What is Abuse of Dominance?
Abuse of dominance occurs when a
dominant firm in a market engages in practices that are intended to exclude competitors or exploit its dominant position unfairly. This can distort competition and harm consumers by limiting choices, increasing prices, or reducing innovation.
How is Dominance Determined?
Dominance is typically assessed based on the firm's
market share, the structure of the market, and the firm's ability to act independently of competitors and customers. A firm is often considered dominant if it has a market share of over 40%, although this can vary by jurisdiction.
Examples of Abusive Practices
Predatory Pricing: Setting prices low to drive competitors out of the market and then raising them once dominance is secured.
Exclusive Dealing: Forcing suppliers or customers to deal only with the dominant firm.
Tying and Bundling: Requiring customers to buy additional products or services as a condition of purchasing a desired product.
Refusal to Deal: Denying competitors access to essential facilities or inputs.
Why is it Harmful?
Abuse of dominance can lead to reduced
market competition, which often results in higher prices, lower quality, and less innovation. Consumers suffer because they have fewer choices and may be forced to pay more for inferior products or services.
Case Studies
One well-known example is the case against
Microsoft in the late 1990s, where the company was found guilty of abusing its dominant position in the PC operating systems market by bundling its Internet Explorer browser with Windows. Another example is the European Commission's fines against
Google for abuses related to its search engine dominance and Android operating system.
Preventive Measures
To avoid allegations of abuse, dominant firms should ensure their business practices are compliant with competition laws. This may involve seeking legal advice, implementing
compliance programs, and regularly auditing business practices to ensure they do not unfairly exclude competitors or exploit consumers.
Conclusion
Abuse of dominance is a significant issue in the business world, with substantial implications for
market dynamics, consumer welfare, and innovation. By understanding what constitutes abusive practices and adhering to regulatory guidelines, businesses can promote fair competition and contribute to a healthy market environment.