User:Ho Kwan Liu/sandbox

The law regulating dominance in the European Union is governed by Article 102 of the Treaty on the Functioning of the European Union which aims at enhancing the consumer’s welfare and also the efficiency of allocation of resources by protecting competition on the downstream market. The existence of a very high market share does not always mean consumers are paying excessive prices since the threat of new entrants to the market can restrain a high-market-share company's price increases. Competition law does not make merely having a monopoly illegal, but rather abusing the power a monopoly may confer, for instance through exclusionary practices (i.e. pricing high just because you are the only one around.) It may also be noted that it is illegal to try to obtain a monopoly, by practices of buying out the competition, or equal practices. If one occurs naturally, such as a competitor going out of business, or lack of competition, it is not illegal until such time as the monopoly holder abuses the power.

Establishing Dominance
First it is necessary to determine whether a company is dominant, or whether it behaves "to an appreciable extent independently of its competitors, customers and ultimately of its consumer". Establishing dominance is a two stage test. The first thing to consider is market definition which is one of the crucial factors of the test. It includes relevant product market and relevant geographic market.

Relevant Product Market
As the definition of the market is of a matter of interchangeability, if the goods or services are regarded as interchangeable then they are within the same product market. For example, in the case of United Brands v Commission, it was argued in this case that bananas and other fresh fruit were in the same product market and later on dominance was found because the special features of the banana made it could only be interchangeable with other fresh fruits in a limited extent and other and is only exposed to their competition in a way that is hardly perceptible. The demand substitutability of the goods and services will help in defining the product market and it can be access by the ‘hypothetical monopolist’ test or the ‘SSNIP’ test.

Relevant Geographic Market
It is necessary to define it because some goods can only be supplied within a narrow area due to technical, practical or legal reasons and this may help to indicate which undertakings impose a competitive constraint on the other undertakings in question. Since some goods are too expensive to transport where it might not be economic to sell them to distant markets in relation to their value, therefore the cost of transporting is a crucial factor here. Other factors might be legal controls which restricts an undertaking in a Member States from exporting goods or services to another.

Market definition may be difficult to measure but is important because if it is defined too broadly, the undertaking may be more likely to be found dominant and if it is defined too narrowly, the less likely that it will be found dominant.

Market shares
As with collusive conduct, market shares are determined with reference to the particular market in which the company and product in question is sold. It does not in itself determine whether an undertaking is dominant but work as an indicator of the states of the existing competition within the market. The Herfindahl-Hirschman Index (HHI) is sometimes used to assess how competitive an industry is. It sums up the squares of the individual market shares of all of the competitors within the market. The lower the total, the less concentrated the market and the higher the total, the more concentrated the market. In the US, the merger guidelines state that a post-merger HHI below 1000 is viewed as not concentrated while HHIs above that will provoke further review.

By European Union law, very large market shares raise a presumption that a company is dominant, which may be rebuttable. A market share of 100% may be very rare but it is still possible to be found and in fact it has been identified in some cases, for instance the AAMS v Commission case. Undertakings possessing market share that is lower than 100% but over 90% had also been found dominant, for example, Microsoft v Commission case. In the AKZO v Commission case, the undertaking is presumed to be dominant if it has a market share of 50%. There are also findings of dominance that are below a market share of 50%, for instance, United Brands v Commission, it only possessed a market share of 40% to 45% and still to be found dominant with other factors. The lowest yet market share of a company considered "dominant" in the EU was 39.7%.If a company has a dominant position, then there is a special responsibility not to allow its conduct to impair competition on the common market however these will all falls away if it is not dominant.

When considering whether an undertaking is dominant, it involves a combination of factors. Each of them cannot be taken separately as if they are, they will not be as determinative as they are when they are combined together. Also, in cases where an undertaking has previously been found dominant, it is still necessary to redefine the market and make a whole new analysis of the conditions of competition based on the available evidence at the appropriate time.

Other Related Factors
According to the Guidance, there are three more issues that must be examined. They are actual competitors that relates to the market position of the dominant undertaking and its competitors, potential competitors that concerns the expansion and entry and lastly the countervailing buyer power.


 * Actual Competitors

Market share may be a valuable source of information regarding the market structure and the market position when it comes to accessing it. The dynamics of the market and the extent to which the goods and services differentiated are relevant in this area.


 * Potential Competitors

It concerns with the competition that would come from other undertakings which are not yet operating in the market but will enter it in the future. So, market shares may not be useful in accessing the competitive pressure that is exerted on an undertaking in this area. The potential entry by new firms and expansions by an undertaking must be taken into account, therefore the barriers to entry and barriers to expansion is an important factor here.


 * Countervailing Buyer Power

Competitive Constraints may not always come from actual or potential competitors. Sometimes, it may also come from powerful customers who have sufficient bargaining strength which come from its size or its commercial significance for a dominant firm.

Types of Abuses
There are three main types of abuses which are exploitative abuse, exclusionary abuse and single market abuse.


 * Exploitative Abuse

It arises when a monopolist has such significant market power that it can restrict its output while increasing the price above the competitive level without losing customers. This type is less concerned by the Commission than other types.


 * Exclusionary Abuse

This is most concerned about by the Commissions because it is capable of causing long- term consumer damage and is more likely to prevent the development of competition. An example of it is exclusive dealing agreements.


 * Single Market Abuse

It arises when a dominant undertaking carrying out excess pricing which would not only have an exploitative effect but also prevent parallel imports and limits intra- brand competition.

Examples of Abuses

 * Limiting supply
 * Predatory pricing or undercutting
 * Price discrimination
 * Refusal to deal and exclusive dealing
 * Tying (commerce) and product bundling

Despite wide agreement that the above constitute abusive practices, there is some debate about whether there needs to be a causal connection between the dominant position of a company and its actual abusive conduct. Furthermore, there has been some consideration of what happens when a company merely attempts to abuse its dominant position.