§8.5.1 Continuum of competitiveness of markets

(177) At a given level of the supply chain, competition between firms can be more or less intense. At one extreme, when a firm is a monopolist at its level of the supply chain, there is no competition. At the other extreme, competition between firms can be very intense (e.g. when many firms sell rather homogeneous products in a market with low barriers to entry), such that each firm acts as a price-taker and does not influence market prices which will be at or very close to the marginal costs of production. This latter case is referred to as perfect competition. In between these two extreme cases lies a broad range of intermediary scenarios, where competition could be more or less intense, depending e.g. on the number of firms in the industry or whether products sold by different firms are close substitutes or not. (178) Such market competitiveness directly impacts passing-on. In the benchmark case of perfect competition, industry-wide cost shocks are passed on at a rate of 100 percent to direct customers. Such stylised market structure of perfect competition may function as a benchmark for the court when assessing passing-on effects (even though in real world markets it is less often observed). By contrast, in monopoly or various intermediary scenarios, the passing-on of an overcharge may not amount to a rate of 100 percent, but instead can lie above or below this threshold, including a passing-on rate of zero percent. (179) One example of market structures characterised by imperfect competition is a market with differentiated products. Differentiation can arise either in terms of product characteristics or geography. For instance, the direct purchasers may offer products which differ from each other in their actual quality, or the quality perceived by the customers of the product. Alternatively, due to different locations of the direct purchasers, the transportation costs of the goods offered may vary in relation to different customers (whose location might also differ). Differentiation can make products less than perfect substitutes of each other. Customers might not view all products as perfectly interchangeable. (180) This less than perfect substitutability might result in reduced competitive pressure on suppliers who may not face competitors offering closely interchangeable products. In other words, according to economic theory, the intensity of competition will be reduced when product differentiation increases. As explained in paragraphs 177 et seq. above, weaker competition will decrease the passing-on rate of an industry-wide overcharge, i.e. as the differentiation of the direct purchasers' products increases, and the passing-on rate of the industry-wide overcharge they were subject to will approach the rate where each direct purchaser is a monopolist. Conversely, when the product differentiation is limited, the passing-on rate of an industry-wide overcharge will be larger.

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Source: EUR-Lex (Cellar) · retrieved 2026-09-07