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

58 A Gap in the Enforcement of Article 82
Capacity constraints play an important role in the ability of rivals to
mitigate anti-competitive conduct by a non-dominant firm. In the case of a
market with differentiated products, capacity constraints are not so important,
as in markets with homogeneous products, since the output of the
firms (and their reaction to each other’s strategies) is unlikely to change
much in the presence of anti-competitive conduct by the second biggest in
the market, in contrast to the case of the Cournot type of competition,
where, since the products are homogeneous, inability of the rival firms (eg
the dominant firm) to increase their capacity may lead the second biggest
firm, as analysed above, to adopt anti-competitive conduct.
When products are differentiated, those customers who like a particular
brand’s attributes are likely to continue to purchase that brand even after the
firm adopts a certain anti-competitive conduct. Thus, the incentives of a firm
to switch in the presence of such conduct are low and in turn the firm’s incentives
to adopt such conduct are more significant compared to the situation of
homogeneous products, where the switching of customers is likely to be much
more intense. 42 Thus, if the second biggest firm in a market adopts anticompetitive
conduct, its actions are not constrained by the presence of a firm
with larger market share. Although some of the non-dominant firm’s
customers will switch, the number of customers who will switch will not be
significant enough to prevent the non-dominant firm from adopting anticompetitive
conduct. For example, non-dominant firms can price-discriminate
against their customers without fear of losing a significant portion of
their demand. We should emphasize that this anti-competitive conduct of the
non-dominant firm cannot be addressed by Article 82.
We can see a graphical representation of this switching in the following
graph.
42 Provided there are no capacity constraints and reasonable switching costs.