Your company’s position is strong. So strong that it could well hold a dominant position in the market. You must be careful: Market dominance is not illegal under antitrust rules as such, but there is a special responsibility not to abuse it. To recognize when a dominant position is likely to be abused, we will give you 6 examples in this blog.
When does a company have a dominant position?
A company holds a dominant position if it can behave to an appreciable extent independently of its competitors, customers and (ultimately) consumers. The market share is generally important here: a company with a market share of more than 50% is presumed to be dominant.
In addition to market share, other factors also play a role in determining dominance. You can read more about it here.
Examples of abuse
To prevent your company from abusing its dominant position, it is important to recognize different forms of abuse. Examples are:
- Excessive pricing
Excessive pricing occurs if the price is disproportionate to the economic value of the product. This assessment includes looking at production costs and prices for comparable products.
- Price squeeze
Is a company active on both the wholesale and the retail market? Then it may not lower prices on the retail market while at the same time using market power to raise wholesale prices. This may be a ‘price squeeze’ to the detriment of competitors.
- Refusal to supply
Usually, companies may choose to do business with whom they like. But this is different for companies that hold a dominant position. We tell you more about this topic in this blog.
Tying occurs when a company makes the sale of one product (the tying) product dependent on the purchase by the customer of another (the tied) product. Well-known examples are ink cartridges and razor blades. Tying may undermine the market functioning by forcing customers to purchase the tied product from the dominant company and not from competitors.
- Exclusive purchase
If a dominant company directly or indirectly forces customers to primarily sell its products, while trying to prevent the sale of competitors’ products, it may be abusing its dominant position as well.
- Predatory pricing
Predation happens when a company offers its products or services at such low prices that it is likely that its purpose is to foreclose competitors and new entrants from the market. Such price-setting may just as well lead to fines, as was the case for Qualcomm.
What are the consequences of abuse of dominance?
The competition authorities take abuse of dominance seriously. They generally impose high fines or impose behavioral remedies. In some countries, executives and managers can even face prison, personal fines, or disqualification. Reputational damage must not be forgotten, and increasingly also damages claims and other civil actions.
Do you have any questions on this subject? Please contact us.