Evolving Forms Of Abusing Dominant Position In The Electronic Communications Sector

Margin Squeeze in the Electronic Communications Sector

Margin squeeze is a form of abuse of a dominant position in which a vertically integrated company reduces the margin between the price charged to competitors and the price charged to consumers, which can have the effect of excluding a competitor from the market. In the decade or so since the liberalisation of network industries, margin squeeze has become a major source of concern among competition authorities and courts, particularly pronounced in the electronic communications sector. Because some of the adopted decisions show significant inconsistencies in approach, and legal certainty remains elusive in this area, this book which provides an extremely thorough analysis is both timely and of great practical value. The author provides an in-depth examination of margin squeeze allegations in the electronic communications sector with a view to developing a more advanced and comprehensive analysis of principles which should guide ex post assessment of margin squeeze. Issues and topics covered include: – scope of intervention in margin squeeze cases both for national regulatory and national competition authorities; – conditions for sanctioning margin squeeze under Article 102; – methodological and practical difficulties in identifying a margin squeeze; – methodology employed in margin squeeze cases and its regulatory aspects; – assessment of the ability and incentives of regulated firms to engage in a margin squeeze; and – situations when competition law is used to address the deficits of regulation and regulatory failures. It also includes a critical comparison of the vertical foreclosure analysis undertaken in margin squeeze cases with the approach adopted in the EU Non-Horizontal Merger Guidelines. Throughout the analysis, margin squeeze treatment in the European Union and its Member States is examined in light of the diverging approach adopted by the US Supreme Court. The increasing complexity of the electronic communications market can only further confound an already complex assessment of price squeezes, and one can expect that claims of anticompetitive margin squeeze in liberalised network industries will continue to be high on the enforcement agenda of competition authorities for years to come. In light of the need for a coherent, or at least predictable, sentencing policy to provide relative legal certainty, the research in this book proves invaluable. The analysis and conclusions discussed in this book will be welcomed by policymakers, regulators, and lawyers working in the areas of competition law and electronic communications law.

Evolving Forms of Abusing Dominant Position in the Electronic Communications Sector

A margin squeeze is an exclusionary form of abuse of a dominant position that a vertically integrated firm can implement when it sells its upstream bottleneck input to its downstream competitors. Because it is vertically integrated, the dominant incumbent can reduce the margin between the input price charged to competitors and the retail price charged to end-users by either raising the price of the input and/or lowering the price of its retail product/services to such an extent that the remaining margin of profit is insufficient for its rivals to remain competitive. Although the scenario of margin squeeze seems to be rather simple, the underlying economic and legal theories are not. Consequently, detecting a margin squeeze requires competition authorities to apply a complex imputation test, which in turn requires various methodological choices that can determine the outcome of the investigation. The principal purpose of the dissertation is to determine whether the European Commission's margin squeeze decisions are consistent with EU case law. The dissertation examines two alternative hypotheses. Under hypothesis A, margin squeeze is presented as a deviation from the essential facilities doctrine, which could be seen as an expression of regulatory competition law. Hypothesis B assumes that it constitutes another form of vertical foreclosure, the main question then being under what exact conditions foreclosure is likely in network industries where the margin squeeze doctrine traditionally applies. Two conclusions follow from the analysis. First, margin squeeze constitutes another theory of vertical foreclosure, and accordingly cannot be seen as an unjustified deviation from refusal to deal and essential facilities cases. Second, to ensure that the theory of harm in margin squeeze cases is credible, competition authorities could enhance their current analytical framework by regularly reviewing various additional elements, in particular the extent to which the wholesale product is important for downstream competition.

Legislative and Regulatory Actions Needed to Deal with a Changing Domestic Telecommunications Industry