This presentation by Korea was made during the break-out Session 3, “Techniques and evidence for assessing predatory pricing, margin squeeze and exploitative abuses” in the discussion “Economic analysis and evidence in abuse cases” held at the 20th meeting of the OECD Global Forum on Competition on 7 December 2021. More papers and presentations on the topic can be found out at oe.cd/eac.

1. OECD Global Forum on Competition
2021.12.7.
Economic Analysis in Margin Squeeze Cases

2. KFTC’s Margin Squeeze Case (on Mobile Carriers)
 Sanction in February 2015
 The KFTC imposed an administrative fine of USD 5.9 million and
remedieson mobile carriers for damaging competition by squeezing
profits of its rivals in the market for businesstext messagingservices
.
 This caseis
 the first margin squeezecasesanctionedby the KFTC
 but also an economic analysis was conducted to examine firms’
margin squeeze behaviors, and its results were also adopted as
evidence
.
 Businessmessagingservices
 refer to servicesthat send bulk messages
to customers on behalf of
businesses
such as credit card companies,banks, shopping malls, and
hospitals.

3. Market and Transaction Structure
 Market Structure
 Upstream market: Corporate message transmission service
market
• Business messages
collected by downstream market operators are
transmitted to mobile communication subscribers through mobile
communication networks.
 Downstream market: Business messaging service market
• Provision of corporate messaging services to customer companies
such as hospitals, credit card companies.

4. Market and Transaction Structure
 Transaction Structure
 Downstream market operators must trade with all mobile carriers for
message transmission
.
 Each mobile carrier has a bottleneck position for its subscribers.

5.  Wholesale price
 The higher the transmission volume, the lower the price.
 The minimum transmission cost is 9- 10 won.
Structure of wholesale price

6. Economic analysis method
 Referenceprice for margin squeeze
 𝑾𝑾𝒎𝒎𝒎𝒎𝒎𝒎,𝒊𝒊: The lowest message transmission price of mobile carrieri
minimum price of business messaging service = �
𝑖𝑖=1
𝑛𝑛
�
(𝑀𝑀𝑀𝑀𝑖𝑖 × 𝑊𝑊𝑚𝑚𝑚𝑚𝑚𝑚,𝑖𝑖
 𝑴𝑴𝑴𝑴𝒊𝒊: Subscriber- based market share of mobile carrieri
 Minimum corporate messaging service price: The minimum price at which
the profits of downstream market operators are likely to be positive.
 The minimum price must be higher than the minimum price of business
messaging service (reference price).

7. Economic analysis method
 Finding the intention of competition restriction
 If the profits of the upstream market outweigh those of the downstream
market, setting a low price in the downstream market by mobile
carriers is interpreted as anintention to exclude competitors.
 Analysis on whether it is more lucrative for mobile carriers to provide
only transmission services in the upstream market without participating
in the downstream market.
Mobile Carrier′s Profit in the downstream market
= minimum price − �
�
j≠i
n
(𝑀𝑀𝑀𝑀𝑗𝑗 × 𝑊𝑊𝑚𝑚𝑚𝑚𝑚𝑚,𝑗𝑗
𝑤𝑤𝑤𝑤𝑤𝑤𝑤𝑤𝑤𝑤𝑤𝑤𝑤𝑤𝑤𝑤𝑤 𝑐𝑐𝑐𝑐𝑐𝑐𝑐𝑐
− Variable cost
< 𝑀𝑀𝑀𝑀𝑖𝑖 × 𝑊𝑊𝑚𝑚𝑚𝑚𝑚𝑚,𝑖𝑖 = Mobile Carrier′
s Profit in the upstream market

8. Assessment for Economic Evidence
 Reference point for margin squeeze = KRW 9.2
 Mobile carrier B : 51 percent of total sales.
 If multiplying each operator's subscriber- based share by the minimum
corporate messaging, the minimum service charges are estimated at 9.
2 won.
 Mobile carrier A: 47 percent of total sales
 Each mobile carrier sold a significant volume of messages at a lower price
than the reference price.

9. Assessment for Economic Evidence
 Analysis of intention regarding competition restriction: The purpose is to
exclude competing serviceoperators
 Despite the greater benefits in the upstream market, mobile carriers A
and B participate in the downstream market and sell messaging
services at a lower price than thereference price
.

10. The result of the market in this case
 During this case,competing serviceoperators were excluded,
and two out of 11 companies were forced out of the market.

11. The role of economic analysis
 In the case of margin squeeze, if there is no direct evidence, it is difficult to
judge whether and how much such behavior is harmful to competition .
 It is not easy to determine whether the exclusion of actual competitors is
a result of the behavior.
 Economic analysis can be used as a
circumstantial evidence for determining
whether a particular business operator'sbehavior has the purpose of
restricting competition and whether a competitor can be excluded by the
behavior.
 For a similar event in the future, the economic analysis can helpin
determining whether a suspected firm’s behavioris illegal or not.