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Abuse of Dominance

What is a dominant enterprise?

When looking at competition between enterprises in our contemporary world, we have observed that in many markets there are certain enterprises that dominates the market. These dominant enterprises are usually feared by other small enterprises because of their size and ability to manipulate market conditions and exert their influence on prices, supply etc……

What the FTC considers as a dominant enterprise is one that satisfies all the requirements under our guideline. Factors such as the enterprise’s market share, buyer power and barriers to entry and/or expansion are used as indicators when assessing dominance. However emphasis is made mostly on the market power that the enterprise possesses.

Abuse of Dominant Position is dealt with under Section 7 of the Fair Competition Act 2009.

Is being dominant a problem?

The answer is No. Any enterprise can become dominant but the real issue is whether that dominant enterprise is in essence abusing its position in the market. There are different types of ways in which an enterprise can abuse its dominance.

Types of Abuse Conduct

The most common forms of abuse can be classified into:-

1. Exclusionary conducts

This is where dominant enterprises seeks to engage in conducts with the aim of eliminating its competitors or prevent competitors from entering the market.

Examples:

  • Predatory pricing – This is when a dominant enterprise lowers its prices at a sufficiently low level with the aim of forcing its competitors out of the market or preventing other enterprises from entering the market so that in the future they can raise their prices and exploit consumers.
  • Refusal to supply products and services – In reality an enterprise has the right to choose who they wish to deal with, this can be due to several reasons. Refusal to supply is problematic when the goods concerned are essential inputs for enterprises to operate.
  • Margin squeeze – In a situation where an enterprise is vertically integrated; that is this enterprise operates as for example a wholesaler but it is also a retailer. If that particular enterprise is a dominant wholesaler but there are several competitors in the retail market. This enterprise can abuse its dominance as a wholesaler either through predatory abuse or by virtue of being a dominant wholesaler refuses to supply other retailers with the goods.

2. Exploitative conducts

This is when a dominant enterprise attempt to exert their market power with the aim of exploiting consumers.

Examples

  • Excessive pricing – This is the case when dominant enterprise are able to charge excessively high prices which has no reasonable relation to the economic value of the particular goods supplied with the aim of exploiting  consumers.  Excessive pricing has been the highlight of several debates in competition law as it is one conduct that is very problematic to be determined.
  • Exclusive dealing – In cases of exclusive dealings it usually occurs where a dominant enterprise such as a supplier maintains an obligation whereby they will deal with only one particular distributor and they will not trade with other distributors. This can have serious effects on competition as it can force enterprises to close down.
  • Tying & Bundling – When a manufacturer of two or more products refuses to sell one product to a buyer unless this buyer purchases the other products that this manufacturer produces. This occurs when products are sold together in a package.
  • Dissimilar conditions to equivalent transactions – This is the case where a dominant enterprise abuse its dominance by discriminating between different trading partners in its terms and conditions of trading with them. This can result in some competitors at a competitive disadvantage.

What you need to know

In reality when dominant enterprises abuse their position this has serious repercussions on competition in the market. It is important that an enterprise or even a consumer understands the different types of abuses that exists so as to ensure that competition is encouraged as in reality it is the consumer who reap the final benefits when competition is encouraged.