Abuse of Economic Dependence - The Centre for European Policy ...

The Gap in the Application of Article 82 57
constraints, or where entry into the market of new players with substitute
products is difficult, then the adoption of anti-competitive conduct by the
incumbent firm is likely to be very profitable.
In the presence of capacity constraints we can envisage a homogenous
market where the non-dominant firm will adopt abusive conduct, and the
rivals will not be able to mitigate the impact of the non-dominant firm’s
conduct. So not only the dominant firm but the other incumbents as well
may be unable to countervail the anti-competitive conduct of the non-dominant
firm. Such conduct in markets which are characterized by general
capacity constraints will lead to the same anti-competitive outcomes as the
conduct of non-dominant firms in differentiated markets in the absence of
capacity constraints.
The analysis herein will mainly focus on differentiated markets, since in
homogenous markets characterized by capacity constraints, in the absence
of significant barriers to entry, entrants may mitigate the anti-competitive
impact of abusive conduct of non-dominant firms. In contrast, such entry
may not fully mitigate non-dominant firms’ abusive conduct in differentiated
markets. We should emphasize, though, that the implications of the
analysis herein apply in both abovementioned situations. The anti-competitive
conduct of non-dominant firms in both these market situations needs
to be addressed by the authorities.
Similarly, in the presence of significant switching costs (eg inconvenience,
monetary costs, administrative hurdles or a lack of information about the
products of alternative suppliers), even in homogeneous markets, the
customers will not likely switch to other rivals, bestowing thus the nondominant
firm with market power and with the ability to adopt anticompetitive
conduct. Where customers face difficulties in switching
between suppliers, whether because of the monetary costs, administrative
hurdles or inconvenience, competition can be affected due to a reduction in
the rivalry between firms. Switching costs allow firms potentially to charge
high prices to customers that are unlikely to switch. Firms may engage in
practices that increase switching costs, for example, by not releasing information
needed for a switch to be feasible or by not doing so in a timely
fashion, endorsing loyalty cards.
The implication of differentiation in the firms’ products is focusing on the
limited customer switching that this product differentiation induces.
Differentiation in the products induces inertia in customers. Thus, in the
analysis throughout this book we will refer to the issue of differentiated
products as a precondition for anti-competitive conduct of non-dominant
firms, but we will be also incorporating the possibility and the induced implications
of significant customer inertia for non-dominant firms’ anti-competitive
conduct due to factors other than the differentiated nature of the
product. This inertia arises due to switching costs that customers may face.