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Price Squeezes in a Regulatory Environment

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  • Bouckaert, Jan
  • Verboven, Frank

Abstract

Regulators have recently shown an increased sensitivity to the issue of price squeezes, especially telecom regulators in European countries. This Paper analyses the relevance and the scope of price squeeze tests as proposed by practitioners and economists, taking the existing regulatory environment as fixed. Based on the degree of existing regulation (full, partial or no) we distinguish between three types of price squeezes: regulatory squeezes, predatory squeezes, and squeezes as foreclosure. We argue that the scope of price squeeze tests is limited to predatory price squeeze tests, to be used in combination with other pieces of evidence as collected in standard predation cases. We propose a predatory squeeze test that respects previously made regulatory choices, in contrast with earlier proposed tests by European practitioners and economists. We extend the framework to ask at which aggregation level predatory price squeeze tests ought to be applied, a much-debated issue in telecommunications.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3824.

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Date of creation: Feb 2003
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Handle: RePEc:cpr:ceprdp:3824

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Keywords: antitrust policy; foreclosure; predation; price aqueeze; regulation;

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References

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  1. Biglaiser, Gary & DeGraba, Patrick, 2001. "Downstream Integration by a Bottleneck Input Supplier Whose Regulated Wholesale Prices Are Above Costs," RAND Journal of Economics, The RAND Corporation, vol. 32(2), pages 302-15, Summer.
  2. Canoy, M.F.M. & Bijl, P.W.J. de & Kemp, R., 2003. "Access to telecommunications networks," Discussion Paper 2003-007, Tilburg University, Tilburg Law and Economic Center.
  3. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, December.
  4. Armstrong, Mark, 2001. "The theory of access pricing and interconnection," MPRA Paper 15608, University Library of Munich, Germany.
  5. Laffont, Jean-Jacques & Tirole, Jean, 1996. "Creating Competition through Interconnection: Theory and Practice," Journal of Regulatory Economics, Springer, vol. 10(3), pages 227-56, November.
  6. Armstrong, Mark & Doyle, Chris & Vickers, John, 1996. "The Access Pricing Problem: A Synthesis," Journal of Industrial Economics, Wiley Blackwell, vol. 44(2), pages 131-50, June.
  7. Bolton, P. & Brodley, J.F. & Riordan, M.H., 1999. "Predatory Pricing: Strategic Theory and Legal Policy," Discussion Paper 1999-82, Tilburg University, Center for Economic Research.
  8. Rey, Patrick & Tirole, Jean, 2007. "A Primer on Foreclosure," Handbook of Industrial Organization, Elsevier.
  9. Economides, Nicholas, 1998. "The incentive for non-price discrimination by an input monopolist," International Journal of Industrial Organization, Elsevier, vol. 16(3), pages 271-284, May.
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Cited by:
  1. Gaudin, Germain & Saavedra Valenzuela, Claudia, 2012. "Ex-ante margin squeeze tests in the telecommunications industry: What is a reasonably efficient operator? (Revised: September 6, 2012)," 23rd European Regional ITS Conference, Vienna 2012 62157, International Telecommunications Society (ITS).
  2. Stennek, Johan & Tangerås, Thomas P., 2007. "Competition vs. Regulation in Mobile Telecommunications," CEPR Discussion Papers 6073, C.E.P.R. Discussion Papers.
  3. Gaudiny, Germain & Saavedra Valenzuela, Claudia, 2012. "Ex-ante margin squeeze tests in the telecommunications industry: What is a reasonable efficient operator? (Revised: December 20, 2012)," 23rd European Regional ITS Conference, Vienna 2012 67955, International Telecommunications Society (ITS).

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