There are two types of conducts which can emanate from an abuse of a monopoly situation:
An exclusionary conduct occurs when an enterprise in a monopoly situation is engaging in a conduct that has the object or effect of preventing, restricting or distorting competition.
When assessing such a conduct, the Competition Commission will consider the state of competition were the practice not to occur. Examples of exclusionary conduct includes:
- Foreclosure whereby the conduct of a monopoly enterprise restricts or eliminates the effective access of actual or potential competitors to customers or to supplies, to the detriment of consumers or the economy in general.
- Exclusive dealing which arises when the dominant enterprise binds other businesses into working exclusively with itself
- Predatory pricing which occurs when the dominant enterprise sets a price which is below average variable cost, the price strategy has resulted or expected to result in the exit of significant competitors and it can be expected that such losses can be recouped as a result of eliminated or weakened competition in the future.
- Tying and bundling when an enterprise has market power in the sale of one product (for example a 100% market share), but sells another in more competitive markets, then it might ‘leverage’ market power to reduce competition in the second market.
Exploitative conducts occur when a monopoly is engaged in a conduct that in any other way constitutes exploitation of the monopoly situation. The two categories of exploitative abuse are:
Enterprises in a dominant position face an economic incentive to exploit their customers. This will normally manifest itself in excessive prices, although it may also appear as reduced quality, choice or service – poor product offerings that may reduce costs or managerial effort, in a way that would not be possible for an enterprise facing competition.
- Co-ordinated effects (tacit collusion)
In some markets, a small number of enterprises might collectively be dominant, in that they could keep prices high if they do not compete against one another. Any clear understanding not to compete would be a breach of the prohibition on collusive agreements. However, even in the absence of such an understanding, enterprises might become aware of their mutual dependence and soften competition against one another, to maintain profits or simply in the interest of a quieter life. This situation is sometimes termed ‘tacit collusion’ (to distinguish it from active collusion).
To sustain a tacit collusion case, the following 3 conditions must be present:
(a) Enterprises engaged in tacit collusion must have reached an implicit agreement about the price level, and to monitor compliance, becoming aware if any among them undercut it;
(b) It must be in each of the participating enterprises’ interests to maintain the tacit collusion, for example through credible threats to launch a price war if one of the enterprises undercuts the collusive price; and
(c) Constraints from rivals outside the co-ordinating group (eg fringe players or new entrants) must be weak.
For more information on the conducts that are anti-competitive, please see the Competition Commission Guidelines on Monopoly situations and non-collusive agreements.