Discuss the Abuse of Dominant Market Position Giving Examples.

• One or more firms must substantially or completely control a relevant market.
• The firm or firms must engage in anti-competitive activities.
• These actions must prevent or lessen competition substantially in a market, or be likely to do so in the future.

Abuse is stated to occur when an enterprise or a group of enterprises uses its dominant position (As per Competition Act 2002, dominant position is position of strength enjoyed by an enterprise in a relevant market, which enables it to operate independently of competitive forces prevailing in the relevant market; or affect its competitors or consumers or the relevant market in its favour) in the relevant market in an exclusionary or/and an exploitative manner. Such practices shall constitute abuse only when adopted by an enterprise enjoying dominant position in the relevant market in India.

The business practices which have been contested in actual cases in different countries, not always with legal success, have included the following but not limited to: charging unreasonable or excess prices, price discrimination, predatory pricing, price squeezing by integrated firms, refusal to deal or sell, tied selling or product bundling and pre-emption of facilities.

Stages involved in determine abuse of dominance

Relevant markets

• The product and geographical markets that are relevant for the case will be defined and analyzed with respect to relevant markets.
• In order to define the relevant market, it is examined which products compete or may compete with the products under investigation and hence curtail the use of market power.
• The substitutability of demand and supply has to be considered when the relevant market is defined. The substitutability of demand is the most direct and efficient factor which restricts the independent behaviour of undertakings on the market.

Existence of dominance

• After the relevant markets have been defined, it is possible to assess the market power of the undertaking on these markets.
• The point of departure for the assessment is often the market share of the undertaking. However, the market share is not the sole or decisive factor in finding a dominant position, and a specific market share limit cannot be imposed on the creation of a dominant position.
• The market power that manifests itself on specific relevant markets and the assessment of potential dominance is frequently based on the examination of several factors.
• It is possible to draw conclusions on the degree of concentration of the market from differences in the undertakings’ market shares, however.
• The wider the difference in market shares between the two biggest undertakings and the more dispersed the market shares of other competitors, the more likely the possibility that the one having the higher market share possesses significant market power.

Identification of specific harmful conduct

After existence of dominant position is analyzed and determined specific harmful conduct has to be identified, i.e. which company is dominating the market and what harmful conducts it is doing and then accordingly corrective actions has to be taken to monitor and control the dominance and reduce the problems effectively.

Monitoring abuse of dominance

The regulatory framework for monitoring abuse of dominance is as follows:-

According to the Central Government Act Section 4 in The Competition Act, 2002 Abuse of dominance.-

(1) No enterprise shall abuse its dominant position. (2) There shall be an abuse of dominance under sub- section (1), if an enterprise- (a) directly or indirectly, imposes unfair or discriminatory- (i) condition in purchase or sale of goods or service; or (ii) price in purchase or sale (including predatory price) of goods or service.

While assessing the dominance of an undertaking it is important to consider all the constraints present in the market, which hinders its ability to act independently and affect the relevant market in its favor.

The Act lists some factors, all or any of which can be considered by the Commission while inquiring whether an enterprise enjoys a dominant position or not.

These factors help the Commission to precisely and accurately assess the dominance of alleged undertaking under the relevant market by providing an objective point of view.

The factors are as follows:-

• Market share of the enterprise.
• Size and resources of the enterprise.
• Size and importance of competitors.
• Commercial advantage over competitors.
• Service network.
• Dependence of consumers.
• Entry barriers.
• Countervailing buying power.
• Market structure.

Countering Abuse of Dominance — Enforcement and Corrective Measures

• The Competition Bureau ensures compliance with the Competition Act. In its enforcement capacity, as in all of its activities, the Bureau is guided by the principles of transparency, fairness, timeliness and predictability.
• Following an examination into complaints of anti-competitive activities, if the Bureau finds evidence of abuse of dominance, its first enforcement step will be to ask the dominant firm or group of firms to correct the situation in a manner that resolves the competition issue to the satisfaction of the Bureau.
• If there is no voluntary resolution, the Bureau will bring the matter before the Competition Tribunal, an independent body which rules on civil matters under the Competition Act.
• Where the Competition Tribunal finds that abuse of dominance has occurred, it may make an order prohibiting the dominant firm from engaging in anti-competitive acts.
• Furthermore, if a prohibition order is not deemed adequate or sufficient to restore competition, the Tribunal may order various other remedies, including the divestiture of assets or shares for the firm, or group of firms, engaging in abuse of dominance activities.

Examples

Microsoft Corporation

Microsoft Corporation in one of the world’s largest software company found abusing its dominant position. The company fount its dominant position in the marketing of personal computer operating system. The European Commission has imposed fine of US$612 millions.

Microsoft has abused its monopoly power, which was created by dominant market shares in several markets and substantial barriers to effective entry. The concerns are that Microsoft has abused its dominance to gain competitive advantages over competitors in other (downstream or adjacent) markets, blocking innovation and exploiting customers.

In the US case, in the market for Intel-compatible PC OS, its strategy is to protect the applications barrier by expanding Internet explorer. Share of browser usage, meanwhile depressing shares of competitors like Netscape and Sun Microsystems that may enable Microsoft’s monopolisation of the browser market.

In the EU case, Microsoft was accused of abuse of dominance by denying interoperability with its competitors in the market for workgroup server operating systems and foreclosure against incompatible product developers, which enabled it to exercise monopoly power in the downstream market. Not only competitors but also consumers had to suffer from Microsoft’s monopoly.

MacDonald’s Corporation

The Pizza Giant has entered into franchises agreement with 28 Brazilian parties from whom it collects 24% of gross sales by way of rents in respect of premises and use of its recipes. It has acquired all most all locations and premises around its restaurant so as to restrict the entry of rival brands. The formal administrative proceedings have been opened after preliminary investigation and the case is under adjudication by CADE.

         

References

Glossary of Industrial Organisation Economics and Competition Law, compiled by R. S. Khemani and D. M. Shapiro, commissioned by the Directorate for Financial, Fiscal and Enterprise Affairs, OECD, 1993.