Dominance is not unlawful
Head of Competition Law Department
SCA Hahui & Associate
The European competition law (Art.82 Treaty of Rome) accepts the
existence of dominant companies; however, it encloses as well a power
to control their conduct by forbidding abuse of the dominance.
Dominance is tolerated, but its potential to foster inefficiency is
subjected to supervision.
In contrast, some dominant positions are not simply tolerated, they
are even welcomed. In some markets the absence of competition is not
to be wailed. It must not be forgotten that competition is only a
means to an efficient end, and some markets operate at their most
efficient without the influence of competitive pressures.
All industries have costs associated with entering them. Often, a
large portion of these costs is required for
Larger industries, like utilities, require enormous initial
entry reduces the number of possible entrants into the
industry regardless of the earning of the corporations within. Natural
monopolies arise where the largest supplier in an industry, often the
first supplier in a market, has an overwhelming cost advantage over
other actual or potential competitors; this tends to be the case in
scale which are large in relation to the size of the market
- examples include water services and electricity. It is very
expensive to build transmission networks (water/gas pipelines,
electricity and telephone lines), therefore it is unlikely that a
potential competitor would be willing to make the capital investment
needed to even enter the monopolists market.
Similarly, a duplication of railway lines may be inefficient; yet, in
this instance the railway is not immunized from competition from other
means of transport.
Though it might sound paradoxical, there may be reasons why
competition might be even injurious to the markets, failing to achieve
one of the key aims of competition: research and innovation. An
inventor may be not willing to spend time, money and precious know-how
on a new product that would be immense benefit to society if he or she
knows that as soon as the product appears on the market the design
will be immediately copied by competitors, who will grab the profits
having engaged no costs (the so called ‘free rider’ risk). These
examples of the undesirability of competition emphasize the role of
workable, rather than perfect, competition as a guiding principle.
given the case of natural monopolies and their special competition
regime, the function of the law becomes the control of potential
adverse effects of the lack of competition for the economy. Thus,
price controls and safety standards may be imposed on suppliers of
naturally monopolistic goods. This may be achieved by specific
Nonetheless, the notion of abuse, though flexible, is simultaneously
unstructured and simplistic. It leaves a considerable degree of
discretion to the competition authorities to supervise dominant firms
in accordance with their own perceptions of proper market development.
For example, although unfair pricing may be held abusive, the notion
of unfairness is imprecise.
Consequently, the example of the inventor reluctant to innovate
suggests a situation where the law should not tolerate or welcome
dominance. By granting the inventor an exclusive right to make and
sell the product in a territory for a stipulated period, the law
recognizes that the competition is not efficient and therefore, agrees
for its suppression by granting the inventor a legally enforceable
immunity from it. This is the field of intellectual property law –
patents, copyrights, trademarks, and allied rights. However, even this
desirable position of economic strength requires supervision, and
Art.82, while not questioning the existence of the legal protection,
demands that it is not abusively exercised.
Art.82 permits supervision of tactics pursued by monopolists that are
considered abusive. Art.82, then, does not outlaw dominance. However,
weather the dominance is merely tolerated or positively welcomed, it
is subject to a flexible prohibition against its abuse.