Concept and legal foundations of dominance
Definition of Market Dominance
In competition law, market dominance refers to the situation in which one or more undertakings are able to act independently of other market participants, especially competitors, suppliers, or buyers, to a significant extent and free from competitive pressure in the relevant market. This superior market position can have considerable effects on the market structure and competitive relationships.
Relevant legal sources
The legal assessment of market dominance can be found both in German antitrust law (in particular in the Act against Restraints of Competition – GWB) and in European competition law (in particular in Art. 102 of the Treaty on the Functioning of the European Union – TFEU). Both legal systems aim to protect competition as the foundation of the market economy and to prevent the abuse of dominant positions.
Market dominance under German law
Statutory regulations
In the GWB, market dominance is regulated in Sections 18 and 19. The legislator distinguishes between the dominance of a single enterprise (§ 18 para. 1 GWB) and collective dominance by several enterprises (§ 18 para. 6 GWB). Section 19 GWB stipulates the prohibition of the abuse of a dominant position.
Criteria for market dominance
To determine market dominance, the so-called ‘relevant market’ must be considered, which is delineated in terms of product, geography, and time. A company’s market power is primarily determined by its market share, but is also influenced by other factors such as financial strength, access to supply and sales markets, technological leadership, legal or factual barriers to market entry, as well as the existence or absence of potential competitors.
Single-firm dominance
According to § 18 para. 4 GWB, a single undertaking is generally considered to be dominant if its market share is at least 40%. However, the specific market conditions must always be taken into account, as companies with lower market shares can also be regarded as dominant if they possess competitively relevant advantages.
Collective market dominance
Several companies are collectively dominant when there is no substantial competition among them and they are capable of acting uniformly anti-competitively, for example, through coordinated behavior. Here, too, market shares, economic, and structural features are decisive.
Market dominance in European competition law
Normative foundations
European competition law prohibits the abuse of a dominant position in the internal market or a substantial part of it under Art. 102 TFEU. The definition of market dominance in the European context largely corresponds to that under German law, but is further clarified by the interpretations of the Commission and the European Court of Justice (ECJ).
Determination and assessment
The European Commission and the ECJ assess market power taking into account market shares (where shares over 50% are regularly presumed to confer a dominant position), economic strength, access to facilities or resources, and control over essential infrastructures. Actual competitive conditions, such as barriers to market entry and the structural characteristics of the market, are also considered.
Prohibition of abuse and legal consequences
Prohibition of abuse of dominant positions
A company is not prohibited solely because of its dominant position; however, the abuse of this position of power is prohibited under § 19 GWB and Art. 102 TFEU. The following, in particular, are considered abusive practices:
- imposing unreasonably high prices (“price abuse”)
- exploiting buyers or suppliers
- excluding competitors through obstruction (“exclusionary abuse”)
- foreclosing markets to other businesses
- unfairly restricting production and innovation
Sanctions and legal consequences
Violations of the prohibition of abuse can have significant legal consequences. These include fines, orders to cease certain practices, as well as antitrust measures such as divestiture requirements or the obligation to provide access to certain infrastructures. Injured market participants may assert civil claims, including claims for damages.
Market definition as prerequisite for the assessment of dominance
Product, geographic, and temporal market definition
Before determining whether a company is dominant, the relevant market must be clearly defined. The following dimensions are distinguished:
- Product market definition: Determination of which products or services are considered substitutes.
- Geographic market definition: Examination of the geographic area in which competition takes place.
- Temporal market definition: Analysis of whether and during which period a market exists or is subject to seasonal fluctuations.
Significance of dominance in merger control law
Dominance is a central criterion in the assessment of corporate mergers. According to § 36 GWB, the clearance of a merger must be denied if the merger creates or strengthens a dominant position. Under European law, it is also assessed using the “SIEC test” (Significant Impediment to Effective Competition) whether the competitive structure is significantly impeded by the merger.
Summary and outlook
Market dominance is a key concept in antitrust and competition law. Its legal assessment requires a differentiated analysis of all market structures and the specific position of a company in the relevant market. Both German and European legal regulations are aimed at preventing the abuse of this position of power in order to ensure effective and undistorted competition. The continuous development of market definition and assessment criteria contributes to regularly reviewing and adapting market structures and competitiveness.
Frequently asked questions
When is a company considered dominant under German law?
Whether a company is considered dominant in Germany is determined in particular according to § 18 of the Act against Restraints of Competition (GWB). Dominance exists if a company is not exposed to substantial competition or possesses a superior market position in relation to its competitors. Various criteria are regularly considered, including market share, financial strength, access to procurement and sales markets, links with other companies, legal or actual barriers to market entry, and competitors’ behavior. According to the statutory presumption in § 18 para. 4 GWB, a market share of at least 40% is considered an indication of dominance, although this presumption is rebuttable. In addition to quantitative criteria, qualitative aspects are also considered, such as market structure, the presence of potential competitors, or innovation within the market. The specific market conditions and market definitions are always decisive in determining dominance.
What are the legal consequences of finding market dominance?
The finding of market dominance is of considerable legal significance, as it imposes special obligations on the company and significantly restricts its freedom of action. Under §§ 19, 20 GWB, companies with market dominance are prohibited from abusing their market power. Abusive conduct may take various forms, including imposing unreasonable prices or conditions, discriminatory treatment of trading partners, obstructing competition, or imposing unfair purchasing or selling terms. Violations of these provisions can be pursued by the competent competition authority, usually the Federal Cartel Office, and sanctioned with severe penalties such as fines or orders to eliminate the abuse. In addition, affected market participants may assert civil claims for injunction and damages.
How is the relevant market defined in the context of market dominance?
The definition of the relevant market forms the central basis for the assessment of market dominance. Market definition is carried out both in terms of product and geography. From a product perspective, the market includes all products or services which, from the perspective of demand (and, if applicable, supply), are considered interchangeable due to their characteristics, price, and intended use. Geography is determined according to the actual and potential competition conditions within a geographically relevant area—this can be local, national, or international. In practice, the so-called hypothetical monopolist test (SSNIP test) is often used: it examines whether a hypothetical monopolist in the affected market could raise prices significantly (usually 5-10%) for a longer period without risking substantial sales losses due to demand shifts. Both dimensions—product and geographic—are indispensable for a sound dominance assessment.
What is the significance of market shares in assessing dominance?
Market shares are a central but not the sole criterion for determining market dominance. They provide an initial indication of a company’s position of power. A high market share is often associated with considerable influence over competitive conditions. According to German antitrust law (§ 18 para. 4 GWB), dominance is presumed at a market share of 40%, but this presumption can be confirmed or disproved by other circumstances. The distribution of market shares among other competitors, their relative strength, the number and entry possibilities of new market participants, as well as market structure, all play a significant role. This is particularly relevant in oligopolistic markets, where a few companies may hold a collective dominant position. Nonetheless, actual dominance is always established by an overall assessment of all relevant market circumstances.
What role do mergers and acquisitions play in the context of dominance?
Mergers and acquisitions are subject to special scrutiny under German and European antitrust law in order to prevent the creation or strengthening of dominant positions. According to §§ 35 ff. GWB and the European Merger Regulation, certain mergers must be notified and reviewed in advance by the competent competition authorities. The authorities examine whether the merger results in the creation or strengthening of a dominant position. The aim is to prevent excessive market concentration and the resulting elimination or significant restriction of effective competition. If anticompetitive effects are identified, approvals can be refused or granted with conditions. Thus, merger control procedures are a key tool for preventing dominant market structures.
Are there exceptions for dominant undertakings under the law?
As a rule, antitrust law does not recognize any general justification for abusive behavior by dominant companies. However, in exceptional cases, an objective justification may exist—for instance, if the restriction of competition is necessary to achieve economically sensible objectives or is in the interest of consumers. The GWB also contains special rules for certain industries and sectors, such as the energy or telecommunications markets, which sometimes provide different requirements. Furthermore, anticompetitive practices are permitted if expressly allowed by law or covered by higher-ranking law, for example in the field of public services. However, these exceptions are interpreted narrowly and are subject to strict review by the competition authorities and the courts.
