dominantfirm

Dominant firm is a term in industrial organization for a company that commands a substantial market share and can influence the market price or total output, above what would occur under perfect competition. It coexists with a competitive fringe of smaller firms, whose presence constrains the dominant firm's choices. Dominance may arise from size, control of key inputs, regulatory privileges, network effects, or barriers to entry.

In the dominant firm model, the firm sets price taking into account the residual demand available after fringe supply. The fringe firms are typically modeled as price takers that supply up to the point where their marginal cost equals the market price. The resulting outcome is a price that is higher than marginal cost but typically lower than the monopoly price, reflecting the stabilizing influence of competition from the fringe.

Antitrust and competition law address abuse of dominance, prohibiting practices that unfairly exclude competitors or exploit consumers. Examples include predatory pricing, exclusive dealing, tying, discriminatory pricing, or refusal to deal. Because defining market power depends on context, regulators use market definition, concentration measures, and evidence of behavior to assess whether a firm is dominant and whether its conduct is abusive.

Measurement and regulation of dominance rely on indicators such as market share, profitability, entry barriers, and concentration indices like the Herfindahl-Hirschman Index. Ownership of essential facilities or critical infrastructure can also signal dominance. The concept is widely used in policy analysis, competition economics, and antitrust litigation, and can apply to sectors such as utilities, telecommunications, and platform markets.