Imputation Tests for Bundled Services
13 January 2003
By Greg Houston, Jennifer Fish, and Carol Osborne et al.
The Australian Competition and Consumer Commission (ACCC) engaged NERA to consider the merits of various imputation tests when assessing whether an integrated firm's pricing practices constitute an anticompetitive vertical price squeeze. The ACCC is particularly interested in imputation tests in the context of product bundling in telecommunications. The authors of this report note that anticompetitive behavior is interpreted as behavior that would be inconsistent with competitive market outcomes. Under this interpretation, they argue, behavior that may cause harm to rivals is classified as anticompetitive only if it is inconsistent with what the firm could be expected to do under competitive conditions.
The authors explain that an anticompetitive vertical price squeeze occurs when a vertically integrated firm with market power in the provision of an input essential in the production of a final product sets the margin between wholesale (or access) and retail prices such that an (equally) efficient competitor will be unable to remain viable. Imputation tests consider whether particular retail prices set by a vertically integrated firm are greater than the price of the relevant wholesale (access) inputs faced by its competitors, plus the costs of transforming the wholesale inputs into the retail service. This report examines the applicability of various imputation tests and how these might be applied to assess whether a vertically integrated firm's pricing practices, including relation to bundling, could constitute anticompetitive behavior.
In addition to this report, the ACCC commissioned Anticompetitive Bundling Strategies, which discusses approaches for identifying whether bundling strategies constitute anticompetitive behavior.
Based on NERA's findings, on 13 January 2003 the ACCC issued a draft information paper on the bundling of services in the telecommunications industry. The paper lays out the approach the ACCC is likely to follow when assessing whether bundling conduct in the telecommunications industry is anticompetitive. This analysis would involve consideration of the level of discounts and relative importance for bundling in relevant markets.
