Duopoly

By Dhruv Rajain & Varun Singh

Definition

A duopoly is a market structure in which two firms supply all, or an overwhelming share, of a given product or service. Its defining feature is interdependence, because each firm knows that the other will react to its pricing and output decisions, the two behave with constant reference to one another.

Commentary

Theories of harm

Competition law does not treat the mere existence of two dominant firms as unlawful. Liability arises only from conduct, which can be grouped as follows:

1. Explicit collusion — The most direct harm arises where the two firms simply agree on prices, output, customers, or the outcome of tenders. A duopoly makes such a cartel easy to form because only two parties need to coordinate.

2. Tacit collusion — This is coordinated conduct between the two firms in the absence of any agreement. Pure tacit collusion does not, by itself, infringe competition law in any of the jurisdictions discussed here. Competition authorities act only where ‘plus factors’¹ show that the parallelism cannot be explained except by an actual understanding between the firms.

3. Abuse of collective dominance — Where the two firms are so linked, by economic ties or by a market structure that lets them adopt a common policy, that they can act together as a single dominant entity, their joint conduct may constitute a collective abuse of their dominant position. In Compagnie Maritime Belge², the members of a shipping conference (CEWAL) that collectively dominated a West African trade route used ‘fighting ships’ and temporarily cut their freight rates, sharing the losses among themselves, to match and undercut their only independent competitor on the same sailing dates. The Court of Justice confirmed that this was an abuse of a collective dominant position, because the selective, below-tariff pricing was designed not to compete on the merits but to drive out the sole remaining rival.

4. Merger to duopoly — A merger can create a situation of collective dominance where a few firms in an oligopoly find it rational to act together rather than to compete. In Gencor, the European Commission blocked a merger that would have left the world platinum and rhodium markets shared between two comparably placed producers. The General Court held that a market structure conducive to tacit coordination is sufficient even without any link between the firms.³

India

Under the Competition Act 2002 (Act), duopolistic conduct is addressed through sections 3 and 4 of the Act. Section 4 prohibits the abuse of a dominant position by a single entity only⁴ and does not recognise ‘collective’ or ‘joint’ dominance. The CCI has consistently held that Indian law contains no concept of collective dominance, and the presence of two competing firms is treated as evidence of competition between them, not of joint dominance, unless they have agreed not to compete.⁵

European Union

European Union law addresses duopoly through three routes: Article 101 of the Treaty on the Functioning of the European Union (TFEU) prohibits anticompetitive agreements and concerted practices; Article 102 of the TFEU prohibits the abuse of a dominant position, including one held collectively by two or more firms;⁶ and the EU Merger Regulation prohibits mergers that would significantly impede effective competition, including by creating collective dominance.⁷ Three cumulative conditions must typically be met for a finding of collective dominance: (i) each member of the dominant oligopoly must have the ability to know how the other members are behaving, in order to monitor whether or not they are adopting the common policy; (ii) the situation of tacit coordination must be sustainable over time, that is to say, there must be an incentive not to depart from the common policy on the market; and (iii) the foreseeable reaction of current and future competitors, as well as of consumers, must not jeopardise the results expected from the common policy.⁸

The United Kingdom

The United Kingdom mirrors EU substantive law through Chapters I and II of the Competition Act 1998, which prohibit anticompetitive agreements and the abuse of a dominant position, including a collective one.⁹

United States

United States antitrust law addresses duopoly through three routes. First, Section 1 of the Sherman Anti-trust Act 1890 (Sherman Act) prohibits agreements that restrain trade¹⁰. Second, Section 2 of the Sherman Act targets monopolisation¹¹, but it is directed at single-firm conduct. United States law has no general doctrine of collective dominance and attempts to condemn a ‘shared monopoly’ held jointly by oligopolists, absent an agreement, have not succeeded. Third, Section 7 of the Clayton Antitrust Act 1914 prohibits mergers whose effect 'may be substantially to lessen competition, or to tend to create a monopoly'.¹²

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1. Rajasthan Cylinders and Containers Ltd v Union of India (2020) 16 SCC 615 (India); Theatre Enterprises Inc v Paramount Film Distributing Corp 346 US 537 (1954) and Bell Atlantic Corp v Twombly 550 US 544 (2007) (United States); and Joined Cases C-89/85 etc Ahlström Osakeyhtiö v Commission (Wood Pulp II) [1993] ECR I-1307, para 71 (European Union).↩︎

2. Joined Cases C-395/96 P and C-396/96 P Compagnie Maritime Belge Transports SA v Commission [2000] ECR I-1365, upholding CEWAL (Case IV/32.448) Commission Decision 93/82/EEC [1993] OJ L34/20.↩︎

3. Case T-102/96 Gencor Ltd v Commission [1999] ECR II-753.↩︎

4. Competition Act 2002 (India) s 4, which refers to abuse by ‘an enterprise or a group’.↩︎

5. Consumer Online Foundation v Tata Sky Ltd, Case No 2 of 2009 (CCI, 24 March 2011); Royal Energy Ltd v Indian Oil Corp Ltd, MRTP Case No 1/28 (CCI, 9 May 2012); Ashok Kumar Vallabhaneni v Geetha SP Entertainment LLP & Ors, Case No 17 of 2019 (CCI, 1 August 2019).↩︎

6. Consolidated Version of the Treaty on the Functioning of the European Union [2016] OJ C202/47, arts 101–102.↩︎

7. Council Regulation (EC) 139/2004 [2004] OJ L24/1, art 2(3) (the ‘significant impediment to effective competition’ test). Article 2(3) does not use the term ‘collective dominance’; its application to collective (oligopolistic) dominance derives from the case law, i.e., Joined Cases C-68/94 and C-30/95 France v Commission (Kali & Salz) [1998] ECR I-1375, and Gencor (n 3).↩︎

8. The test was first laid down in Case T-342/99 Airtours plc v Commission [2002] ECR II-2585, para 62. It was applied in the context of Article 102 of the TFEU in Case T-193/02 Laurent Piau v Commission [2005] ECR II-209, para 111.↩︎

9. Competition Act 1998 (UK), Chapters I and II.↩︎

10. Sherman Anti-trust Act 1890, 15 USC s 1.↩︎

11. Sherman Anti-trust Act 1890, 15 USC s 2.↩︎

12. Clayton Act 1914, 15 USC s 7.↩︎