Discussion Paper Details

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Title: The Economics of Margin Squeeze

Author(s): Bruno Jullien, Patrick Rey and Claudia Saavedra

Publication Date: March 2014

Keyword(s): foreclosure, margin squeeze, predation and vertical integration

Programme Area(s): Industrial Organization

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.

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Bibliographic Reference

Jullien, B, Rey, P and Saavedra, C. 2014. 'The Economics of Margin Squeeze'. London, Centre for Economic Policy Research.