In a competitive economy, success should be encouraged. Businesses that innovate, invest and respond effectively to consumer demand often grow into strong players, sometimes achieving a dominant position within their market.
Business growth is a natural and positive outcome of competition. However, concerns arise when this strength is no longer used to compete, but to control, exclude or exploit. At that point, market leaders risk becoming ‘market bullies’.
Malta’s competition law draws a clear distinction between dominance and its abuse. Under article 9 of the Competition Act (Chapter 379 of the Laws of Malta), the abuse of a dominant position in Malta is prohibited. It is important to keep in mind that the law does not penalise dominance itself. In the eyes of the law, a firm is allowed to hold significant market power reflecting its success, but what is prohibited is the misuse of that power in a way that distorts competition or harms consumers.
Dominance refers to a position of economic strength enjoyed by an undertaking that enables it to prevent effective competition in a relevant market by affording it the power to behave, to an appreciable extent, independently of its competitors, customers and ultimately consumers.
Very often the starting point of examining dominance is by defining the product and geographic market in which the undertaking operates, followed by examining the market shares of the undertaking vis-a-vis that of its competitors. Consistent with the guidance of the European Commission, the likelihood of dominance generally increases with higher market shares.
Even at lower market shares, a firm may still be considered dominant in exceptional circumstances, particularly where competitive constraints from rivals are weak or ineffective. The assessment of dominance also depends on factors such as barriers to entry and expansion, as well as the degree of countervailing buyer power, including customers’ ability to negotiate better terms or resist price increases.
“The court able to impose fines of up to a 10% of the undertaking’s total worldwide turnover”
Abuses of dominance can broadly be categorised as exploitative and exclusionary conduct. Exploitative conduct describes a situation whereby a dominant firm directly harms consumers through practices such as charging excessive prices or imposing unfair trading conditions or unjustified supply restrictions, leading to higher prices or reduced choice.
On the other hand, exclusionary conduct refers to a situation where a dominant firm acts in a way that makes it harder for other businesses to compete. It could include actions such as selling products below cost price (predatory pricing), refusing to sell or supply indispensable items, setting up exclusivity agreements, or setting prices in a way that leaves competitors with too little profit to survive (margin squeeze).
Considering that Malta is a small state, all other things being equal, its markets are more likely to be concentrated. Natural barriers to entry, such as high setup costs, the smaller pool of population and geographic constraints, are unavoidable. Thus, dominance may arise naturally due to limited market size, minimum efficient scale requirements, and structural barriers to entry. However, being dominant is not illegal on its own; problems only arise when a firm abuses that position and becomes a ‘market bully’, which can lead to legal and economic issues.
The Office for Competition in Malta, has the power to investigate suspected infringements of article 9. After the investigation it may refer the case to the Civil Court (Commercial Section), which ultimately determines whether a breach has occurred. The court is also responsible for imposing any penalties or remedies on the undertaking or association of undertakings concerned.
Penalties for breaches of competition law in Malta can be significant, with the court able to impose fines of up to a maximum of 10% of the undertaking’s total worldwide turnover in the preceding financial year.
The level of the penalty varies depending on the seriousness of the infringement, its duration, and whether there are any aggravating factors or mitigating factors.
The broader impact of abuse of dominance extends across the economy. When competition is weakened, consumers may face higher prices, fewer choices and reduced innovation. Smaller businesses may struggle to enter or remain in the market, limiting economic dynamism. Over time, this can lead to less efficient and less competitive markets.
One must keep in mind that competition law is not about penalising success but ensuring that success is not used to undermine fair competition. Firms should be able to grow and compete, but within a framework that preserves a level playing field. Market leadership brings with it responsibility. Businesses in positions of strength must remain mindful of the impact of their conduct, not only on their competitors but on the market as a whole.
The line between legitimate competition and abusive behaviour may at times be fine, but it is one that cannot be ignored. Thus, ensuring that market leaders do not become ‘market bullies’ is essential to maintain fair and effective markets, namely, ensuring that markets deliver choice, innovation and value for consumers and businesses alike.
Alexia Vella is a senior economics officer at the Malta Competition and Consumer Affairs Authority’s Office for Competition.
