DP3824 Price Squeezes in a Regulatory Environment

Author(s): Jan Bouckaert, Frank Verboven
Publication Date: February 2003
Keyword(s): antitrust policy, foreclosure, predation, price aqueeze, regulation
JEL(s): L40, L51, L96
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=3824

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.