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Margin squeeze strategies in the Telecom sector : a comparative analysis of US and European competition case-law. Frédéric MARTY CNRS Fellow Research Group on Law, Economics and Management. Innovation in Network Industries : accounting, economic and regulatory implications
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Research Group on Law, Economics and Management
Innovation in Network Industries : accounting, economic and regulatory implications
Innovation & Regulation Chair
Paris, March 16th, 2011.
According to the OECD, a “margin squeeze” is an exclusionary abuse of dominance that arises when a vertically-integrated monopolist sells an upstream bottleneck input to rival firms that also compete in a downstream market with the monopolist in the provision of a downstream product.
A margin squeeze is observed when the spread between price at which a vertically integrated monopolist sells the downstream product and the price at which it sells the upstream bottleneck product to its rivals is not sufficient to allow an efficient downstream rival to effectively compete
Sidak J.G., (2008), “Abolishing the Price Squeeze as a Theory of Antitrust Liability”, Journal of Competition Law and Economics, 4(2), pp.279-309.European and US conflicting views
The margin squeeze test (DT case, access to the telecommunications local loop for Internet providers)
“There is an abuse of a dominant position where the wholesale prices that an integrated dominant undertaking charges for services provided to its competitors on an upstream market and the prices it itself charges end-users on a downstream market are in a proportion such that competition on the wholesale or retail market is restricted”
Case 2003/707/EC, May 21th 2003 – Deutsche Telekom, §106
In DT, the spread was negative in a first period (e.g. upstream price > downstream price) and “not sufficient” in a second one (§102)
“A margin squeeze exists if the charges to be paid to DT for wholesale access are so expensive that competitors are forced to charge their end-users prices higher than the prices DT charges its own end-users for similar services”
A margin squeeze could also arise since the spread between upstream and downstream prices “does not allow a competitor which is as efficient as the undertaking to compete for the supply of those services to end user”.
Court of Justice, case 52-09, February 17th, 2011, TeliaSonera, §32-33
The European treatment of margin squeeze cases sharply contrasts with the US one.
Linkline (2009) : a very similar case (ADSL), a very opposite decision
The margin squeeze at the crossroad of different abuses (Spector, 2008)