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Canoy, Marcel; Rey, Patrick; Damme, Eric van --- "Dominance and Monopolization" [2004] ELECD 183; in Neumann, Manfred; Weigand, Jürgen (eds), "The International Handbook of Competition" (Edward Elgar Publishing, 2004)

Book Title: The International Handbook of Competition

Editor(s): Neumann, Manfred; Weigand, Jürgen

Publisher: Edward Elgar Publishing

ISBN (hard cover): 9781843760542

Section: Chapter 7

Section Title: Dominance and Monopolization

Author(s): Canoy, Marcel; Rey, Patrick; Damme, Eric van

Number of pages: 80

Extract:

7 Dominance and monopolization
Marcel Canoy, Patrick Rey and Eric van Damme



1 Dominance and competition policy
A firm is in a dominant position if it has the ability to behave independently
of its competitors. Dominant firms attract public attention and often arouse
mixed feelings. Consumers enjoy branding when it makes life predictable,
but grumble when the price of their favorite brand is raised. Policymakers
may be proud of their Heinekens, Microsofts or McDonalds, but become
unhappy if they restrict choices. Rivals of dominant firms may be lucky if the
dominant firm is a toothless giant, but a predatory tiger scares them off.
The mixed feelings can easily be explained. From a theoretical point of
view, it is not clear whether dominant firms reduce or enhance welfare.
There are many reasons for that. First, a dominant firm can be a successful
innovator which is typically good for welfare. But it can also be a firm that
emerged from an anti-competitive merger which is typically bad for welfare.
Second, some ex post behavior may have adverse welfare consequences even
when dominance stems from innovation. An innovator may engage in such
abuses as predatory pricing that might well prevent or delay subsequent
innovations. Third, when dominant firms engage in behavior that might
reduce welfare (such as predatory pricing), how can such behavior be
distinguished from normal efficiency-enhancing business practices (such
as discounts)? Fourth, welfare reductions today might be traded off against
welfare gains tomorrow (or vice versa), and who is ...