Application Of Anti-monopoly Law On Margin Squeeze In Telecommunication Industry

Margin squeeze refers to a situation in which a vertically-integratedfirm which has dominance in the upstream market uses its control over aninput that is essential to downstream competitors, taking advantage oftheir low elasticity of demand， to expand its dominance to thedownstream market and eliminate downstream competitors. Marginsqueeze should be regulated due to its adverse effect on marketcompetition.The economies of scale and scope in the telecommunication industrylead to imperfect competition in the upstream market. Monopolisticbusinesses and competitive businesses coexist with the development oftelecommunication technologies. In order to promote the economies ofscope, dominant firms tend to expand their business to the downstreammarket, turning into vertically-integrated firms, which makes downstreamrivals have to rent telecommunication network from thesevertically-integrated firms on one hand and compete with them in downstream market on the other. The control over essential input forcompetition on the downstream market endows vertically-integratedfirms with the privilege to conduct margin squeeze and intervene in themarket competition.There’re several conditions required in margin squeeze. Thesubjective condition is that the conductor should be a vertically-integratedfirm, which is operating in both upstream and downstream markets.Besides, the conductor is required to have dominance on the upstreammarket. Moreover, the conductor has competence to control essentialinput for competitors operating on the downstream market. As a result,the conductor squeezes out its downstream competitors, which hasnegative effect on market competition.The regulation of margin squeeze in telecommunication industry canbe conducted in both upstream and downstream markets according todifferent characteristics of monopolistic businesses and competitivebusinesses. In the upstream market, we may try to deregulate byproviding easier market access and encourage telecommunication firms toengage in whole businesses. In the downstream market, we mayemphasize on the regulation of essential input prices to protect free andadequate market competition.Meanwhile, it’s also necessary to balance industrial regulation andanti-monopoly law enforcement in telecommunication industry. The industrial regulation authority and anti-monopoly authority shouldcooperate with each other to an extent that depends on how fierce thecompetition is within a particular branch of telecommunication business.As to competitive businesses, anti-monopoly enforcement prevailsbecause of low sunk cost. However, when it comes to monopolisticbusinesses, governmental supervision shall prevail and anti-monopolyenforcement plays a subsidiary role for the lack of competition.