Ex-ante margin squeeze tests in the telecommunications industry: What is a reasonably efficient operator?

Germain Gaudin (Telecom ParisTech) and Claudia Saavedra Valenzuela (Orange Telecom) ask Ex-ante margin squeeze tests in the telecommunications industry: What is a reasonably efficient operator?

ABSTRACT: In this paper, we study the adjustments that National Regulatory Authorities make to simple margin squeeze tests, when using them ex-ante. More precisely, by inspecting the possible differences between an entrant and the incumbent that would cause a market disadvantage for the former, we provide a formal economic framework that translates these ex-ante specific issues into practical test adjustments. We identify six possible adjustments relevant to ex-ante margin squeeze tests, on the cost, the access charge, or the price parameters. We then review the implementation of margin squeeze tests by European telecommunications National Regulatory Authorities according to these adjustments, as to build a comparable benchmark of implementation choices.