Abuse of a dominant position

A firm that has acquired a dominant position in a market faces special restrictions on its business practices to ensure that it does not abuse its position.  We regularly advise clients who are or may be involved in abuse of dominance inquiries.

Whether a firm has a dominant position in a market requires an assessment of the relevant market and then an assessment of the firm’s market power. Market definition involves the identification of a set of products or services which are close substitutes to each other. To have a dominant position a firm must account for a significant share of the relevant markets. But it also requires that the firm’s position grants it market power – the power to raise consumer prices above economic costs – and that the market share is likely to persist over time.

Rebate schemes

Rebate schemes are an important competitive tool. Most are uncontroversial, but a dominant firm’s rebate scheme could infringe competition law if it makes it more difficult for smaller rivals to compete profitably for the dominant firm’s sales. To test this, competition authorities determine whether rivals have to price below cost to match the dominant firm’s ‘effective price’ after rebates. Carrying out a self-assessment of a rebate scheme can be difficult as it needs to look at the terms of the scheme, the costs of production, and expected sales of rivals. We regularly analyse firms’ rebate schemes to assess whether they are consistent with competition law and we have been involved in many cases where rebate schemes have been investigated.

Abuse of market power takes many forms: how a company sets prices, whom it supplies, and the terms upon which it supplies them. Certain business practices may be prohibited if a dominant firm enters into them without objective justification. Yet it is often impossible to distinguish anti-competitive from legitimate forms of conduct without looking at their effects in the marketplace.

All of these issues related to dominance and abuse require economic analysis. We specialise in the theoretical and empirical analysis – of prices, costs and investment decisions – necessary to identify harmful, exploitative or exclusionary conduct, including:

  • Excessive and discriminatory pricing;
  • Predatory pricing, cross-subsidy and exclusionary discounts;
  • Product bundling and tying; and
  • Refusal to supply and exclusionary vertical restraints.

We also carry out assessments of whether there are objective justifications for the conduct in question which result in benefits to consumers.

 

 

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