Market domination

Market dominance is the control of an economic market by a firm. A dominant firm possesses the power to affect competition and influence market price. A firm's dominance is a measure of the power of a brand, product, service, or firm, relative to competitive offerings, whereby a dominant firm can behave independent of their competitors or consumers, and without concern for resource allocation. Dominant positioning is both a legal concept and an economic concept and the distinction between the two is important when determining whether a firm's market position is dominant.

Abuse of market dominance is an anti-competitive practice, however dominance itself is legal.

Firms can achieve dominance in their industry through multiple means, such as;

Many dominant firms are the first "important" competitor in their industry. These firms can achieve short- or long-term advantages over their competitors when they are the first offering in a new industry. First-movers can set a benchmark for competitors and consumers regarding expectations of product and service offering, technology, convenience, quality, or price. These firms are representative of their industry and their brand can become synonymous with the product category itself, such as the company Band-Aid. First-mover advantage is a limited source of market dominance if a firm becomes complacent or fails to keep up innovation by competitors.

It is recognised that firms who place greater importance on product innovation often have an advantage over firms who do not. The significant links to Game theory have are apparent, and in conjunction with empirical evidence, research has attempted to explain whether more dominant firms or less dominant firms innovate more.

Referring to the value that branding adds over a generic equivalent, Brand Equity can contribute to gains in market dominance for firms who choose to capitalise on its worth, whether through charging a price premium or other business strategy.

As firms expand, production becomes more efficient and costs lower. It has been shown in empirically several times that there is a clear link between profitability and market share, and thus market dominance. The explicit relationship between economies of scale and market shares has also been explored.

Identifying a dominant position involves the use of several factors. The European Commission's Guidance on A102 states that a dominant position is derived from a combination of factors, which taken separately are not determinative. Therefore, it is necessary to consider the constraints imposed by existing supplies from, and the position of, actual competitors, meaning those who are competing with the undertaking in question. This involves looking at the day-to-day downwards pressure that retains low product prices and competitiveness within the market, which market shares are only useful as a first indication of; this needs to be followed by the consideration of other factors such as market conditions and dynamics.