5 Monitoring Competition for Anti-competitive Behaviors

• Author: Scott Hempling
• Pages: 189-211

5.A. Anti-competitive pricing

5.A.1. Price squeeze

5.A.2. Predatory pricing

5.B. Tying

5.B.1. Denition and examples

5.B.2. “Technology tying” in utility industries

5.C. Market manipulation

5.D. Rethinking separation

5.D.1. Sufcient competition scenario

5.D.2. Insufcient competition scenario

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Monitoring Competition for

Anti-competitive Behaviors

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[C]ompetition in the unregulated enhanced services market does nothing to decrease

the [Bell Operating Companies’] monopoly power in the basic services market . . . . If

anything, increased competition in the enhanced services market simply increases the

BOCs’ incentive to shift costs so they can engage in predatory price-cutting as a means

of maintaining or increasing their share of the market for enhanced services.1

To convert an historically monopoly market into a competitive market, the rst step is

to authorize competition, by removing legal barriers to entry. The second step is to make

competition effective, by “unbundling” competitive services from noncompetitive services

and reducing entry barriers. We addressed those steps in Chapters 3 and 4, respectively.

A third step remains: monitoring the new competition.

Monitoring is necessary because market imperfections are inevitable, and because

imperfections invite misbehavior. To be perfectly competitive, a market must meet four

conditions: standardized products, many sellers and buyers, perfect knowledge by all par-

ticipants, and no entry barriers.2 Utility industries undergoing conversion from monopoly

to competitive market structures will not meet all these conditions. Consider:

•

Standardized products: In their physical form, electrons, gas molecules and bits

are uniform across sellers, but electricity and gas services are not. There are short-

term and long-term arrangements, deliveries at different voltages and pressures,

varying rate structures and payment plans, and sources with different environ-

mental attributes. Telecommunications services are even more differentiated, with

a mind-numbing variety of options for prices, contract term length and customer

service quality.

• Many buyers and sellers: This factor varies by geographic and product market. In

energy, it can vary by time of season and even time of day: On hot August after-

noons only a few sellers may have reserve capacity available.

•

Perfect information: The time necessary to master information about sources, pric-

ing, seller viability and contract terms exceeds what the typical retail customer is

1. California v. FCC, 905 F.2d 1217, 1234 (9th Cir. 1990).

2. 2 A K, T E  R 114 (1970; 1988); see also Darren Bush & Carrie

Mayne, In (Reluctant) Defense of Enron: Why Bad Regulation Is to Blame for California’s Power Woes

(or Why Antitrust Law Fails to Protect Against Market Power When the Market Rules Encourage Its

Use), 83 O. L. R. 207, 233–34 (2007) (listing four factors for perfect competition: “(1) [T]he product

sold must be uniform across all sellers, or, in other words, consumers are not compelled to choose one

producer’s output over the other based on product differentiation; (2) there must be many buyers and

sellers, such that no one seller’s or buyer’s actions alone will change the prevailing market price; (3) all

agents participating in the market must have perfect information; and (4) no barriers of entry may exist

for sellers considering entering the market.”) (citations omitted).

Chapter Five190

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