What Companies Need to Know About Abuse of Dominance

Companies are usually constrained in their commercial behavior by competitors, customers and consumers. Where such constraints are weak and ineffective, the company is considered to hold market power. When market power allows a company, over time, to behave independently from other market actors, such company is deemed to exercise a dominant market position.

Dominance per se is not unlawful. Rather, it is the abuse of dominance – particularly if used to weaken competitive dynamics by excluding rivals and harming consumers – that is unlawful.

Definition of dominance

Dominance is established by reference to specifically defined geographic and product markets. To define markets, antitrust authorities consider whether there is demand and supply substitutability between the products, as well as potential competition through entry or expansion. Competition authorities usually rely on market share as a proxy for market power; however, the finding of a dominant position is based on an overall assessment of all relevant factors. In general, a company with a market share below 40% is unlikely to be regarded as dominant.

Examples of abusive practice

• Exclusive dealing: The dominant company requires or gives incentives (for instance, loyalty rebates) to customers to deal only with the dominant supplier.
• Refusal to deal: The dominant company refuses to supply an essential input to a downstream competitor.
• Predatory pricing: The dominant company foregoes short-term profits by pricing below cost in order to drive out or discourage competitors.
• Leveraging through tying: The dominant company conditions the sale of one product on the sale of another.
• Anti-competitive use of intellectual property rights: The dominant company employs a pay-for-delay strategy or abuses the patent system.

Consequences

A company that abuses a position of dominance faces serious consequences. The company itself can face fines and be exposed to actions from third parties who have suffered loss because of the dominant company’s anti-competitive behavior. In addition, individuals in certain jurisdictions can be disqualified from serving as a company director.

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