1. African Competition Forum
Investigating
Abuse of Dominance
Markus H. Meier
Assistant Director
African Competition Forum
March 25, 2013

2. The Concern: Market Power & the Monopoly Problem
“Market Power” – the ability of a firm to raise price above the competitive level without losing so many sales so rapidly that the price increase becomes unprofitable.
Because many firms have some market power, competition concerns arise only when a firm has a substantial amount of market power for a significant period of time.

3. Market Power & the Monopoly Problem – Continued
• Generally, a monopolist will produce less, and sell its products at a higher price, than if it faced competition.
• In effect, the monopolist creates artificial scarcity of its product.
• In competitive markets, if a firm tries to create artificial scarcity by producing less or charging more, its rivals will see this as an opportunity to make more sales by increasing their production and lowering the price.
Why isn’t this happening?

4. Elements of Proof for Abuse of Dominant Position
A Dominant Position
Relevant market
High market share & barriers to entry
Conduct that May Harm Competition
No Legitimate Business Justification
Anticompetitive Effects

5. General Steps in Analyzing Alleged Abuse of Dominance
Step 1: Define the relevant market in which a dominant position is suspected.
Step 2: Determine whether a company has sufficient market power to constitute a dominant position.
Step 3: Identify the business practice that may harm competition.
Step 4: Assess the business practice’s overall competitive effects in the market.

6. Step 1: Define the Relevant Market
What is a “relevant” market?
That group of products that significantly constrain each other’s pricing, when viewed from both the demand side (consumers) and supply side (producers).
Has both product and geographic dimensions
The “hypothetical monopolist” test
A market that could be subject to the exercise of market power.
Example: What market does Coca-Cola compete in?

7. Key Questions in Defining Markets
What products do consumers view as reasonable substitutes?
Considering price, use, quality, and other significant characteristics
What alternative products can others supply, and under what circumstances will they do so?
This answers the question: who else is in the market?
Where – geographically – can consumers practicably turn for supply?

8. Step 2: Establish that the Firm Has a Dominant Position
Direct evidence of market power
Example: the Mylan case
Inferring market power from market share
Measures of market share
Market entry conditions
Other factors in assessing market power

9. Measures of Market Share
Capacity – the number of units of a product a company has the potential to produce.
Output – the number of units of a product a company actually produces.
Sales – the number of units, or money value, of a product the company has actually sold.
Reserves – for natural resources, the amount of a product a company has available to mine, harvest, or extract.

10. Market Entry Conditions
Entry conditions is one of the most important factors in assessing market power.
If entry into the market is relatively easy and inexpensive, even a large market share will not give a company market power.

11. Other Factors in Assessing Market Power
Excess capacity
Dynamic or stable market
Production characteristics (fixed or flexible)
Relative size in the market
Government regulation

12. Factors that May Not Be Relevant in Assessing Market Power
Size alone
Profits alone
Brands
Intellectual property
Product diversification
Stable market shares over time

13. Step 3: Identify the Business Practice that May Harm Competition
Exploitative Practices – where a firm takes advantage of its dominant position by:
Charging high prices
Engaging in price discrimination
Exclusionary Practices – where a company attempts to create or maintain its dominant position by suppressing competition through:
Predatory pricing
Exclusive contracts

14. Step 4: Assess the Business Practice’s Overall Competitive Effects
How does the business practice actually operate?
What competition, if any, is being eliminated?
How much competition remains?
Does the business practice have any likely competitive benefits?
Does it create any efficiencies?

15. The Challenge
1.To be guilty of an abuse of dominance a firm must have a dominant position. But merely having a such a such position does not violate the law.
2. The law does not prohibit everything that a firm with a dominant position does.
3. Harm to a rival does not necessarily mean harm to competition.
4. In practice, it is often difficult to distinguish between illegal abuse of dominance and hard-fought competition.