Margin Squeeze in the Telecommunications Sector: A More Economics-Based Approach

Posted: 23 Dec 2012 Last revised: 8 Nov 2015

Ramin Silvan Gohari

University of Fribourg, Department of Commercial and Business Law

Date Written: 2012

Abstract

A margin squeeze occurs when a vertically integrated company, dominant in the supply of an indispensable upstream input, pursues a pricing policy which prevents downstream competitors from trading profitably, thereby leading to their ultimate exclusion from the downstream market.

In the telecommunications sector, where large ex-State firms still enjoy considerable market power, margin squeeze has long been frequent. Interestingly, the United States and the European Union have tackled this problem in considerably different ways. Dismayed by the idea of an antitrust court intervening in a company's price setting, the US Supreme Court held that margin squeeze was exclusively the domain of regulation. Conversely, the Court of Justice of the European Union has endorsed a modern economics-based approach enabling competition authorities to engage in a coherent and verifiable antitrust assessment of the price differentials that potentially amount to a margin squeeze.

This paper will argue that (1) the economics-based approach is the right solution in the European context, but that (2) this approach will only lead to convincing results if it includes a rigorous and transparent analysis of the effects on competition and consumers.

Keywords: Antitrust, Competition, Dominance, Market Power, Abuse, Margin Squeeze, Price Squeeze, Comparative, Commission, ECJ, EUGH, Supreme Court, DOJ, FTC, WEKO, Linkline, Deutsche Telekom, Telia Sonera, Swisscom, Concurrence, Ciseau, Wettbewerbsrecht, Kartellrecht, Missbrauch, Kosten-Preis-Schere

JEL Classification: K2, L4

Suggested Citation

Gohari, Ramin Silvan, Margin Squeeze in the Telecommunications Sector: A More Economics-Based Approach (2012). World Competition: Law and Economics Review, Vol. 35, No. 2, 2012. Available at SSRN: https://ssrn.com/abstract=2192955

Ramin Silvan Gohari (Contact Author)

University of Fribourg, Department of Commercial and Business Law ( email )

Avenue de l'Europe 20
CH-1700 Fribourg
Switzerland

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