Price Squeezes with Positive Margins in EU Competition Law: Economic and Legal Anatomy of a Zombie

Posted by Social Science Research Network

Price Squeezes with Positive Margins in EU Competition Law: Economic and Legal Anatomy of a Zombie – Nicolas Petit (University of Liege – School of Law)

ABSTRACT: In European Union (“EU”) competition law, the supply policy of a dominant input provider can be deemed unlawful, if his wholesale and retail price-mix forces rival input purchasers to compete at a loss on the downstream market. This is known as an abusive “margin squeeze”. Whilst this stands to reason, the TeliaSonera case-law adds that there can also be an “exclusionary” abuse when rivals’ margins are “positive”, by virtue, for instance of “reduced profitability”. In other words, there is an infringement of Article 102 TFEU even if rivals maintain the ability to competitively sell their products at prices above costs. We call this the positive margin squeeze theory. After a quick overview of TeliaSonera and of its context (I), this paper shows that the positive margin squeeze theory is flawed on economic grounds (II). To this end, it resorts to a simple numerical example. Further, this paper explains that the positive margin squeeze theory is wrong on legal grounds, and that it has since been overruled by a subsequent judgment of the Court of Justice of the EU (“CJEU”) (III). Finally, we conclude that the positive margin squeeze theory can be disregarded in positive competition law.