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Creamskimming and Competition


James Ming Chen


Michigan State University - College of Law

April 27, 2009

New England Law Review, Forthcoming
MSU Legal Studies Research Paper No. 11-15

Abstract:     
The concept of “creamskimming” arises with regularity in the law of regulated industries. As a rhetorical weapon, the term “creamskimming” readily conjures images of the sort of putatively destructive competition that regulatory commissions are charged with patrolling. As a result, allegations of creamskimming have become a standard weapon in the legal arsenal of incumbent firms seeking to resist competitive entry. At an extreme, incumbent firms will characterize all forms of competitive entry as creamskimming. Sound regulatory responses to these allegations therefore depend on a proper understanding of the creamskimming concept.

This article proposes a definition of creamskimming that will help state and federal regulatory agencies distinguish genuine objections to proposed competitive entry from reflexive (and often improper) efforts to shield incumbent firms from competition. “Creamskimming” should be defined as “the practice of targeting only the customers that are the least expensive and most profitable for the incumbent firm to serve, thereby undercutting the incumbent firm’s ability to provide service throughout its service area.” Moreover, regulatory approaches to this practice should make clear that creamskimming can take place only where a competitive firm proposes to serve only a portion of an incumbent firm’s service area. In other words, when a competitive entrant proposes to serve an incumbent’s entire service area, creamskimming by definition cannot occur.

Number of Pages in PDF File: 26

Keywords: creamskimming, universal service, competition, regulation, regulated industries, telecommunications

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Date posted: April 27, 2009 ; Last revised: September 10, 2013

Suggested Citation

Chen, James Ming, Creamskimming and Competition (April 27, 2009). New England Law Review, Forthcoming; MSU Legal Studies Research Paper No. 11-15. Available at SSRN: http://ssrn.com/abstract=1395554 or http://dx.doi.org/10.2139/ssrn.1395554

Contact Information

James Ming Chen (Contact Author)
Michigan State University - College of Law ( email )
318 Law College Building
East Lansing, MI 48824-1300
United States
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