Page 66 - Azerbaijan State University of Economics

STUDYING OF SPECIAL PRACTICAL ISSUES OF ABUSE OF DOMINANCE

reviewed by regulators. Transition economies may wish to consider a similar

approach.
When a regulatory agency does not exist, the competition authority would

likely be responsible for ensuring that the industry performs as competitively as

possible. If the industry is truly a natural monopoly (that is, cost considerations
dictate that only one firm should supply the market), then the competition

agency may need to consider regulating prices and practices of the firm. But
given the difficulty of regulating prices, such action should be taken only when

it is clear that the market is indeed a natural monopoly and that entry cannot be
expected to help restore competitive pricing.

Finally, excessive prices may not result from superior efficiency of the

dominant firm but from exclusionary practices aimed at abusively extending or
maintaining dominance. For example, a vertically integrated dominant firm may

refuse to sell some of its products to other firms. Such practices can promote

higher prices. For instance, a telephone company may refuse to sell information
on subscribers, so that it can be the sole provider in the markets in which such

information is most valuable (for example, mailing list services, direct
marketing, and marketing research). Competition might then be reduced in these

markets. The best course of action is to put a stop to the practices that restrain
competition, eliminating the firm's ability to charge excessive prices.

Price discrimination. Price discrimination is the practice of a seller

charging different prices according to the profile of the customer and in the
absence of appreciable cost differences that might justify different prices. A

discriminatory strategy can also involve charging the same price to customers
even though there are different costs of supplying them. With price

discrimination, a firm may earn higher profits than when it charges a single
price (net of costs) to all consumers. Some extra profits may come from

increased sales; thus price discrimination can increase a firm’s total production.

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