Significant Market Power
Also called: SMP · Topic: Market Structures, Market Failure and Competition · NCERT: Beyond NCERT
Meaning
Significant Market Power (SMP) is a label a sector regulator gives a firm that is big enough to set terms on its own, without worrying much about rivals. Once a firm is marked as SMP, the regulator can place extra duties on it in advance. This is called ex-ante (before-the-fact) regulation. A common duty is to let rivals connect to its network on fair and equal terms. SMP matters in network industries like telecom. A new operator's customers must be able to reach the big operator's customers, so the big operator could otherwise squeeze the newcomer by charging a high price to connect. TRAI's older interconnection rules treated a provider with at least 30% of activity in a service area as having SMP. Check whether that cut-off still applies today.
Example
Say one mobile operator carries 40% of the traffic in a telecom service area. Under TRAI's older 30% test, it would have SMP. A smaller rival has to connect to it to reach its customers and cannot go anywhere else. The regulator can therefore require the large operator to offer interconnection (the link that joins two networks) on transparent, non-discriminatory terms.
Don't confuse with
- Dominant position (Competition Act 2002, Section 4): the CCI judges this case by case within a relevant market, usually after a complaint. Being dominant is lawful and only abusing it is punished. SMP is a regulator's advance label that brings duties even when there has been no abuse.
- Monopoly: a monopoly is a single seller. A firm can have SMP while it shares the market with several rivals.