Price Squeezes with Positive Margins in EU Competition Law: Economic and Legal Anatomy of a Zombie

10 Pages Posted: 14 Oct 2014 Last revised: 10 Nov 2014

See all articles by Nicolas Petit

Nicolas Petit

University of Liege - School of Law; Hoover Institution; University of South Australia - School of Law

Date Written: May 7, 2014

Abstract

In European Union ("EU") competition law, the supply policy of a dominant input provider can be deemed unlawful, if his wholesale and retail price-mix forces rival input purchasers to compete at a loss on the downstream market. This is known as an abusive "margin squeeze". Whilst this stands to reason, the TeliaSonera case-law adds that there can also be an "exclusionary" abuse when rivals’ margins are "positive", by virtue, for instance of "reduced profitability". In other words, there is an infringement of Article 102 TFEU even if rivals maintain the ability to competitively sell their products at prices above costs. We call this the positive margin squeeze theory. After a quick overview of TeliaSonera and of its context (I), this paper shows that the positive margin squeeze theory is flawed on economic grounds (II). To this end, it resorts to a simple numerical example. Further, this paper explains that the positive margin squeeze theory is wrong on legal grounds, and that it has since then been overruled by a subsequent judgment of the Court of Justice of the EU ("CJEU") (III). Finally, we conclude that the positive margin squeeze theory can be disregarded in modern competition law.

Keywords: antitrust, competition, abuse of dominance, price squeeze, margin squeeze, as efficient, law and economics

JEL Classification: K00, K20, K21, K40, K42, L40, L41

Suggested Citation

Petit, Nicolas, Price Squeezes with Positive Margins in EU Competition Law: Economic and Legal Anatomy of a Zombie (May 7, 2014). Available at SSRN: https://ssrn.com/abstract=2506521 or http://dx.doi.org/10.2139/ssrn.2506521

Nicolas Petit (Contact Author)

University of Liege - School of Law ( email )

B-4000 Liege
Belgium

Hoover Institution ( email )

Stanford, CA 94305
United States

University of South Australia - School of Law ( email )

GPO Box 2471
Adelaide SA 5001
Australia

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