An Economists' Guide Through the Joint Dominance Jungle

Abstract

In this paper we discuss the application of joint dominance concepts from an economic point of view. We interpret joint dominance in economic terms and argue that recent confusions in the application of joint dominance have arisen because the legal and economic definitions of the concept of collusion are quite distinct. We make the case that a consistent application of joint dominance is only helpful if it is used as an instrument to prevent collusion in the economic sense. However, the recent economic literature then puts significant restrictions on the circumstances under which joint dominance can reasonably be used as an argument to prevent mergers. This requires an analysis of the change in incentives of firms to deviate from collusive agreements in the short run as well as the credibility of threats to "punish" non-compliance to a collusive norm through aggressive product market competition in the future. We illustrate some these arguments using the recent Airtours/First Choice case and show that current practice by the European Commission cannot be economically justified.