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EUROPEAN COMMISSION DG Competition - page 20 / 113

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Absolute cost advantages: These include preferential access to essential facilities, natural resources, innovation and R&D, intellectual property rights and capital conferring a competitive advantage on the allegedly dominant undertaking, which makes it difficult for other undertakings to compete effectively. In the large majority of cases financial strength is unlikely to be an issue. However, in some cases it may be one of the factors that contribute to a finding of a dominant position, in particular in those cases where (i) finance is relevant to the competitive process in the industry under review; (ii) there are significant asymmetries between competitors in terms of their internal financing capabilities; and (iii) particular features of the industry make it difficult for firms to attract external funds.

Privileged access to supply: The allegedly dominant undertaking may be vertically integrated or may have established sufficient control or influence over the supply of inputs that expansion or entry by smaller rival firms may be difficult or costly.

A highly developed distribution and sales network: The allegedly dominant undertaking may have its own dense outlet network, established distribution logistics or wide geographical coverage that would be difficult for rivals to replicate.

The established position of the incumbent firms on the market: It may be difficult to enter an industry where experience or reputation is necessary to compete effectively, both of which may be difficult to obtain as an entrant. Factors such as consumer loyalty to a particular brand, the closeness of relationships between suppliers and customers, the importance of promotion or advertising, or other reputation advantages will be taken into account. Advertising and other investments in reputation are often sunk costs which cannot be recovered in the case of exit and which therefore make entry more risky.

Other strategic barriers to expansion or entry: These encompass situations where it is costly for customers to switch to a new supplier. This may for example be the case where

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