Abuse of dominant position means a firm with substantial market power uses that position in a way that harms competition. The key point is that dominance itself is not usually illegal; the problem is exclusionary or exploitative conduct that weakens rivals or limits consumer choice beyond normal competition on the merits.
Dominance Is Not The Same As Abuse
A firm can be dominant because it is efficient, innovative, or enjoys strong brand loyalty. Competition authorities care about abuse when a dominant firm uses tactics that protect its position by blocking rivals rather than by offering a better product.
Common examples include:
- predatory pricing,
- exclusive dealing or loyalty rebates,
- refusal to supply an essential input,
- tying or bundling that forecloses rivals,
- margin squeeze in vertically related markets.
Economic Logic
One simple way economists describe market power is the Lerner index:
\[ L = \frac{P - MC}{P} \]
A high value suggests the firm can price above marginal cost, but that alone does not prove abuse. Enforcement focuses on conduct and effects: whether the behavior reduces competitive pressure, raises barriers to entry, or harms long-run consumer welfare.
Why Policy Intervenes
If abuse succeeds, the dominant firm may preserve market power, restrict innovation, and keep prices high or quality low. Competition policy tries to stop those outcomes without punishing firms merely for being successful.
That is why modern analysis usually asks not just whether rivals were hurt, but whether the competitive process itself was harmed.