The European Court of Justice Defines the “Dominant Position” as the Firm's “the Ability to Behave Independently of Its Competitors, Customers, Suppliers and, Ultimately, the Final Consumer.” Does This Definition Make

The European Court of Justice defines the "dominant position" as the firm's "the ability to behave independently of its competitors, customers, suppliers and, ultimately. the final consumer." Does this definition make good economic sense? How should it be interpreted in the light of economic theory?

There are many advantages and disadvantages to having a dominant position in a market for both the consumer and the firm. The advantages of having a dominant position in the market can be seen in the diagram below. The firm who can act independently of its competitors will be able to Set the price at Pm and therefore will be a profit maximising firm. If the firm is profit maximising they will be making abnormal profits. If a firm is making abnormal profits it could make economic sense because the firm will be able to put profit back into developing new technology and in the long run this will reduce costs for producer and produce better quality products for consumers therefore in the long run consumer surplus will also increase. However there are also disadvantages of a firm having a dominant position. the firm will impact both on consumers and other firms wishing to enter the market. The negative impact on consumers will be higher prices and a smaller consumer surplus compared to a competitive market shown in the diagram above. The firm will also be having a loss of allocative efficiency as price is greater than MC and AC leading to failure of the market mechanism. The negative impact of the firm being independent of its competitors its that it is very hard to enter the market and compete as the firm will produce at lower cost than competitive market due to economies of scale but still maximise profits, therefore high barriers to entry exist in the market. In the light of economic theory a dominant position would most likely be a monopoly because they act independently by setting their own price where MC=MR, and high barriers to entry that prevent competition. A...