In order to grasp the intricate events that occur inside a competitive economy, careful jurists must not ignore fundamental economics, however the learning comes to be. This was essentially what happened when American Judge Learned Hand (pictured), almost magically, wrote in 1945 that a 33 per cent of market share would not constitute a monopoly. PUBLIC DOMAIN
It was a beautiful morning when I started to write this. The Sun was bright and yet I had my yellow light on. Sometimes an additional light can make everything much more obvious. This is true in the effort of trying to understand competition law with regard to what you routinely call market.
Visible, sure. But market power can also reside in the dark. It is said that to understand a firm’s market power, one would simply need to know the size of its market share. A figure is all that is needed. If a firm possesses, say, well over half of the total market share, this firm is handsomely swaying that particular market.
Assuming that the demand-supply scenario is correct, the firm should be able to play with pricing by decreasing or increasing the output it produces. It should enjoy the fruit of this game at least for a while until its action begins to attract potential new entrants into the market.
I am not writing this for economists, no. However, in order to grasp the intricate events that occur inside a competitive economy, careful jurists must not ignore fundamental economics, however the learning comes to be. This was essentially what happened when American Judge Learned Hand, almost magically, wrote in 1945 that a 33 per cent of market share would not constitute a monopoly.
When the infrastructure of the economy was fundamentally physical in nature, Judge Hand’s imaginary characterisation was quite understandable. After all, a number is much clearer than a phrase. But in today’s digital economy where established wisdoms are subject to constant updating, your professors of economics will have to teach the concept of market power by analysing other tools besides the numerical market share.
I emphasise market power rather than market share because Cambodia’s 2021 Competition Law condemns dominant market position alongside three anti-competitive conducts which could unfold horizontally (among those operating at the same level of production or distribution), vertically (among those operating at different levels) or via mergers that can result in an awesome economic entity.
Thus, although a numerical market share (55 per cent, 60 per cent, et cetera) is the easiest proof of a market power, the ability to discourage (or stop) new entrants from entering the market could be as important as possessing a big market share if it makes it too expensive or too difficult for anyone considering to compete.
Wait a minute. Not only the possession of a big market share today would raise eyebrows but also the creation of an entry barrier isn’t much less problematic. Correct, if you follow the mainstream American legal thoughts. And things can become really thought-provoking when even the future may somehow be known as if we were travelling in a time machine.
For instance, a rather small firm might be found to possess market power simply because it is employing a promising technology which is able to profoundly challenge the current dominant players. In other words, for American judges, a small firm with a big technology is likely to soon become a dominant player in the near future.
Sometimes, forecasting can have a say too. If available data may reliably point to a certain emerging trend that could re-arrange the power hierarchy among various firms, judges in America might also detect the presence of a market power that way and they would give more weight to the predictions than to the past record.
At times, judges can and do consider themselves economists. Truly I want to quit writing right here before it gets any messier but it might be worth mentioning, finally, that market power may moreover be found when an increase in price does not lead to a decrease in demand. In other words, if the volume of sales remains the same although the price has sharply gone up, the seller must necessarily hold a market power in one way or another.
How much the American theories will sway opinions in Cambodia remains to be seen. But before you swear to dislike competition law, especially with regard to the art of shedding light on the usually dark areas of market power, you can at least rejoice over yet another theory that sometimes the normally anti-competitive market power could evaporate in the air when a seller can prove that he loses all bargaining power against a network of super powerful buyers.
A figure, an awesome technology, a convincing forecast, entry barriers can each prove efficient in helping us to unearth a market power. And there is more to discover if you keep searching. Just turn a light on when it gets darker.
Virak Prum, LLB, LLM, PhD (2006 Nagoya University) teaches law at CamEd Business School.
The views expressed are solely his own.
