ACCA Applied Knowledge · Business and Technology · Political and legal factors affecting business
A dominant software company sells its operating system only to computer makers who agree not to install any rival product. A competitor complains to the competition authority. Which feature of the situation most clearly suggests an abuse of a dominant position?
The clearest sign of abuse is the exclusivity condition, where the dominant firm uses its market power to shut rivals out. Dominance, high market share, profits above cost or heavy investment are not unlawful by themselves; the offence lies in conduct that forecloses competition.
- AThe firm uses its market power to exclude rivals through exclusive dealingCorrect
- BThe firm has a large market share
- CThe firm charges a price higher than its costs
- DThe firm invests heavily in product development
Explanation
Having a large share or making profit is not in itself unlawful. Abuse occurs when a dominant firm uses its power to foreclose competitors, as with exclusive dealing conditions that stop customers using rival products. The market share is the test for dominance, but the conduct is the abuse.
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