Economics

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' This definition makes some economic sense if a firm is operating as a monopoly. This means that they are the only seller of the product and can determine either price to the consumer or quantity of the product provided but not both simultaneously. In this scenario, customers will still buy from them and business objectives are maintained (maximising profit). The demand for their good will be quite inelastic as they are the sole provider of the product and also if there are no close substitutes. However, the definition is contradictory because if the firm’s suppliers raise their prices, this increases costs of production to the firm and they pass this price rise onto the consumer. If the consumer’s willingness to pay is not increasing with price, then demand objectives for the product falls resulting in possibly less profit thus missing business objectives. If the firms are in different markets (ie oligopoly or perfect competition) then this definition doesn’t make sense because there is perfect market knowledge and ease of entry and exit in perfect competition so firms cant act independently as they control price and in oligopoly, firms must watch each other so as not to overproduce and miss out on profit. Ultimately, the definition doesn’t make that much economic sense as all market agent’s actions are influenced by what the others do. In light of economic theory, I think the statement should be interpreted as one sided because it is a basic, generic definition that has not taken into account market situations, consumer willingness to pay, business cycles, public finances, tax levels and a wide range of other economic variables.