Law
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 you are the only one around.) It may also be noted that it is illegal to try to obtain a monopoly, by practices of buying out the competition, or equal practices. If one occurs naturally, such as a competitor going out of business, or lack of competition, is not illegal until such time as the monopoly holder abuses the power.
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 of its consumer". As with collusive conduct, market shares are determined with reference to the particular market in which the company and product in question is sold. The Herfindahl-Hirschman Index (HHI) is sometimes used to assess how competitive an industry is. In the US, the merger guidelines state that a post-merger HHI below 1000 is viewed as unconcentrated while HHI's above that provoke further review.
By European Union law, very large market shares raise a presumption that a company is dominant, which may be rebuttable. 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". The lowest yet market share of a company considered "dominant" in the EU was 39.7%.
Certain categories of abusive conduct are usually prohibited by a country's legislation. The main recognised categories are:
- Limiting supply
- Predatory pricing
- 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.
Read more about this topic: Monopoly (economics)
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