Price Squeeze: Lessons from the Telecom Italia Case

Posted by D. Daniel Sokol

A new article by Michele Polo (Professor of Economics, Bocconi University) discusses Price Squeeze: Lessons from the Telecom Italia Case.

ABSTRACT: This paper analyzes a price squeeze case in the provision of telecommunication services to the Italian Public Administration, in which Telecom Italia, the incumbent company, was condemned for bidding below costs. We develop the analysis of the case highlighting the possible anticompetitive story and the alternative competitive explanation. We then construct a quantitative imputation test to verify the alleged anticompetitive behavior. The methodological issues and the assumptions needed to implement the test are discussed in detail, showing their link to a precise test of the anticompetitive story. We discuss the reasons why the Antitrust Authority and our views diverge over the evaluation of Telecom Italia bidding. The role of judicial review in cases with complex economic arguments is discussed.