Market domination

[1] A dominant firm possesses the power to affect competition[2] and influence market price.

First-movers can set a benchmark for competitors and consumers regarding expectations of product and service offering, technology, convenience, quality, or price.

[8] These firms are representative of their industry and their brand can become synonymous with the product category itself, such as the company Band-Aid.

First-mover advantage is a limited source of market dominance if a firm becomes complacent or fails to keep up innovation by competitors.

[11] Referring to the value that branding adds over a generic equivalent, Brand Equity can contribute to gains in market dominance for firms who choose to capitalise on its worth, whether through charging a price premium or other business strategy.

The European Commission's Guidance on A102 states that a dominant position is derived from a combination of factors, which taken separately are not determinative.

Therefore, it is necessary to consider the constraints imposed by existing supplies from, and the position of, actual competitors, meaning those who are competing with the undertaking in question.

The higher the concentration ratio, the greater the market power of the leading firms.

A case that can be used to define market dominance under EU Law is the United Brands v Commission (The ‘bananas’ case) where the court of justice said, 'the dominant position thus referred to by Article [102] relates to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers’[19] The commission's Guidance suggests that market shares is only a ‘useful first indication’ in the process of assessing market power.

[16] In paragraph 15 of the Guidance on A102, the European Commission state that a high market share over a long period of time can be a preliminary indication of dominance.

[24][25] In Hoffman-La Roche v Commission, the Court of Justice said that large market shares are ‘evidence of the existence of a dominant position’ which led to the Court of Justice decision in AKZO v Commission that where there is market share of at least 50%, without exceptional circumstances, there will be a presumption of dominance that shifts the burden of proof on to the undertaking.

For the commission to consider expansion or entry likely it must be sufficiently profitable for the competitor or entrant, taking into account factors such as the barriers to expansion or entry, the likely reactions of the allegedly dominant undertaking and other competitors, and the risks and costs of failure.

For example, Intellectual Property in the form of patent protection, is a potential legal barrier to entering the market for new businesses, as was shown in Microsoft Corp.

It is a measure of the size of firms in relation to the industry and an indicator of the amount of competition among them.

As such, it can range from 0 to 10,000, moving from a very large amount of very small firms to a single monopolistic producer.

) is defined as the sum of the squared differences between each firm's share and the next largest share in a market: where As part of its merger review process, Mexican Competition Commission uses García Alba's dominance index (

Such customers will need to have sufficient bargaining strength which will normally come from its size or its commercial significance in the industry sector.

The final point that must be considered is the bargaining strength of the undertaking's customers, also known as the countervailing buyer power.

This refers to the competitive constraints that customers may exert where they are a large size, or commercially significant, for a dominant firm.

However, the commission will not come to a final decision without examining all of the factors which may be relevant to constrain the behavior of the undertaking.

[16] Previous findings of dominance can not be used to calculate dominance as agreed in the Coca-Cola v Commission [2000] case where it was Court held that the Commission must take a fresh approach to the market conditions each time it adopts a decision in relation to Art 102.

In paragraph 10 of the Guidance, it is stated that where there is no competitive pressure, an undertaking, which is a legal entity acting in the course of business, is probably able to exercise substantial market power.

Furthermore, in paragraph 11, this is developed on, arguing if an undertaking can increase their products above the competitive price level, and does not face economic restraints, it is therefore dominant.

Dominance as an economic concept is determined within EU competition law through a 2-stage process, which first requires the identification of the relevant market as was established in Continental Can v Commission.

[34] The identification of the relevant and geographic market is assessed through the hypothetical monopolist test, which questions would a party's customer, switch to an alternative supplier located elsewhere, in response to a small relative price increase.

The second stage of the test requires the commission to look at various factors to see if an undertaking enjoys a dominant position on that relevant market.

[35] Why firms want a greater market share is a logical concept with both empirical and theoretical foundations.