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The economist's depiction of deadweight loss to efficiency that monopolies cause
The economist's depiction of deadweight loss to efficiency that monopolies cause

Being one of three categories of a competition law, a law regulating dominance and monopoly prevents firms from using their market power to damage the interests of consumers. In Economics, a deadweight loss (also known as excess burden or allocative inefficiency) is a loss of economic efficiency that can occur when equilibrium In Economics, market power is the ability of a firm to alter the Market price of a good or service Other two legal categories not covered here are collusion and cartel law, and law regulating mergers and acquisitions. Collusion is an agreement usually secretive which occurs between two or more persons to deceive mislead or defraud others of their legal rights or to obtain an objective forbidden A cartel is a formal (explicit agreement among firms Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve

Dominance and monopoly refer to the market power of firms or undertakings to raise prices, restrict production, and decrease the quality of goods and services. In Economics, dominance is a Concept related to the degree of inequality disparity or asymmetry in the Market share distribution of the firms or participants In Economics, a monopoly (from Greek monos, alone or single + polein, to sell exists when a specific individual or enterprise has sufficient Together these issues have led legislature to establish laws protecting the consumers. Dominance and monopoly problems form the focus of much attention in competition, or antitrust, law.

A dominant position in a market is a question of what degree of market power a firm holds. A firm may be considered dominant in a market with a number of big players. This situation is termed an oligopoly, and that together firms have collective dominance. An oligopoly is a Market form in which a Market or Industry is dominated by a small number of sellers (oligopolists If there is only one major player in a market, the word monopoly is used. In Economics, a monopoly (from Greek monos, alone or single + polein, to sell exists when a specific individual or enterprise has sufficient However the term monopoly power often refers to the wider phenomenon, which is a concentration of market power in one hand. In law, having a dominant position or a monopoly in the market is not illegal in itself. However certain categories of behaviour will, when a business is dominant, be considered abusive and be met with legal sanctions.

Contents

History

Common salt (sodium chloride) historically gave rise to natural monopolies. For sodium chloride in the diet see Salt. Sodium chloride, also known as common salt, table salt, or Halite, is a Until recently, a combination of strong sunshine and low humidity or an extension of peat marshes was necessary for winning salt from the sea, the most plentiful source. Changing sea levels periodically caused salt "famines" and communities were forced to depend upon those who controlled the scarce inland mines and salt springs, which were often in hostile areas (the Dead Sea, the Sahara desert) requiring well-organized security for transport, storage, and distribution. A famine is a widespread shortage of food that may apply to any Faunal species which phenomenon is usually accompanied by regional Malnutrition, Starvation The Dead Sea (יָם הַ‏‏מֶ‏ּ‏לַ‏ח, "Sea of Salt"البَحْر المَيّت, "Dead Sea" is a salt lake between The Sahara (الصحراء الكبرى aṣ-ṣaḥrā´ al-kubra, "The Great Desert" is the world's largest hot Desert and the world's second largest The "Gabelle", a notoriously high tax levied upon salt, played a role in the start of the French Revolution, when strict legal controls were in place over who was allowed to sell and distribute salt. The following article is about a Tax. If you are looking for information about a literary character see A Tale of Two Cities. The French Revolution (1789–1799 was a period of political and social upheaval in the History of France, during which the French governmental structure previously an Advocates of laissez-faire capitalism, such as the Austrian school, maintain that a salt monopoly would never develop without such government intervention. Laissez-faire ( pronunciation: French,; English,) is a French phrase literally meaning Let do (“allow to do” The Austrian School, also known as the “ Vienna School ” or the “ Psychological School ” is a heterodox school of economics that advocates

Examples of alleged and legal monopolies

Dominance

Competition law
Basic concepts
Anti-competitive practices
Laws and doctrines

United States

Europe

  • European Community
    competition law
  • Irish Competition Law
  • Competition Act 1998 (U. Competition law history refers to attempts by governments to regulate Competitive markets for goods and services leading up to the modern competition or Antitrust The term "monopolization" refers to an offense under Section 2 of the American Sherman Antitrust Act, passed in 1890 In Economics and Business ethics, a coercive monopoly is a business concern that prohibits competitors from entering the field with the natural result being that Natural monopoly is a term used in Economics to refer to two different things In Economics and especially in the theory of Competition, barriers to entry are obstacles in the path of a firm which wants to enter a given Market In Economics, market power is the ability of a firm to alter the Market price of a good or service In Competition law, before deciding whether companies have significant Market power which would justify government intervention the test of Small but Significant and Non-transitory In Competition law the Relevant market defines the market in which one or more goods compete Merger control refers to the procedure of reviewing Mergers and acquisitions under Antitrust / competition law Anti-competitive practices are Business or Government practices that prevent and/or reduce Competition in a Market (see Restraint of trade Collusion is an agreement usually secretive which occurs between two or more persons to deceive mislead or defraud others of their legal rights or to obtain an objective forbidden A cartel is a formal (explicit agreement among firms Cartels usually occur in an oligopolistic industry, where there is a small number of sellers and usually involve Price fixing is an agreement between business competitors to sell the same product or service at the same price Product bundling is a Marketing strategy that involves offering several products for sale as one combined product Tying is the practice of making the sale of one good (the tying good to the De facto or De jure customer conditional on the purchase of a second distinctive Refusal to deal is one of several Anti-competitive practices forbidden in countries which have Free market economies In Competition law, a group boycott is a type of Secondary boycott in which two or more competitors in a Relevant market refuse to conduct business Exclusive dealing refers to when a retailer or wholesaler is ‘tied’ to purchase from a supplier on the understanding that no other distributor will be appointed or receive supplies Bid rigging is an illegal agreement between two or more competitors Dividing territories (also Market division) is an agreement by two companies to stay out of each other's way and reduce competition in the agreed-upon territories Conscious parallelism is a term used in Competition law to describe Price-fixing between competitors in an Oligopoly that occurs without an actual spoken Predatory pricing (also known as destroyer pricing) is the practice of a firm selling a product at very low price with the intent of driving competitors out of the Market In United States patent law, patent misuse is an Affirmative defense used in patent litigation when a Defendant has been accused to have Copyright misuse is an equitable defense against Copyright infringement in the United States based on the unreasonable conduct of United States antitrust law is the body of Laws that prohibits anti-competitive behavior (monopoly and Unfair business practices. The Sherman Antitrust Act ( Sherman Act, July 2, 1890, ch 647,) was the first United States Federal statute to limit Cartels and The Clayton Antitrust Act of 1914 ( October 15[[ 914]] ch 323, codified at,) was enacted in the United States to add further substance to the U The Robinson-Patman Act of 1936 (or Anti-Justice League Discrimination Act,) is a United States federal law that prohibits what were considered at the time of passage The Federal Trade Commission Act of 1914 (15 USC §§ 41-58 as amended) established the Federal Trade Commission (FTC a Bipartisan body of five members The Merger guidelines are a set of internal rules promulgated by the Antitrust Division of the United States Department of Justice (USDOJ in conjunction with the The essential facilities doctrine (sometimes also referred to as the essential facility doctrine) is a Legal doctrine which describes a particular type of claim of The Noerr-Pennington doctrine is a doctrine of United States Antitrust law set forth by the United States Supreme Court in a pair of cases which The rule of reason is a doctrine developed by the United States Supreme Court in its interpretation of the Sherman Antitrust Act. European Community competition law is one of the areas of authority of the European Union. Irish Competition Law is the Irish body of legal rules designed to ensure fairness and freedom in the Marketplace. The Competition Act 1998 is the current major source of competition policy in the UK along with Enterprise Act 2002. K. )

Australia
Enforcement authorities and organizations
edit box
See also: Monopoly, Monopsony, Oligopoly, and Oligopsony

Dominance is an expression that covers the different degrees of market power that large firms may exercise. The Trade Practices Act 1974 is an act of the Parliament of Australia. The International Competition Network is an informal virtual network that seeks to facilitate cooperation between Competition law authorities globally A competition regulator is a Government agency, typically a statutory authority, sometimes called an economic regulator, which regulates and enforces In Economics, a monopoly (from Greek monos, alone or single + polein, to sell exists when a specific individual or enterprise has sufficient In Economics, a monopsony (from Ancient Greek μόνος (monos "single" + ὀψωνία (opsōnia "purchase" is a Market form An oligopoly is a Market form in which a Market or Industry is dominated by a small number of sellers (oligopolists An oligopsony is a Market form in which the number of buyers is small while the number of sellers in theory could be large A considerable body of economic theory lies behind a determination of whether a firm may be dominant. If Competition law authorities do show a firm is dominant, then they may go on to prove that the position of power has been abused.

Economics

Main article: Dominance (economics)

Kwoka's dominance index (D) is defined as the sum of the squared differences between each firm's share and the next largest share in a market:

D = \sum_{i=1}^{n-1} (s_i-s_{i+1})^2

where

s_1 \ge ... \ge s_i \ge s_{i+1} \ge ... \ge s_n for all i = 1, . In Economics, dominance is a Concept related to the degree of inequality disparity or asymmetry in the Market share distribution of the firms or participants . . , n - 1 (Kwoka, 1977).

As part of its merger review process, Mexican Competition Commission uses dominance index (ID), described as the Herfindahl index of a Herfindahl index (HHI). The Herfindahl index, also known as Herfindahl-Hirschman Index or HHI, is a measure of the size of firms in relationship to the Industry and an The Herfindahl index, also known as Herfindahl-Hirschman Index or HHI, is a measure of the size of firms in relationship to the Industry and an Formally, ID is the sum of squared firm contributions to the market HHI: ID = \sum_{i=1}^n h_i^2 where h_i = \left. s_i^2 \right/ HHI.

European Commission's Tenth Report on Competition implies that a significant disparity between the largest and the second-largest firm shares can indicate that the largest firm has a dominant position in the market. The European Commission (formally the Commission of the European Communities) is the executive branch of the European Union. Specifically, under a section entitled "Scrutiny of mergers for compatibility with Article 86 EEC," the Report stated,

"A dominant position can generally be said to exist once a market share to the order of 40% to 45% is reached. [footnote: A dominant position cannot even be ruled out in respect of market shares between 20% and 40%; Ninth Report on Competition Policy, point 22. ] Although this share does not in itself automatically give control of the market, if there are large gaps between the position of the firm concerned and those of its closest competitors and also other factors likely to place it at an advantage as regards competition, a dominant position may well exist. [1]

Asymmetry Index (AI) is defined as the statistical variance of market shares: AI=\left.\sum_{i=1}^n \left(s_i- {1 \over n}\right)^2 \right/n. See Brown and Warren-Boulton (1988), also see Warren-Boulton (1990). In Probability theory and Statistics, the variance of a Random variable, Probability distribution, or sample is one measure of

Law


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 firm's price increases. Competition law does not make merely having a monopoly illegal, but rather abusing the power the a monopoly may confer, for instance through exclusionary practices.

First it is necessary to determine whether a firm is dominant, or whether it behaves "to an appreciable extent independently of its competitors, customers and ultimately of its consumer. "[2] As with collusive conduct, market shares are determined with reference to the particular market in which the firm and product in question is sold.

Under EU law, very large market shares raise a presumption that a firm is dominant,[3] which may be rebuttable. [4] If a firm has a dominant position, then there is "a special responsibility not to allow its conduct to impair competition on the common market". [5] The lowest yet market share of a firm considered "dominant" in the EU was 39. 7%. [6]

Abuse

Certain categories of abusive conduct are usually prohibited under the country's legislation, though the lists are seldom closed. [7] The main recognised categories follow.

Predatory pricing

Main article: Predatory pricing

Predatory pricing is a controversial issue. Predatory pricing (also known as destroyer pricing) is the practice of a firm selling a product at very low price with the intent of driving competitors out of the Market This is the practice of dropping prices of a product so much that in order one's smaller competitors cannot cover their costs and fall out of business. The Chicago School (economics) considers predatory pricing to be unlikely. [8] However in France Telecom SA v. Commission[9] a broadband internet company was forced to pay €10. 35 million for dropping its prices below its own production costs. It had "no interest in applying such prices except that of eliminating competitors"[10] and was being crossed subsidised to capture the lion's share of a booming market.

Below cost
Above cost

Tying

Main articles: Tying (commerce) and Product bundling

Tying one product into the sale of another can be considered abuse too, being restrictive of consumer choice and depriving competitors of outlets. Tying is the practice of making the sale of one good (the tying good to the De facto or De jure customer conditional on the purchase of a second distinctive Product bundling is a Marketing strategy that involves offering several products for sale as one combined product This was the alleged case in Microsoft v. Commission[11] leading to an eventual fine of €497 million for including its Windows Media Player with the Microsoft Windows platform. Windows Media Player ( WMP) is a digital media player and media library application developed by Microsoft that is used for playing Microsoft Windows is a series of Software Operating systems and Graphical user interfaces produced by Microsoft. A refusal to supply a facility which is essential for all businesses attempting to compete to use can constitute an abuse. One example was in a case involving a medical company named Commercial Solvents. [12] When it set up its own rival in the tuberculosis drugs market, Commercial Solvents were forced to continue supplying a company named Zoja with the raw materials for the drug. Tuberculosis (abbreviated as TB for tubercle bacillus or T u' b' erculosis Bacillus --> is a common Zoja was the only market competitor, so without the court forcing supply, all competition would have been eliminated.

Limiting supply

Limiting production at a shipping port by refusing to raise expenditure and update technology could be abusive. [13]

Excessive pricing

Excessive or exploitative pricing means a business is directly setting prices at an exhorbitant level. It is difficult to prove at what point a dominant firm's prices become "exploitative" and this category of abuse is rarely found. In one case however, a French funeral service was found to have demanded exploitative prices, and this was justified on the basis that prices of funeral services outside the region could be compared. [14]

Price discrimination

Main article: Price discrimination

Price discrimination implies that a firm is unfairly discriminating between different customers in the price he or she sells at. Price discrimination exists when sales of identical goods or services are transacted at different Prices from the same provider [15] An example of this could be offering rebates to industrial customers who export your company's sugar, but not to Irish customers who are selling their goods in the same market as you are in. [16]

Refusal to supply

Main articles: Essential facilities doctrine and Refusal to deal

Price Squeezes

Causation and attempt

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 firm merely attempts to abuse its dominant position.

See also

Notes

  1. ^ European Commission's Tenth Report on Competition, p. Consumer protection is a form of Government Regulation which protects the interests of Consumers For example a government may require businesses to disclose detailed In Competition law, before deciding whether companies have significant Market power which would justify government intervention the test of Small but Significant and Non-transitory In Competition law the Relevant market defines the market in which one or more goods compete European Community competition law is one of the areas of authority of the European Union. Irish Competition Law is the Irish body of legal rules designed to ensure fairness and freedom in the Marketplace. 103, paragraph 150.
  2. ^ C-27/76 United Brands Continental BV v. Commission [1978] ECR 207
  3. ^ C-85/76 Hoffmann-La Roche & Co AG v. Commission [1979] ECR 461
  4. ^ AKZO [1991]
  5. ^ Michelin [1983]
  6. ^ BA/Virgin [2000] OJ L30/1
  7. ^ Continental Can [1973]
  8. ^ see, e. g. Posner (1998) p. 332; "While it is possible to imagine cases in which predatory pricing would be a rational stragy, it should be apparent by now why confirmed cases of it are rare. "
  9. ^ Case T-340/03 France Telecom SA v. Commission
  10. ^ AKZO [1991] para 71
  11. ^ Case T-201/04 Microsoft v. Commission Order, 22 December 2004
  12. ^ Commercial Solvents [1974]
  13. ^ Art. Events 1790 - The Turkish fortress of Izmail is stormed and captured by Suvorov and his Russian armies "MMIV" redirects here For the Modest Mouse album see " Baron von Bullshit Rides Again " 82 (b) Porto di Genova [1991]
  14. ^ C-30/87 Corinne Bodson v. SA Pompes funèbres des régions libérées [1987] ECR 2479
  15. ^ in the EU under Article 82(2)c)
  16. ^ Irish Sugar [1999]

References

Further reading

External links

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