This article looks at the definition, conditions and evidence necessary to establish that a price squeeze is an exclusionary abuse, and thus an infringement of EC competition law. It shows that the necessary conditions are demanding, and that the empirical test for a price squeeze must be carried out carefully. It offers practical guidelines for determining whether an exclusionary price squeeze is present, and particularly on the appropriate calculation of downstream margins (the “imputation test”) that should be employed.
A price or margin squeeze is an exclusionary practice used by a vertically integrated firm to leverage its market power in the upstream market to squeeze the margins of its downstream competitors. Competition law investigations on alleged price squeezes have been few, relatively unsuccessful, and largely confined to raw materials. However, with the increasing application of competition law to network industries, the number of price squeeze allegations has increased.1 The issue looms large in regulated industries where a network operator is often vertically integrated and the service sector has been opened to competition. The EC Commission has also recently initiated several investigations in the telecommunications sector,2 and national competition and regulatory authorities have examined allegations of price squeezes in the telecommunications3 and energy sectors.4 The EC Commission has also imposed undertakings to prevent possible margin squeezes in access undertakings as part of its merger clearances.5 Indeed, there is growing concern that in network industries where the incumbent is vertically integrated and dominant in the provision of network access, price squeezes will and have been used to inhibit downstream competition, with some commentators calling for vertical separation to foster increased competition.6 In this article the nature, conditions and detection of price squeezes under EC competition law are discussed with reference to existing case law. The discussion below is organised as follows. Section II discusses the definition, types and basic nature of a price squeeze. This is followed in Section III with a discussion of the economic conditions under which a price squeeze would be a feasible strategy. Section IV provides an analysis of how to correctly approach an allegation of price squeeze behaviour under EC competition law. Section V looks at how to detect a price squeeze through an imputation tests drawing on the EC Access Notice. Section VI deals with the ex ante regulation of price squeezes under sectoral regulation.