The Economics of Margin Squeeze

46 Pages Posted: 2 Jun 2014

See all articles by Bruno Jullien

Bruno Jullien

University of Toulouse 1 - Toulouse School of Economics (TSE); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Patrick Rey

Toulouse School of Economics; Centre for Economic Policy Research (CEPR)

Claudia Saavedra

Regulatory Affairs - Orange

Date Written: March 2014

Abstract

The paper discusses economic theories of harm for anti-competitive margin squeeze by unregulated and regulated vertically integrated firms. We review both predation and foreclosure theories, as well as the mere exploitation of upstream market power. We show that foreclosure provides an appropriate framework in the case of an unregulated firm, whereas a firm under tight wholesale regulation should be evaluated under the predation paradigm, with an adequate test that we characterize. Finally, although non-exclusionary exploitation of upstream market power may also induce a margin squeeze, banning such a squeeze has ambiguous effects on the competitive outcome; hence, alternative measures, such as a cap on the access price, may provide a better policy.

Keywords: foreclosure, margin squeeze, predation, vertical integration

JEL Classification: K21, K23, L4, L42, L43

Suggested Citation

Jullien, Bruno and Rey, Patrick and Saavedra Valenzuela, Claudia, The Economics of Margin Squeeze (March 2014). CEPR Discussion Paper No. DP9905, Available at SSRN: https://ssrn.com/abstract=2444927

Bruno Jullien (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Patrick Rey

Toulouse School of Economics ( email )

2 Rue du Doyen-Gabriel-Marty
Toulouse, 31042
France

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Claudia Saavedra Valenzuela

Regulatory Affairs - Orange ( email )

78 rue Olivier de Serres
Paris, 75015
France

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