Prometheus unbound : towards the more precise proscription of the socially undesirable market conduct associated with dominance

• Main Author: Colvin, Craig Grierson
• Language: English
• Published: 2008
• Online Access: http://hdl.handle.net/2429/1641

The regulation of the market conduct of dominant firms is an entrenched part of the competition laws in many jurisdictions. The conduct which such laws proscribe has been variously described as "abuse of dominance", "anticompetitive conduct", "monopolization" or "improper use of market power". Each description is used by way of contrast to "normal competitive conduct". In all jurisdictions the courts have experienced considerable difficulty in articulating the distinction between lawful competitive behaviour and unlawful market rivalry, principally because both may exclude rivals and lead to concentrated markets, and the same conduct may be competitive or anticompetitive depending upon context. We argue, based upon an understanding of competition as a dynamic process (a cycle of innovation and imitation), driven by rivalry between firms in which the possibility of achieving dominance is a necessary element of the dynamic, that there is no market conduct unique to dominant firms that is socially undesirable. Rather, the prospect of dominance motivates all firms to pursue either competitive or rent seeking strategies to secure the supra-normal profits attendant to a dominant position. Competitive strategies are socially desirable as they seek to meet (or influence) consumer needs and thereby promote total welfare. Rent seeking strategies are undesirable as their purpose is to prevent other firms from meeting (or influencing) consumer needs and thus represent investments in the distribution rather than the creation of wealth. We propose the rejection of existing laws, which require proof of dominance, and their replacement by a law which proscribes rent seeking by all firms. We contend that such a law would articulate with greater precision the distinction between desirable competitive behaviour and unlawful rivalry providing the courts with improved direction as to the evidentiary enquiry to be undertaken when a complaint of anticompetitive conduct is made. It would also relieve dominant firms from the vagaries of the uncertainties inherent in the existing approach to the regulation of market conduct associated with dominance.