A company which holds a dominant market position has the capability to work independently from its competitors and customers. A dominant position can allow a company to set prices above the competitive level for products which are not of as high quality, and in effect it can restrict competition. To be in a dominant market position is not illegal; however, abuse of this position in order eliminate competition in the market is illegal. Therefore, competition laws in the UK and Europe put restrictions on companies which hold a dominant market position to ensure that they do not engage in anti-competitive behaviour.
What are the legal UK and EU requirements for companies which hold dominant market positions?
Section 18 of the UK Competition Act 1998 refers to the controversy surrounding the holding of a dominant market position.
If the organisation holds a dominant market position which extends to EU member states, it will be subject to the provisions set out within Article 82 of the European Union TFEU.
These sections of competition law decide what is considered an abuse of a dominant market position. Abuse of a dominant market position is defined as the actions conducted by an organisation with the intent to adversely affect competitors and other organisations in the market.
Abuse of a dominant market position could take the following forms:
- Establishing unfair tradition conditions in the market through creating distorted purchase or selling prices
- Limiting product rates and development as a whole to the disadvantage of consumers
- Placing other competitors and organisations at a competitive disadvantage by creating dissimilar conditions to equivalent transactions with other parties
- Tarnishing contracts with other parties through making the conclusion subject to acceptance by the other parties of supplementary obligations, which in fact have no actual connection to the subject of the contract.
In June 2017 the European Commission's investigation of Google, which has been ongoing since November 2010, was finally closed with the decision to fine Google €2.42 billion for abuse of their dominant market position. This huge fine inflicted upon the Google corporation was due to their breaching of Article 102 of the European Treaty on the Functioning of the European Union (TFEU).
Google's most effective and popular product is its search engine, which is known worldwide. This search engine provides masses of search results to consumers and reaches a vast number of consumers in the market. However, November 2010 experienced a vast influx of complaints regarding Google's search engine, which some believed was breaching Article 102 of the TFEU.
Following the investigation, the European Commission was able to identify the areas where Google was abusing its dominant market position, such as:
- Google were favouring themselves in the online search results by incorporating links to Google's own services such as Google Shopping. This was to the disadvantage of other services which also meet shopping needs but were being listed below Google due to Google's distortion of results.
- There was also evidence of Google obliging third party websites to place the majority of their online advertisements with Google.
Through investigation it was proven that Google was giving itself prominence and allowing Google's services to benefit at the disadvantage of other services. In effect, this prevented competition from occurring, because consumers were just being shown the majority of Google services, to the detriment of other services. This reduced the amount of choice for the consumers.
If you are part of an organisation which holds a dominant market position, the organisation needs to carefully conduct its business practice to ensure that it does not abuse this position. If abuse of a dominant market position does occur, there will be severe repercussions that can damage an organisation financially and in terms of its reputation.