Dominant Position of a Company

Topics: Perfect competition, Economics, Competition Pages: 3 (994 words) Published: November 21, 2012
According to the European competition case law, a dominant position is defined as “the power of a firm to behave to an appreciable extent independently of its competitors, customers and consumers”. It is obvious that a firm or several firms which hold a dominant position can determine price, the amount of production, supply and this is because these firms can act independently of their competitors and customers. As a result, dominant position can lead to the market power and in this situation a firm or several firms have an ability to individually make a big influence on the price and total quantity produced which could result to the market failure. But does this definition make an economic sense and how it should be interpreted in monopoly and oligopoly? Firstly, we need to understand exactly the actual meaning of a dominant position. It is a situation when a firm has an ability to behave independently of its competitors, customers and ultimately the final consumer. A well known example of monopolistic dominance is Microsoft’s market in PC operating systems. In monopoly some members in a market can gain market power allowing them to stop other important gains from trades and this can make the allocation of recourses inefficient due to imperfect competition. As going back to my example, Microsoft illegally used its market power by bundling its web browser with its operating system. In economics, market power is the ability of a firm to independently determine the market price and the production of a good or a service, of course, in perfectly competitive markets - market power vanishes. From this example we actually see that Microsoft has an ability to make a big influence on the price or other outcomes in the market by using its dominant position because that kind of a firm can raise price, outcomes without worrying of losing its customers. On the other hand, not only one firm can hold a dominant position, but also a dominant position can be held among several...
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