Market dominance entails the risk of a systemic failure

The recent incidence of unprecedented service disruptions at a major domestic airline exposed a significant blind spot.

- DEEP MUKHERJEE

is a risk management and AI consultant, and a member of the visiting faculty, IIM Ahmedabad and IIM Calcutta.

Over-dependence on one (monopoly) or two (duopoly) players for an economically critical service exposes the economy to concentration risk. In the event of a monopolist failing to provide a key service, economic activity can get severely disrupted. It may be argued that a failure by a monopolist or duopolist to provide a critical economic service is a problem at least as serious as an outright abuse of market dominance by means of anti-competitive practices. The Competition Commission of India (CCI) has taken cognizance of the air-service disruption and reportedly plans to examine if the carrier abused its aviation dominance.

However, the issue of concentration risk attributable to market dominance remains unaddressed. Certain industries are critical to the functioning of the economy. Commercial activity depends on what may be called ‘systemically important infrastructure service providers’ (SIISPs). These industries need better risk oversight from regulators. Yet, with the exception of banking, most SIISP regulators do not explicitly take concentration risk into account. Operational risk management in many of these industries is also quite rudimentary compared to banking.