Sabotaging Entry: An Estimation of Damages in the Directory Enquiry Service Market

Review of Law and Economics, 6(1), 2010

57 Pages Posted: 14 Apr 2016

See all articles by Maite Martínez-Granado

Maite Martínez-Granado

University of the Basque Country - Department of Foundations of Economic Analysis I; Centre for Economic Policy Research (CEPR)

Georges Siotis

Universidad Carlos III de Madrid - Department of Economics; Centre for Economic Policy Research (CEPR)

Date Written: January 12, 2010

Abstract

A number of European countries, among them the UK and Spain, have opened up their Directory Enquiry Services (DQs) market to competition. In Spain, both local and foreign firms challenged the incumbent as of April 2003. The latter raised its rivals’ costs and forced quality downgrading by providing an inferior quality version of the (essential) input, namely the subscribers database. We illustrate how it is possible to quantify the effect of the practice in a situation where an entrant has no previous history in the market. We use the UK experience to construct the relevant counterfactual, that is, the but-for scenario. After controlling for relative prices and advertising intensity, we find that one of the foreign entrants achieved a Spanish market share substantially below what it would have obtained in the absence of abuse. While the case was taken to Court and the nature of the abuse was recognized, the amount of damages awarded was limited to evidence of invoice-based inflated input costs, while estimates derived from construction of the but-for scenario were dismissed. This initial ruling was upheld on appeal. At the time of writing, an appeal had been lodged with the Tribunal Supremo (highest Appeal Court) regarding the quantum of damages. We believe that the limited amount of damages probably reflects a mixture of an overly conservative attitude towards damage awards, coupled with a lack of understanding of the underlying economic reasoning of the case, as well as of the quantitative evidence presented by the aggrieved party.

Keywords: damages, EU law, abuse of dominance, telecommunications, directory enquiry services

JEL Classification: K21, C33, L41, L96

Suggested Citation

Martínez-Granado, Maite and Siotis, Georges, Sabotaging Entry: An Estimation of Damages in the Directory Enquiry Service Market (January 12, 2010). Review of Law and Economics, 6(1), 2010, Available at SSRN: https://ssrn.com/abstract=2763768

Maite Martínez-Granado

University of the Basque Country - Department of Foundations of Economic Analysis I ( email )

Avda. Lehendakari Aguirre 83
48015 Bilbao
Spain

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Georges Siotis (Contact Author)

Universidad Carlos III de Madrid - Department of Economics ( email )

Calle Madrid 126
Getafe, 28903
Spain
+34 91 624 9312 (Phone)
+34 91 624 9875 (Fax)

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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