Firm's Own Price Elasticity of Demand in Dominant Position Analysis

The element of dominant position is central for Article 102 of the Treaty on the Functioning of the European Union ("TFEU") cases. The current European approach to analysing dominant position is to define a relevant market and indirect indices predominantly in the form of market share and other rather vague and mainly qualitative proxies (barriers to entry, market structure, etc.). This may work well in standard industries and situations, where products are substitutable to greater or lesser degrees, turnover data are comparable and relevant for describing the positions of market participants, and these positions are relatively stable.

However, these three preconditions are not met in many industries that may pique the interest of competition authorities within the EU. In such cases, the current approach may be increasingly complex and indirect, and may have to be corrected later at the discretion of the competition authorities by finding some aspects of the case allowing it to conclude against the market definition and the quantitative analysis of market share.

It has been almost 45 years since Richard Posner famously declared that only practical difficulties drove us to a market definition when assessing market power and suggested that one day there will be a more economically accurate approach. Accordingly, it has been about 40 years since the suggestion to measure market power via a company's own price elasticity of demand was put forth. Nevertheless, this approach has never truly gained significance in the context of EU law.

Key points

• Traditional analysis of the existence of a dominant position includes definition of a relevant market and analysis of mainly market shares in the given market
• Such an approach may be too indirect in many situations
• Simplified analysis of a company's own price elasticity of demand could be a more direct, viable and effective substitute to the traditional approach

Read the full article by Jan Kupcik here.

Journal of European Competition Law & Practice, Volume 13, Issue 3, April 2022, Pages 187–199