MARKET ANALYSIS IN THE PRESENCE OF INDIRECT CONSTRAINTS AND CAPTIVE SALES

In antitrust cases as well as for regulated industries, thequestion of how to treat indirect constraint and captive salescorrectly has become of major importance in Europe. The (im-)propertreatment of indirect constraints has lead the CFI to overturnthe Commission's decision in the proposed merger of Schneiderand Legrand. Moreover, with regards to the definition of wholesalebroadband access markets, there is an ongoing controversy betweenthe Commission and some National Regulatory Authorities, centeringon the question of whether to incorporate indirect constraintsalready at the stage of market definition. To inform this debate,we present in this article some of the insights from a detailedformal analysis into markets with indirect constraints and captivesales. We show how indirect constraints are appropriately takeninto account through the elasticity of derived demand and commentalso on the informativeness of concentration measures on boththe wholesale and retail market. We further derive insightsinto when indirect constraints may be more or less importantcompared with direct constraints. Finally, we also discuss themore practical difficulties that are encountered when analyzing(or estimating) market structures where forward integrated firmsalso sell to other, competing retail firms.