Abuse of Dominance

AuthorJohn S. Tyhurst
C H A P T E R 7
Possession of monopoly or market power1 by a dominant f‌irm can pro-
duce allocative, productive and dynamic ineciency, result in social
welfare losses and impos e a transfer of income from consumers to
producers.2 Dominant f‌irms may al so use their power to exclude com-
petitors or increase bar riers to entry through such tactics as signi ng
customers to long-term exclusive contracts, selective price cutting to
deter entry, intimidating and acqui ring emerging competitors, engaging
in sham litigation, or refusals to supply. These practices often carry a
sense of unfair ness in addition to their impact s on eciency and con-
sumer welfare.
While such concerns provide a basi s for competition law to address
the behaviour of dominant f‌ir ms, there are a number of factors that
support the need for caution in a policy approach that would see big-
ness per se as a basis for sanctioning or break ing up dominant entities.
These include:
1 See the dis cussion of market def‌inition and m arket power in Chapter 4.
2 See Chapter 3.
Figure 7.1. The match facto ry at the foot of the tall smoke st ack, Hull, after 18673
Large f‌irms may have obtained or maintained their position due to
economies of scale or scope, or from eciencies derived from vertica l
integration.4 Breaking them up, or limiting their competitive actions,
may increase cost s and reduce social welfare.
Attacking f‌irms that have become indust ry leaders through “superior
skill, foresight and industr y” may have an adverse eect on their
incentives to expand by legitimate competitive means; in short, it
may dissuade competition, the very thing competition policy str ives
to promote.5
Large f‌irm size m ay be essential to the ability to compete on an inter-
nationa l level.6
The returns derived from a monopoly position may provide the incen-
tive that fuels critical expenditure s on innovation, a key driver of
competition. Economist Joseph Schumpeter opined that monopoly
returns would unleash the forces of “creative destruction,” resulting
3 The Encyclopedia of French Cultural Herit age in North America, online:
Outaouais _Region.htm l.
4 Bruce Dunlop, Mich ael Trebilcock & David McQueen, Canadian Compet ition
Policy: A Legal and Economic Analysis (Toronto: Canada L aw Book, 1987) at
156–58; Lawre nce A Skeoch & Bruce C McDonald, Dyna mic Change and Account-
ability in a Canadia n Market Economy (Ottawa: Consumer and Cor porate Aairs,
1976) at 148 [Skeoch-McDonald Rep ort].
5 Maurice E Stucke, Should t he Government Prosecute Monopolie s? [200 9]
2009 University of Illinois La w Review 497 at 517 [Stucke], citing the US juri spru-
dence, including Unite d States v Aluminum Co of America, 148 F2d 416 (2d Cir
1945) at 430; Verizon Communications Inc v Law Oces of Curt is V Trinko, LLP,
540 US 398 (2004) at 406 [Ver izo n].
6 Skeoch-McDonald Rep ort, above note 4 at 149.
Abuse of Domina nce 3 59
in novel products, better service, or cheaper production method s.7
Schumpeter’s hypothesis ha s been widely cited and even endorsed
by the US Supreme Court in its antitru st jurisprudence.8 At the same
time, there remain s a solid theoretical and empirical foundation for
believing that competition is a key driver of innovation in many
circumst ances.9
Given such factors, the abuse of dominance provisions in t he Com-
petition Act may sanction monopolistic practices that are predatory,
exclusionary, or disciplinar y, but do not provide relief against the mere
possession of a dominant market position.10 If a f‌irm gains, or main-
tains, a dominant position by legitimate competitive mean s such as
better products, superior serv ices, innovation, lower costs, or ecient
practices, there is no basi s to intervene.11 Successful competitive behav-
iour is what competition law is intended to encourage; “monopoly can
sometime s result f rom competit ion.”12
Once a f‌irm gains a substantial share of the market, however, mar-
ket power may give it the economic clout and leverage that can be used
against competitors by employing mean s that do not involve the mere
exercise of superior competitive performance. Obtaining and mai n-
taining a domin ant position by anti-competitive means rat her than
7 Joseph Schumpeter, Capitalism, Socialism, and Democracy (New York: Routledge,
2003) at ch VII.
8 Verizo n, above note 5 at 4 07:
The mere posses sion of monopoly power, and the concomitant charg ing of
monopoly prices, is not on ly not unlawful; it is an imp ortant element of the
free-market sy stem. The opportunity to char ge monopoly prices at least for
a short period — is what attract s “business acumen” in the f‌ir st place; it indu-
ces risk t aking that produces in novation and economic growth. To safegu ard
the incentive to i nnovate, the possession of monopoly p ower will not be found
unlawfu l unless it is accompanied by a n element of anticompetitive conduct.
9 See, e.g., Jonathan B Ba ker, “Beyond Schumpeter vs. Arrow: How Ant itrust
Fosters Innovation” (2007) 74 Antitru st Law Journal 575; Stucke, above note 5
10 Competition Act, RSC 1985, c C-34, ss 78 & 79 [Competition Act or Act]; Canada
(Commissioner of Competition) v Vancouver Airport Authority, [2019] CCTD No6
at para 625 [VAA]: As the Tribunal has pre viously observed, ‘[. . .] section 79
is not intended to condem n a f‌irm merely for having mark et power. Instead, it
is directed at e nsuring that domin ant f‌irms compete with othe r f‌irms on merit
and not through abus ing their market power’ (Canada (Director of Invest igation
and Research) v Tele-Direct (Publications) Inc et al, [1997] CCTD No 8, 73 CPR (3d)
1 (Comp Trib) at 179).”
11 Stephen Marti n, Industrial Economics (New York: Macmillan, 1988) at 86.
12 Ibid.

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