Working Paper: CEPR ID: DP9905
Authors: Bruno Jullien; Patrick Rey; Claudia Saavedra
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.
Keywords: foreclosure; margin squeeze; predation; vertical integration
JEL Codes: K21; K23; L4; L42; L43
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| margin squeeze (D43) | exclusionary practices (J15) |
| unregulated firms (G18) | exclusionary practices (J15) |
| banning margin squeeze (D43) | ambiguous effects on competitive outcomes (L49) |
| banning margin squeeze (D43) | higher retail prices (D49) |
| cap on access prices (P22) | lower retail prices (L42) |