Introduction

In chapter 6 we considered a range of tactics through which the dominant firm reacted to the challenges posed by existing competitors, or tried to exclude competitors to expand its market power. The behaviour of dominant firms we study in this chapter is motivated by different considerations. In section 2 we examine how competition law regulates excessive prices and reductions of productive efficiency, the traditional harms associated with monopoly power. In section 3 we examine situations where a dominant firm is able to prevent the entry of new competitors, by refusing to engage in cooperative contractual relationships with them.

The reason for considering these two types of abuse together is that when a competition authority intervenes in these scenarios its objective is the creation of a more competitive market. This is a slightly different task from that performed when tackling the abuses in chapter 6. When a firm engages in predatory pricing, raises rivals' costs or leverages its position, it does so to damage rivals and to maintain or augment pre-eminence in the market. Competition law prevents the firm from damaging the competitive process. Instead, when a firm raises prices, it means that the competitive process has already been destroyed, and the firm is exploiting the position it is in. Regulating the dominant firm's prices makes it perform ‘as if’ it were in a competitive market.