1. Concept
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Margin squeeze is a conduct by a dominant firm that is vertically integrated (active on an upstream and a downstream market) and that has a dominant position on the upstream market. If the firm charges a price for the product on the upstream market which, compared to the price it charges on the downstream market, does not allow even an equally efficient competitor to trade profitable in the downstream market on a lasting basis, this conduct is called “margin-squeeze”
Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty, recital 80
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2. The ‘equally efficient competitor’ test
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This test uses the dominant entity’s own costs as a benchmark, in order to establish whether or not it has unfairly constrained its competitors’ ability to compete in the downstream market. The benchmark on which the European Commission will generally rely on to determine the cost are the long-run average incremental cost (LRAIC) of the downstream division of the integrated dominant undertaking
cf. Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty, recital 80)
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3. Example
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Margin squeeze can be observed e.g. in the telecommunication industry. The telecommunications network is normally owned by the former state monopoly
telephone provider. The local loop is an (upstream) infrastructure that connects all households to the telecommunications network. On the downstream
market for telecommunication services the former monopolists is competing with several other providers of telecommunication services. In order to be able to compete, all telecommunication service providers must have access to the local loop to provide services because it is uneconomical to invest in a parallel network. However, if the price for getting access to the local loop is set so high and the price for the telecommunication services is so low, a situation could occur in which not even an equally efficient competitor could operate profitably.
cf. Monti, Giorgio. EC Competition Law. Cambridge [u.a.]: Cambridge U,2007. Print., p. 220
4. Anticompetitive effects
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Footnote 1
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4. Commission decisions
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Footnote 1
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5. Court judgments/ preliminary rulings
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Footnote 1
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6. Guidance on the Commission's enforcement priorities
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Publikationsvermerk
Verantwortlich: Dr. ABC
Autoren: Kristina Schattat
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