Margin squeeze and replicability tests

It is considered that a dominant firm is abusing its market power if it sells products in different parts of the value chain (upstream and downstream markets) at prices with too low a margin between them for alternative firms to compete. This would, over time, lead to the ousting of competitors.

National regulatory authorities (NRAs) face two opposing goals when regulating these tariff differences: 

  • they need to ensure that margins for alternative operators are not squeezed by too low a margin between the incumbent’s retail and wholesale tariffs (and by extension, ensure a particular wholesale service does not squeeze another wholesale alternative – for example, local loop unbundling could be squeezed by low wholesale tariffs for bitstream)
  • they need to allow incumbents to compete fairly with low retail prices, to the benefit of consumers.

Reaching a satisfactory compromise between these two goals requires a very good understanding of the economics of the services under examination and the way in which they are likely to evolve.

Margin Squeeze

How we can help you

Examples of recent projects completed by our regulation experts include:

  • For an Internet service provider (ISP), we provided a design of new broadband access offers that meet regulatory conditions, including the margin squeeze test.
  • For a major Western European incumbent, we provided regulatory assistance for the launch of new voice packages for the residential market.
  • For a European regulator, we provided regulatory modelling assistance. We developed a calibrated model, the results of which were used to set remedies.
  • For a South East Asian NRA, we undertook an evaluation of price squeeze between retail and wholesale DSL and cable access products in order to determine whether anti-competitive pricing was occurring.

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