm’s pricing solves nothing. It may deter entrants and, over time, do real damage, depressing investment and innovation and entrenching an allocative inefficiency that fails consumers. The authority must then keep policing the sector and become its de facto regulator, or concede that the intervention has failed, since market conditions shift continually and the dominant firm simply adjusts its prices in response. Unlike a sector regulator, a competition authority holds neither the experience nor the mandate to tell undertakings which prices count as acceptable. Other measures, often easier to implement and more effective, stand ready to guard against excessive pricing.
For further information, please contact:
Aidar Kashkarbayevr, Unicase
aidar.k@unicaselaw.com
Sources:
- Aldash Aitzhanov and Irina Knyazeva, Analysis of the State of Competition and the Definition of Goods-Market Boundaries (Astana, 2016), p. 132.
- S.M. Zhumangarin and A.T. Aitzhanov (eds), Scientific and Practical Commentary on the Entrepreneurial Code (Astana, 2022), p. 336.
- Massimo Motta and Alexandre de Streel, “Excessive Pricing in Competition Law: Never Say Never?”, in The Pros and Cons of High Prices (Swedish Competition Authority, 2007), p. 156.
- D.A. Aleshin (ed), The Analysis of Goods Markets in Competition Regulation: Techniques and Algorithms (Moscow: FAS Russia / Market DS, 2007), 120 pp.
- Assessing Profitability in Competition Policy Analysis, Economic Discussion Paper 6 (July 2003).
Legislation and instruments
- Entrepreneurial Code of the Republic of Kazakhstan No. 375-V of 29 October 2015 (Kazakhstanskaya Pravda, 3 November 2015, No. 210 (28086)).
- Methodology for Identifying a Monopolistically High (Low) Price, approved by Order No. 173 of the Minister of National Economy of 4 May 2018.
- Treaty establishing the European Community (Rome, 25 March 1957), as amended by the Treaty of Nice of 16 April 2003.
- Treaty on the Eurasian Economic Union, ratified by Law No. 240-V of 14 October 2014.
- Findings of the Analysis of the State of Competition on the Market for Scheduled Domestic Passenger Air Transport in the Republic of Kazakhstan (Nur-Sultan, September 2019).
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