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December 20, 2017

Day 20 - Is Santa Holding a Dominant Market Position?

As Christmas is approaching, parents need to select a gift-bringer for their household. In theory, the list of service providers in the winter present market is quite broad, including Slavic Father Frost, European characters like St. Nicholas, Befana, Sinterklaas, Belsnickel and Christkind or even groups like The Three Kings or Icelandic pranksters Yuletide-lads. In practice, however, the options in the Finnish families are pretty much limited to this one big fellow with a long white beard, Mr. Santa Claus.

Due to tradition and a massive marketing campaign, kids are thinking and talking about Santa Claus during the whole December. Even trying to suggest that the possible gifts will be delivered by an old witch with a broom or a sprite-like child with angelic wings is out of the question in vast majority of the families. So, in reality all others gift-bringer figures are just small niche players comparing to a market giant Santa Claus. In addition, it could even be challenging to find an alternative to Santa as some other notable providers don’t offer their gift delivery services on Christmas Eve.

Because of such strong market power, Santa Claus can safely be deemed to hold a dominant position at least in the Christmas Eve deliveries. (Considering the amount of presents bought just for Christmas, Christmas Eve will most likely form a separate market.) To be in a dominant position is not in itself illegal, since such position can be obtained for example by providing an unrivalled service. And when you are able to offer just-in-time delivery solutions to all your clients while simultaneously circling the globe in one day and still score extremely high in customer satisfaction surveys, the dominant status is truly deserved.

But with great power comes great responsibilities. As a dominant provider Santa Claus can pretty much act independently of the market, and consequently Santa has a special responsibility to ensure that its conduct does not distort competition. There are, however, some suspicious elements in Santa’s business behavior, that may amount to an abuse and could therefore grab the attention of the competition authorities.

For example, Santa Claus is not known to charge for his services. To maintain such high class distribution business with colossal manufacturing facilities can’t be cheap. A dubious pricing strategy where a service is set at a very low price can be seen as an attempt to eliminate competitors from the market. It also creates barriers to entry for potential new entrepreneurs. Such practice constitutes an abuse of dominant position and is illegal in several countries, including Finland. Could Santa be guilty of predatory pricing?

Santa Claus has control over the up- and downstream market of his service. Such vertically integrated dominant company can’t weaken the position of its competitor in the end product market with a squeeze by overpricing or denying access to an essential intermediary product. Price or market squeeze is particularly significant, if the access to the downstream market depends on reasonable use of the facility or the product of the dominant company. Santa runs his delivery service with flying reindeers and a sled 3000 times faster than the speed of sound. These are extremely difficult to reproduce and, if the alternative solutions can’t be found, are essential for the business. Overpricing or even blocking them altogether from competitors could easily be seen as an abuse of his market position. Should potential competitors wish to gain fair access to them, Santa could be forced to allow that.

And what about the parents who order services from Santa Claus? Santa requires good behavior from their kids, but what if they are firmly on the naughty list? In the absence of genuine competition, can Santa just refuse to deliver? Or supply only underwear and socks? Generally speaking, companies are free to operate their business, but in the case of a dominant undertaking, refusal to supply may take the form of abuse of dominant position. This could also be the case when unreasonable demands are set regarding the terms of the service. This means that certain amount of crankiness must be allowed.

Have a merry Christmas!