Anti-Trust Policy - Abuses of a Dominant Market… | tutor2u Economics
Study notes

Anti-Trust Policy - Abuses of a Dominant Market Position

  • Levels: A Level
  • Exam boards: AQA, Edexcel, OCR, IB

A firm holds a dominant position if its power enables it to operate within the market without taking account of the reaction of its competitors or of intermediate or final consumers

  • Competition authorities consider a firm's market share, whether there are credible competitors, whether the business has ownership and control of its own distribution network (achieved through vertical integration) and whether it has favourable access to raw materials.
  • Holding a dominant position is not wrong if it is the result of the firm's own competitiveness But if the firm exploits this power to stifle competition, this is an anti-competitive practice.

Anti-competitive practices are designed to limit the degree of competition inside a market.

Examples of anti-competitive practices

1.Predatory pricing also known as 'destroyer pricing' happens when one or more firms deliberately sets prices below average cost to incur losses for a sufficiently long period of time to eliminate or deter entry by a competitor – and then tries to recoup the losses by raising prices above the level that would ordinarily exist in a competitive market.

2.Vertical restraint in the market: This can happen in a number of ways:

  • Exclusive dealing: This occurs when a retailer undertakes to sell only one manufacturers product. These may be supported with long-term contracts that "lock-in" a retailer to a supplier and can only be terminated by the retailer at high financial cost. Distribution agreements may seek to prevent instances of parallel trade between EU countries (e.g. from lower-priced to higher priced countries).
  • Territorial exclusivity: This exists when a particular retailer is given the sole rights to sell the products of a manufacturer in a specified area.
  • Quantity discounts: Where retailers receive larger price discounts the more of a given manufacturer's product they sell - this gives them an incentive to push one manufacturer's products at the expense of another's.
  • A refusal to supply: Where a retailer is forced to stock the complete range of a manufacturer's products or else he receives none at all, or where supply may be delayed to the disadvantage of a retailer.

3.Collusive practices: These might include agreements on market sharing, price-fixing and agreements on the types of goods to be produced.

Price Fixing and the Law

UK competition law prohibits almost any attempt to fix prices - for example, you cannot

  1. Agree prices with competitors or agree to share markets or limit production to raise prices.
  2. Impose minimum prices on different distributors such as shops.
  3. Agree with your competitors what purchase price you will offer your suppliers.
  4. Cut prices below cost in order to force a weaker competitor out of the market.
  5. Under the Competition Act 1998 and Article 81 of the EU Treaty, cartels are prohibited. Any business found to be a member of a cartel can be fined up to 10 per cent of its worldwide turnover. In addition, the Enterprise Act 2002 makes it a criminal offence for individuals to dishonestly take part in the most serious types of cartels. Anyone convicted of the offence could receive a maximum of five years imprisonment and/or an unlimited fine.

Horizontal Cooperation: Joint Research Project launched to tackle MRSA

GlaxoSmithKline and AstraZeneca have won Euro200 million of funding from the European Commission to fund a joint research project seeking to find a new class of antibiotics. The bid comes as evidence grows of the huge financial and social cost from over 25,000 annual deaths in Europe from superbugs acquired in hospital. Traditionally antibiotics make low profits for pharmaceutical businesses as they are rationed by doctors and hospitals to avoid a buildup of resistance and patients are given a course of treatment for their infections.

Subscribe to email updates from tutor2u Economics

Join 1000s of fellow Economics teachers and students all getting the tutor2u Economics team's latest resources and support delivered fresh in their inbox every morning.

You can also follow @tutor2uEconomics on Twitter, subscribe to our YouTube channel, or join our popular Facebook Groups.

Job board

Economics Contributor

tutor2u, On-line

Related Collections

Teaching Vacancies


Advertise your vacancies with tutor2u

Much cheaper & more effective than TES or the Guardian. Reach the audience you really want to apply for your teaching vacancy by posting directly to our website and related social media audiences.

Find our more ›

Advertise your teaching jobs with tutor2u

A New Home for tutor2u Resources

We've just flicked the switch on moving all our digital resources to instant digital download - via our new subject stores.

For every subject you can now access each digital resource as soon as it is ordered. This will always be the latest edition of each resource too (and we'll update you automatically if there is an upgraded version to use).

Simply add the required resources to your cart, checkout using the usual options and your resources will be available to access immediately via your mytutor2u account.