Market Analysis in the Presence of Indirect Constraints and Captive Sales

Posted: 14 Jul 2008

See all articles by Roman Inderst

Roman Inderst

Goethe University Frankfurt

Tommaso M. Valletti

Imperial College Business School; Centre for Economic Policy Research (CEPR)

Date Written: June 2007

Abstract

In antitrust cases as well as for regulated industries, the question of how to treat indirect constraint and captive sales correctly has become of major importance in Europe. The (im-)proper treatment of indirect constraints has lead the CFI to overturn the Commission's decision in the proposed merger of Schneider and Legrand. Moreover, with regards to the definition of wholesale broadband access markets, there is an ongoing controversy between the Commission and some National Regulatory Authorities, centering on the question of whether to incorporate indirect constraints already at the stage of market definition. To inform this debate, we present in this article some of the insights from a detailed formal analysis into markets with indirect constraints and captive sales. We show how indirect constraints are appropriately taken into account through the elasticity of derived demand and comment also on the informativeness of concentration measures on both the wholesale and retail market. We further derive insights into when indirect constraints may be more or less important compared with direct constraints. Finally, we also discuss the more practical difficulties that are encountered when analyzing (or estimating) market structures where forward integrated firms also sell to other, competing retail firms.

Suggested Citation

Inderst, Roman and Valletti, Tommaso M., Market Analysis in the Presence of Indirect Constraints and Captive Sales (June 2007). Journal of Competition Law and Economics, Vol. 3, Issue 2, pp. 203-231, 2007. Available at SSRN: https://ssrn.com/abstract=1159255 or http://dx.doi.org/nhl025

Roman Inderst (Contact Author)

Goethe University Frankfurt ( email )

Theodor-W.-Adorno-Platz 3
Frankfurt am Main, Hessen 60629
Germany
+49 (69) 798-34601 (Phone)
+49 (69) 798-35000 (Fax)

HOME PAGE: http://www.wiwi.uni-frankfurt.de/en/departments/finance/lehrstuhl/prof-dr-roman-inderst/team

Tommaso M. Valletti

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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