Dominance (economics)

Market dominance is a measure of the strength of a brand, product, service, or firm, relative to competitive offerings, exemplified by controlling a large proportion of the power in a particular market. Dominant positioning is both a legal concept and an economic concept and the distinction between the two is important when determining whether a firm's market position is dominant. Market dominance is a measure of the strength of a brand, product, service, or firm, relative to competitive offerings, exemplified by controlling a large proportion of the power in a particular market. Dominant positioning is both a legal concept and an economic concept and the distinction between the two is important when determining whether a firm's market position is dominant. There is often a geographic element to the competitive landscape. In defining market dominance, one must see to what extent a product, brand, or firm controls a product category in a given geographic area. There are several ways of measuring market dominance. The most direct is market share. This is the percentage of the total market served by a firm or brand. A declining scale of market shares is common in most industries: that is, if the industry leader has say 50% share, the next largest might have 25% share, the next 12% share, the next 6% share, and all remaining firms combined might have 7% share. Market share is not a perfect proxy of market dominance. Although there are no hard and fast rules governing the relationship between market share and market dominance, the following are general criteria: Market shares within an industry might not exhibit a declining scale. There could be only two firms in a duopolistic market, each with 50% share; or there could be three firms in the industry each with 33% share; or 100 firms each with 1% share. The concentration ratio of an industry is used as an indicator of the relative size of leading firms in relation to the industry as a whole. One commonly used concentration ratio is the four-firm concentration ratio, which consists of the combined market share of the four largest firms, as a percentage, in the total industry. The higher the concentration ratio, the greater the market power of the leading firms. Legally, the determination is often more complex. A case that can be used to define market dominance under EU Law is the United Brands v Commission (The ‘bananas’ case) where the court of justice said, 'the dominant position thus referred to by Article relates to a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, customers and ultimately of its consumers’ The Commission’s Guidance suggests that market shares is only a ‘useful first indication’ in the process of assessing market power.