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The concept of dominant position is crucial for competition law. In the first place, it is a prerequisite for the commission of an abuse of dominant position offense (Azzopardi, 2015, p. 7). In antitrust law, not every abuse is sanctioned, but only the abuse committed by an entity that holds a dominant position. Therefore, conducts that are in principle “neutral” for competition if carried out by a non-dominant company can become anti-competitive if carried out by a dominant company (Jones et al., 2019, p. 280).
The rationale behind this is that conduct undertaken by a dominant agent, precisely because of its weight in the market, can affect it. For this reason, companies in a dominant position must adjust their conduct to avoid harming competition (Azzopardi, 2015, p. 7). In this sense, in some jurisdictions (such as the European Union or “EU”), it is often noted that dominant agents bear a sort of “special responsibility,” consisting of preventing their conduct from distorting competition (e.g., in the Intel case (§135)).
The above has legal standing. EU regulations establish, in Article 102 of the Treaty on the Functioning of the European Union (TFEU), that “[a]ny abuse by one or more undertakings of a dominant position within the internal market or in a substantial part of it shall be prohibited as incompatible with the internal market in so far as it may affect trade between Member States.” In turn, in Chile, letter b) of Decree Law 211 (DL 211) sanctions “[t]he abusive exploitation by an economic agent, or a group of them, of a dominant position in the market.”
Secondly, the concept of dominant position is also relevant in merger control. This is because the traditional merger control test is the significant lessening or impediment of competition in the market, with the understanding that this occurs when the merger involves the creation or strengthening of a dominant position (e.g., see EU Merger Regulation, Article 2.2). Thus, there is a similarity between merger analysis and the analysis of an abuse of dominant position: in both cases, the goal is to prevent effective competition in a market from being harmed and the market from being foreclosed (Nazzini, 2011, pp. 331–332). Therefore, while holding a dominant position is something that is, in itself, lawful, from an ex-ante perspective, it is undesirable and its consolidation is to be avoided.
The understanding of this figure is not clear. First, because the expression “dominant position” is not found in economics textbooks. Indeed, economists tend to focus on the question of whether a company has substantial market power (Whish & Bailey, 2012, p. 180), rather than whether it is dominant. This is problematic, as it is expected that in the analysis of this type of conduct —where the rule of reason usually prevails— economics should have significant influence (Azzopardi, 2015, p. 7).
Second, “dominant position” is a relatively vague concept, whose content is not defined by law (Nazzini, 2011, p. 327). For this reason, as Advocate General of the European Union Juliane Kokott pointed out in Case C-95/04, the starting point for reflections on this point must be the protective objective of Article 102 TFEU (§68). To that extent, the definition of dominance must be obtained through a teleological interpretation of the rule that sanctions the abuse of dominant position conduct (Jones et al., 2019, p. 280; Nazzini, 2011, p. 327). Thus, different views on what is anti-competitive lead to different results (Fox, 2002, p. 372).
This last point is expressed in the difference between the first two conceptions of the concept which will be analyzed below. The first of these equates a dominant position with the possession of substantial market power, thus fitting the view according to which the important factor is competition understood as an efficient process regarding how goods and services are produced (Lianos et al., 2019, p. 821). Thus, what Eleanor Fox calls “the triangles” dominates here, referring to the allocative efficiency losses that follow from the existence of market power (Fox, 2002, p. 372). The second conception of dominant position, by contrast, focuses on the capacity of a firm to exclude other companies, and therefore understands competition as a process of rivalry (Lianos et al., 2019, p. 821). In this way, this latter conception, rather than achieving allocative efficiency, seeks to maintain said process of rivalry.
As noted, there is some theoretical disagreement: some authors offer four (Monti, 2006, pp. 31–32) or three (Ybar, 2014, pp. 16–19) different conceptions. In what follows, the three main conceptions will be analyzed: substantial market power, commercial power, and the jurisdictional criterion.
This conception is known as the economic view of the concept (Monti, 2006, p. 32), and it is in fact the standard view (Jones et al., 2019, p. 277). It equates the concepts of dominant position with that of substantial market power. In this regard, in theoretical terms, market power should be understood as the ability of a firm to raise prices above marginal cost and decrease output (Azzopardi, 2015, p. 19). As noted, underlying this view is a concern for the loss of allocative efficiency that follows from not operating under a perfect competition scenario. According to Fox, this type of conceptualization is related to the conceptual revolution carried out by the Chicago School (Fox, 2002, pp. 377–384).
It must be kept in mind that there are different degrees of market power: at one end of the spectrum, there are firms with no market power, and on the other end, there are monopoly firms. Between these two extremes, there are firms that possess “substantial” market power. However, faced with this graduality, competition law imposes a binary view: one either has or does not have a dominant position (Whish & Bailey, 2012, p. 180). Thus, it is crucial to determine how much market power one must have to hold a dominant position (Jones et al., 2019, p. 301). The consensus seems to be that substantial market power exists when a firm can raise prices above the competitive level without attracting new entrants or losing sales fast enough for the price increase to be unprofitable (Jones et al., 2019, p. 301).
Two types of tests are used to measure market power. On one hand, some seek to measure directly whether a company’s prices are above its marginal cost (“direct” tests). This can be measured, for example, using the Lerner Index or through evidence of the markup relative to marginal cost (Ducci, 2024). However, identifying the marginal cost is considered an extremely difficult task.
This leads to “indirect” tests. Here, market power must be inferred from the characteristics of the market and the nature of competition within it (Azzopardi, 2015, p. 23). In these tests, the emphasis is placed primarily on market structure. The following section analyzes this type of test.
The most traditional indirect test involves two stages: (1) determining the relevant market, and (2) determining whether a company holds a dominant position in said market (Whish & Bailey, 2012, p. 180). In the first step, often a difficult issue is determining the relevant product market based on the substitutability between different goods and services, which relates to the elasticity of demand.
In the second step, the existence of a dominant position is inferred from the presence of a series of factors that are not decisive on their own; therefore, it is necessary to look at all factors as a whole (Peric, 2022, p. 12). Within this framework, three factors are generally considered: (i) market share, (ii) barriers to entry or expansion existing in the relevant market, and (iii) the existence of countervailing power on the other side of the market (generally, the buyers) (Peric, 2022, p. 12). These three factors are examined below.
One must also analyze whether there is competitive pressure from agents outside the market on the allegedly dominant actor. Here, the idea is that the prospect of a new company entering the market, or an incumbent firm expanding, will constrain the actions of the leading company (O’Donoghue & Padilla, 2020, p. 197).
To determine if such competitive pressure is credible, several factors related to barriers to entry must be analyzed —that is, obstacles that make it difficult for new companies to enter a specific market, even when established firms obtain excessive profits (Whish & Bailey, 2012, p. 184). In this regard, due consideration must be given as to whether the entry of new competitors is timely, likely, and sufficient, and if it can consequently undermine a company’s dominant position. Generally, the same criteria used in mergers are followed here (Monti, 2006, p. 34).
Buyer power is understood as the capacity of a buyer to influence the terms and conditions under which it acquires goods or services from a supplier (O’Donoghue & Padilla, 2020, p. 215). The presence of strong buyers can rebut the finding of dominance, but only to the extent that such buyers can facilitate the entry of new sellers or allowing existing suppliers to increase their production or “output” (Monti, 2006, p. 36). If so, the company in question will not be able to act independently, that is, it will not be able to exercise market power (O’Donoghue & Padilla, 2020, p. 215).
The factors mentioned so far (market share, barriers to entry, and purchasing power) are only proxies for the existence of a dominant position. Therefore, the analysis of dominance, in addition to examining these factors, must also attempt to determine whether effective competition exists in the market (O’Donoghue & Padilla, 2020, p. 220). In this regard, the decisive criterion will be whether the dominant company effectively acts as a price-setter, while its rivals act as price-takers (O’Donoghue & Padilla, 2020, p. 221).
Dominance as commercial power is the classic definition of dominance, as provided by the European Court of Justice in the 1979 Hoffman-La Roche ruling (Monti, 2006, p. 38). Here, the Court referred to a dominant position as “a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of the consumers” (§38). Furthermore, this ruling noted that “such a position does not preclude some competition , which it does where there is a monopoly or a quasimonopoly , but enables the undertaking which profits by it, if not to determine , at least to have an appreciable influence on the conditions under which that competition will develop , and in any case to act largely in disregard of it so long as such conduct does not operate to its detriment” (§39).
Before proceeding, a couple of preliminary clarifications are worth making. First, it should be noted that some authors have pointed out that the Hoffman-La Roche definition ultimately corresponds to the notion of substantial market power discussed previously (Ibáñez Colomo, 2018, p. 153). This is explained by the importance legal precedents have within the antitrust system. Here, when a relatively new doctrine is presented (as was the case with the idea that dominant position equals substantial market power), an attempt is made to show how said doctrine was underlying the most remote precedents. This, as under this logic legal changes must through one way or the other derive from existing legal materials and the application of established principles and values (Hodge, 2019, p. 11; Peralta, 2024). This is important to clarify because, although the Hoffman-La Roche ruling can be read as an expression of the idea that a dominant position is equivalent to holding substantial market power, this was not always the case. To express this, the following section will attempt to elaborate on how this concept is understood by those who do not consider dominant position to be equivalent to substantial market power.
Second, parts of this classic definition can be read by the light of the substantial market power paradigm (this is partially because of the vagueness of the original definition). This is the case, for example, with the possibility of acting (to some extent) independently of consumers. This also occurs when one has market power, since in said instance —unlike in a situation of perfect competition— one is a price-setter rather than a price-taker. However, one must keep in mind that this interpretation is not the only one possible; others exist, such as the one presented below.
Third, the conception developed here must be understood in the original context of the concept: the European Union, where there was a prevailing concern for economic freedom rather than for allocative efficiency. This is because, under the ordoliberal view, the objective of the competition system was the protection of individual economic freedom as a good in itself, which conversely means seeking to restrict the possession of undue economic power (Monti, 2006, p. 43). For ordoliberals, competition is the instrument used to control excessive economic power, and its focus is on making the dispersion of power possible, as there is a positive relationship between this and the protection of democracy (Vatiero, 2015, pp. 293–295). This is consistent with the fact that, under this vision, there is a significant emphasis on protecting the competitive process, preferring even an inefficient but free model over an efficient but oppressive one (Monti, 2006, p. 43).
It is worth noting that this association between competition and economic freedom is not exclusively European: in Chile, it is defended by prominent authors (Valdés, 2013) and by the Supreme Court, and in the U.S., a vision that protected the competitive process and the right to compete also prevailed before the Chicago revolution (Fox, 2002, p. 375, 392).
Having said that, it seems that what is sought by the concept of dominance as commercial power is, ultimately, to ensure the market remains contestable. Thus, Advocate General Ms. Juliane Kokott expressed in Case C-95/04 of the European Union that the prohibition of the abuse of a dominant position is not aimed solely or primarily at protecting the direct interests of specific competitors or consumers, but rather the market structure and, thereby, competition as such (as an institution), which may be weakened by the mere presence of a dominant company in the market (§68). Thus, under this view, a firm is dominant when its presence distorts the competitive process, which should be characterized by the presence of several firms with the capacity to challenge the market (Monti, 2006, p. 40). In this way, when the concept of dominant position is understood as economic strength (commercial power), the question is whether a firm can prevent competition in the market (Azzopardi, 2015, p. 9). To that extent, the goal is to preserve a certain market structure to promote long-term social welfare, if the capacity to prevent competition in a market harms long-term social welfare (Nazzini, 2011, p. 329). Thus, if a firm cannot harm competition, the prohibition of abuse of dominant position would not apply (Nazzini, 2011, p. 330).
All that being said, this concept of dominant position generally seeks to express:
This vision aligns with the “legal” concept of dominant position, which focuses on a firm’s capacity to exclude competitors and thus harm the competitive process, understood as a process of rivalry (Lianos et al., 2019, p. 821).
The concept of dominance as commercial power is broader than that of substantial market power. First, this is because while the concept of dominance as substantial market power focuses on a firm’s ability to harm allocative efficiency, the concept of commercial power refers to the firm’s power to prevent effective competition by harming the competitive process, thereby influencing the conditions under which competition develops (Monti, 2006, pp. 38–39). In relation to the above, a firm can have significant market power (i.e., setting supra-competitive prices) even if it cannot behave in a significantly independent manner from its competitors, as occurs in the case of oligopolies, where price setting is constrained by the actions of other market agents (O’Donoghue & Padilla, 2020, p. 186).
Second, since this view places a significant emphasis on the protection of the competitive process, it prefers an inefficient but free model over an efficient but oppressive one (Monti, 2006, p. 43). Therefore, commercial power is not equivalent to market power in that efficiencies are not necessarily indicative of substantial market power, especially when consumers benefit (Azzopardi, 2015, p. 17). In other words, this means that sometimes a firm’s efficiency that benefits consumers will be considered part of a dominant position if it allows a firm to negatively modify (in ordoliberal terms) the market structure. This can lead to inefficiencies (which would be justified under this paradigm). This, in principle, would not be captured by the view that equates a dominant position with substantial market power, where the question is whether a firm has the capacity to decrease allocative efficiency. Therefore, under this view, a factor that sustains a firm’s commercial power would be its greater efficiency and capacity to withstand competitive challenges, rather than directly analyzing whether a firm is free to set prices or reduce output (which would certainly be analyzed if the focus were on market power) (Monti, 2006, p. 40).
One reason to prefer this concept from an enforcement perspective is that, if it were not used and only substantial market power were applied, there would be fewer cases in which dominance were identified (meaning the competition authority could intervene less). This is because many indicators —or commercial advantages— used to determine that a firm is dominant according to the conception of commercial power, such as its portfolio power (power obtained from owning a set of financial assets), its superior technology, and its distribution or sales networks —which in reality indicate greater efficiency rather than market power— would no longer be considered (Azzopardi, 2015, p. 24).
However, this concept also has disadvantages. This is because the test is more “nebulous” than the one referring to changes in price: the idea that one can act with independence in “an appreciable way” brings significant uncertainty (Jones et al., 2019, p. 302). Furthermore, it has been said that it is very easy to shift from protecting competition to protecting competitors (Fox, 2002, p. 373). Therefore, under this view, it becomes necessary to create standards to distinguish between conducts that harm other competitors but are cases of “competition on the merits” and conducts that harm other competitors but are not part of normal competition and therefore harm competition itself (Vatiero, 2015, p. 292).
This concept has been progressively sidelined in Europe, as there has been an attempt to move toward an approach closer to “mainstream economics.” This has considerably reduced the European Commission’s ability to prosecute anti-competitive acts (Monti, 2006, p. 43). That said, the idea that a dominant position is only equivalent to the concept of substantial market power is not yet a hard consensus in European competition law (Azzopardi, 2015, p. 23).
Finally, some argue that the concept of dominance serves as a kind of threshold, comparable to the role market share plays in block exemptions (Monti, 2006, p. 46). Under this view, it is assumed that below a certain threshold —such as a specific market share— the prohibition of abuse of dominant position does not apply. A classic example of this purely jurisdictional criterion is found in Alcoa (United States v. Aluminum Co. of America, 1945), where Judge Learned Hand noted:
“[The percentage of market share we have mentioned—over 90%—] is enough to constitute a monopoly; it is doubtful whether sixty or sixty-four percent would be enough; and certainly thirty-three percent is not.”
This test offers two main advantages (according to Monti, 2006, p. 47):
However, this approach has drawbacks, as it can increase the prevalence of Type II errors (false negatives) —that is, the risk that materially unlawful conduct is not recognized as such because the firm falls just below the jurisdictional threshold (Monti, 2006, p. 47).
Interestingly, some argue that if the goal is to prevent companies from having the capacity to harm competition, then the finding of dominance should go hand in hand with the finding of an abuse (Nazzini, 2011, p. 358). Thus, it could be considered legitimate to take a company’s allegedly abusive conduct into account when deciding whether it is dominant (Whish & Bailey, 2012, p. 186). Along these lines, in the Michelin case (2001), the European Commission inferred the existence of a dominant position from the presence of an exclusionary abuse: “[a] detailed analysis of a number of aspects of Michelin’s conduct provides further support in so far as necessary for the conclusion, based on observation of the structural aspects of the market, that a dominant position exists” (§197). This line of reasoning has also been supported by the Economic Advisory Group for Competition Policy (Gual et al., 2005, p. 4).
However, there are strong reasons to oppose this view. First, it would imply moving away from the legal text that distinguishes between holding a dominant position and its abuse (Azzopardi, 2015, p. 18).
Second, this has been repeatedly criticized as a circular argument: abusive conduct would prove dominance, and then that same conduct would be classified as abusive because it was carried out by a dominant company (Monti, 2006, p. 36; Whish & Bailey, 2012, p. 186).
Third, this is questionable because in competition law, anti-competitive harm can exist even without dominance, as seen in collusions evaluated under the per se rule (Monti, 2006, p. 45). Therefore, anti-competitive harm does not always imply dominance.
Fourth, this view would broaden the range of punishable conducts, as it would include not only actions by already dominant firms but also actions taken by firms to acquire a dominant position, such as predatory pricing (Monti, 2006, p. 45). Thus, there are significant reasons related to the administrability of the system to reject this view (Jones et al., 2019, p. 305).
Nevertheless, this perspective is not entirely far-fetched, as Section 2 of the Sherman Act makes it possible to sanction a firm that is not yet dominant if its conduct would lead to the monopolization of the market (O’Donoghue & Padilla, 2020, p. 185). In a similar vein, letter c) of Article 3 of Decree Law 211 in Chile sanctions “[p]redatory practices, or unfair competition, carried out with the aim of attaining, maintaining, or increasing a dominant position.”
It is important to highlight that dominance can also be collective. Under this figure —which is only accepted in certain jurisdictions like the EU and Chile— it must be determined whether a group of companies interacting in a specific way hold a dominant position, under any of the meanings mentioned above.
Another relevant issue is that, so far, the analysis has assumed the dominant party is a supplier, but a dominant position can also exist on the buyer side (monopsony power). In such a case, the question would concern the independence of the buyer regarding the sellers (Jones et al., 2019, p. 302). If buyer power reaches the level of a dominant position, the entity would be subject to the prohibition of abuse of dominant position (O’Donoghue & Padilla, 2020, p. 251).
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