Assessing Monopoly Power in Abuse of Dominance Cases. Dr. Kenneth Danger OECD, Senior Economist [email protected] Two Parts to Dominance Cases. Show that the firm is dominant Show that the dominant firm has abused its position.
Dr. Kenneth Danger
OECD, Senior Economist
During this presentation I will focus on the first part, (i.e., the types of evidence that has been used to show that a firm is dominant).
Standard analysis focuses on indirect evidence, even though we know it is imperfect. That is because direct evidence of monopoly power is hard to gather.
Firms raise their price to the profit maximizing level, here Pm.
Raising it further generates more losses than gains.
Thus, when you define a market under the HMT, you
necessarily will be adding additional competitors.
Australian High Court - A large market share may well be evidence of market power … but the ease with which competitors would be able to enter the market must also be considered. It is only when for some reason it is not rational or possible for new entrants to participate in the market that a firm can have market power… There must be barriers to entry. (See Boral v. ACCC)
Canadian Abuse of Dominance Guidelines – “… market share is in itself not sufficient to prove market power. Without barriers to entry, any attempt by a firm with high market shares to exercise market power is likely to be met with entry or expansion by existing firms such that the firm with the high market share loses enough customers to its rivals that it is not profitable to attempt to raise prices above competitive levels.”
For entry to be competitively relevant it has to be
1. Example from Katz, Michael and Carl Shapiro, “Critical Loss: Let’s Tell the Whole Story,” Antitrust, Spring 2003. They describe exceptions to this idea.
……that same literature has, in general, been rather sceptical about the use of profitability data as evidence of substantial market power.