This is the second blog in a series detailing and explaining the abuse of dominance provisions of the Competition Act. If you are joining us now, be sure to read the first blog on price fixing, and how companies drive prices up here.
As stated in our first blog, there is nothing wrong with a firm being dominant in its particular market, what is prohibited is the abuse of such dominance. So, what makes a firm dominant under the Competition Act?
Dominance – how to define the market
Firstly we would have to determine the firm’s market share specific to the product or service concerned. Market share can be defined broadly i.e. the national market share in a particular product or service or more narrowly confined to a smaller geographic area. How the market is defined will to a certain extent depend on the nature of the product or service and also the particular complaint.
A good example of how market share can differ depending on how you define the market is that of online retailers. If you accept that online retailers compete directly with retailers with a physical outlet then the online retailer’s relative market share will automatically be reduced as the market is defined as being broader. A practical example of this is the current merger still awaiting Competition Commission approval between Takealot.com and Kalahari.com.
Another important concept in understanding abuse of dominance is that of market power. Market power is the ability to behave independently of your competitors, customers and or suppliers and that means for example that you can raise prices substantially without fear of losing market share to a competitor.
The Competition Act regards a firm as dominant where a firm has a 45%+ market share. Between 35-45% market share a firm is deemed to be dominant unless that firm can prove it does not have market power. Beneath 35% market share the onus is on the Competition Commission to prove that a firm is dominant and has market power.
Competition Commission – duty to investigate complaints for abuse of dominance
It is worthwhile to mention that the Competition Commission has a legislative duty to investigate each and every complaint it receives, even from members of the public. Of course the better structured the complaint the more likely one is to receive substantive feedback and results. However, the significance of this must not be overlooked. Understanding when it is appropriate to lodge a complaint is important. In future blogs in this series we will look at specific types of contraventions under the abuse of dominance provisions more closely.
Image courtesy of this website.