Editing Monopoly (section)

== Law ==
{{Globalize|section|date=September 2018}}
{{Main|Competition law}}
[[File:"Blasts" from The Ram's Horn (1902) (14804351643).jpg|thumb|right|A 1902 anti-monopoly cartoon depicts the challenges that monopolies may create for workers.]]
The law regulating dominance in the European Union is governed by Article 102 of the ''[[Treaty on the Functioning of the European Union]]'' which aims at enhancing the consumer's welfare and also the efficiency of allocation of resources by protecting competition on the downstream market.<ref>DG Competition, ''DG Competition discussion paper on the application of Article [102] of the Treaty to exclusionary abuses'' [2005] [http://ec.europa.eu/competition/antitrust/art82/discpaper2005.pdf PDF]. {{Webarchive|url=https://web.archive.org/web/20180508145349/http://ec.europa.eu/competition/antitrust/art82/discpaper2005.pdf |date=8 May 2018 }}. accessed 4 May 2018.</ref>  The existence of a very high market share does not always mean consumers are paying excessive prices, since the threat of new entrants to the market can restrain a high-market-share company’s price increases. Competition law does not make merely having a monopoly illegal but rather abusing the power a monopoly may confer, for instance, through exclusionary practices (i.e., pricing high just because it is the only one around). It should also be noted that it is illegal to try to obtain a monopoly through practices like buying out the competition or similar methods. If a monopoly occurs naturally, such as a competitor going out of business or a lack of competition, it is not illegal until the monopoly holder abuses their power.

=== Establishing dominance ===
First, it is necessary to determine whether a company is dominant, or whether it behaves “to an appreciable extent independently of its competitors, customers, and ultimately its consumers.” Establishing dominance is a two-stage test. The first thing to consider is market definition, which is one of the crucial factors of the test.<ref>Case 6/72 ''Europemballage Corpn and Continental Can Co Inc v Commission'' [1973] ECR 215</ref> This includes the relevant product market and the relevant geographic market.

==== Relevant product market ====
As the definition of the market is of a matter of interchangeability, if the goods or services are regarded as interchangeable then they are within the same product market.<ref>Case 6/72 ''Europemballage Corpn and Continental Can Co Inc v Commission [1973]'' ECR 215</ref> For example, in the case of ''United Brands v Commission'',<ref name=":0">{{citation|title=Case 27/76: United Brands Company and United Brands Continentaal BV v Commission of the European Communities (ECR 207)|date=14 February 1978|url=http://eur-lex.europa.eu/smartapi/cgi/sga_doc?smartapi!celexplus!prod!CELEXnumdoc&lg=en&numdoc=61976J0027}}</ref> it was argued in this case that bananas and other fresh fruit were in the same product market and later on dominance was found because the special features of the banana made it could only be interchangeable with other fresh fruits in a limited extent and other and is only exposed to their competition in a way that is hardly perceptible. The demand substitutability of the goods and services will help in defining the product market and it can be access by the 'hypothetical monopolist' test or the 'SSNIP' test.<ref>The Unilateral Conduct Working Group, ''‘[http://www.internationalcompetitionnetwork.org/uploads/library/doc752.pdf ICN's Unilateral Conduct Workbook Chapter 3] {{Webarchive|url=https://web.archive.org/web/20180508121929/http://www.internationalcompetitionnetwork.org/uploads/library/doc752.pdf |date=8 May 2018 }}’ [2011] <'' <nowiki>http://www.internationalcompetitionnetwork.org/uploads/library/doc752.pdf</nowiki>> last accessed 4 May 2018</ref>

==== Relevant geographic market ====
It is necessary to define it because some goods can only be supplied within a narrow area due to technical, practical or legal reasons and this may help to indicate which undertakings impose a competitive constraint on the other undertakings in question. Since some goods are too expensive to transport where it might not be economic to sell them to distant markets in relation to their value, therefore the cost of transporting is a crucial factor here. Other factors might be legal controls which restricts an undertaking in a Member States from exporting goods or services to another.

Market definition may be difficult to measure but is important because if it is defined too narrowly, the undertaking may be more likely to be found dominant and if it is defined too broadly, the less likely that it will be found dominant.

==== Market shares ====
As with collusive conduct, market shares are determined with reference to the particular market in which the company and product in question is sold. It does not in itself determine whether an undertaking is dominant but work as an indicator of the states of the existing competition within the market. The [[Herfindahl–Hirschman index|Herfindahl–Hirschman Index]] (HHI) is sometimes used to assess how competitive an industry is. It sums up the squares of the individual market shares of all of the competitors within the market. The lower the total, the less concentrated the market and the higher the total, the more concentrated the market.<ref name=":1">Whish R and others, ''Competition Law'' (8th Edition, OUP 2015)</ref> In the US, the [[merger guidelines]] state that a post-merger HHI below 1000 is viewed as not concentrated while HHIs above that will provoke further review.

By European Union law, very large market shares raise a presumption that a company is dominant, which may be rebuttable. A market share of 100% may be very rare but it is still possible to be found and in fact it has been identified in some cases, for instance the ''AAMS v Commission'' case.<ref>AAMS v Commission [2001] ECR II-3413</ref> Undertakings possessing market share that is lower than 100% but over 90% had also been found dominant, for example, Microsoft v Commission case.<ref>''Microsoft Corporation v Commission'' [2004]</ref> In the ''AKZO v Commission'' case,<ref>Case C- 62/86 ''AKZO Chemie BV v Commission'' [1991] ECR I −3359</ref> the undertaking is presumed to be dominant if it has a market share of 50%. There are also findings of dominance that are below a market share of 50%, for instance, ''United Brands v Commission'',<ref name=":0" /> it only possessed a market share of 40% to 45% and still to be found dominant with other factors. The lowest yet market share of a company considered "dominant" in the EU was 39.7%. If a company has a dominant position, then there is a special responsibility not to allow its conduct to impair competition on the common market; however, these will all falls away if it is not dominant.<ref>Case T-203/01 ''Michelin v Commission'' [2003]</ref>

When considering whether an undertaking is dominant, it involves a combination of factors. Each of them cannot be taken separately as if they are, they will not be as determinative as they are when they are combined.<ref name=":2">Guidance on Article 102 Enforcement Priorities [2009]</ref> Also, in cases where an undertaking has previously been found dominant, it is still necessary to redefine the market and make a whole new analysis of the conditions of competition based on the available evidence at the appropriate time.<ref>''Coca-Cola Co v Commission'' [2000] ECR II- 1733</ref>

==== Other related factors ====
According to the Guidance, there are three more issues that must be examined. They are actual competitors that relates to the market position of the dominant undertaking and its competitors, potential competitors that concerns the expansion and entry and lastly the countervailing buyer power.<ref name=":2" />
* '''Actual Competitors'''

Market share may be a valuable source of information regarding the market structure and the market position when it comes to accessing it. The dynamics of the market and the extent to which the goods and services differentiated are relevant in this area.<ref name=":2" />
* '''Potential Competitors'''

It concerns with the competition that would come from other undertakings which are not yet operating in the market but will enter it in the future. So, market shares may not be useful in accessing the competitive pressure that is exerted on an undertaking in this area. The potential entry by new firms and expansions by an undertaking must be taken into account,<ref name=":2" /> therefore the barriers to entry and barriers to expansion is an important factor here.
* '''Countervailing buyer power'''

Competitive constraints may not always come from actual or potential competitors. Sometimes, it may also come from powerful customers who have sufficient bargaining strength which come from its size or its commercial significance for a dominant firm.<ref name=":2" />

=== Types of abuses ===
There are three main types of abuses which are exploitative abuse, exclusionary abuse and single market abuse.
* '''Exploitative abuse'''

It arises when a monopolist has such significant market power that it can restrict its output while increasing the price above the competitive level without losing customers.<ref name=":1" /> This type is less concerned by the Commission than other types.
* '''Exclusionary abuse'''

This is most concerned about by the Commissions because it is capable of causing long-term consumer damage and is more likely to prevent the development of competition.<ref name=":1" /> An example of it is exclusive dealing agreements.
* '''Single market abuse'''

It arises when a dominant undertaking carrying out excess pricing which would not only have an exploitative effect but also prevent parallel imports and limits intra-brand competition.<ref name=":1" />

=== Examples of abuses ===
* [[Artificial scarcity|Limiting supply]]
* [[Predatory pricing]] or undercutting
* [[Price discrimination]]
* [[Refusal to deal]] and [[exclusive dealing]]
* [[Tying (commerce)]] and [[product bundling]]

Despite wide agreement that the above constitute abusive practices, there is some debate about whether there needs to be a causal connection between the dominant position of a company and its actual abusive conduct. Furthermore, there has been some consideration of what happens when a company merely attempts to abuse its dominant position.

To provide a more specific example, economic and philosophical scholar Adam Smith cites that trade to the East India Company has, for the most part, been subjected to an exclusive company such as that of the English or Dutch. Monopolies such as these are generally established against the nation in which they arose out of. The profound economist goes on to state how there are two types of monopolies. The first type of monopoly is one which tends to always attract to the particular trade where the monopoly was conceived, a greater proportion of the stock of the society than what would go to that trade originally. The second type of monopoly tends to occasionally attract stock towards the particular trade where it was conceived, and sometimes repel it from that trade depending on varying circumstances. Rich countries tended to repel while poorer countries were attracted to this. For example, The Dutch company would dispose of any excess goods not taken to the market in order to preserve their monopoly while the English sold more goods for better prices. Both of these tendencies were extremely destructive as can be seen in Adam Smith's writings.<ref>{{Citation|last=Smith|first=Adam|title="Of the Advantages Which Europe Has Derived from the Discovery of America, and from That of a passage to the East Indies by the Cape of Good Hope" from An Inquiry into the Nature and Causes of the Wealth of Nations (1776).|date=2014-06-03|work=Adam Smith|pages=58–63|publisher=Routledge|doi=10.4324/9780203092736-14|isbn=978-0-203-09273-6}}</ref>