Price Squeezes and Imputation Tests on Next Generation Access Networks

A vertically integrated firm that wholesales to its retail rivals can, if it has sufficient market power, set the margin between its retail and wholesale prices so as to harm its rivals. Conventionally, an imputation test is used to determine whether such behavior is being undertaken. Such tests are common in electronic communications, and the EC calls for their potentially intensive ex ante application in the supply of NGANs. This paper shows that while imputation tests are helpful analytical tools for understanding the nature of price squeezes, difficulties associated with implementation, which are sharp in an NGAN context, can make them misleading in practice. Instead, price squeezes are best dealt with through the rigorous comparison of expected outcomes, given the alleged anticompetitive behavior, with the outcomes expected in that behavior’s absence. Such analysis is not suited to ex ante application.