Chillin'Competition

In the last weeks, France lost its triple A, but gained a fourth operator in the mobile telephony sector.

The chronology of events that led to the entry of Free Mobile brings a good illustration of what may constitute retaliation tactics amongst semi-collusive oligopolists. A reminder of what happened:

1. Since last year, rumour has it that a new operator contemplates entering the French mobile telephony triopoly;
2. In the summer 2011, the 3 incumbent oligopolists introduce  low cost subscriptions in a bid to possibly dissuade the new entrant;
3. As the threat of entry grows in the first days of 2012, the incumbents make statements in the press that they are ready to throw heavy artillery at Free mobile;
4. On 10 January, Free Mobile launches its mobile telephony service, cutting the incumbent’s mobile offers by several €s, and outcompeting them on voice, sms and the Internet;
5. In the following days, all three incumbent players align their offers on Free, with Bouygues Telecom even applying similar prices as Free ;
6. Yesterday, one incumbent send bailiffs to witness that Free’s network is dysfunctional, in violation of a number of contractual obligations.

Looks to me as if 2, 3, 5 and 6 are clear examples of ex ante and ex post retaliation tactics.  Thanks to Free Mobile for offering an opportunity to put pictures on theory. Will likely use this as a case-study with my students.

Now, the theoretical question is: can Free Mobile rely on the competition rules to block incumbents’ retaliation tactics?  As a matter of theory, retaliation practices of collectively dominant oligopolists could fall within the scope of Article 102 TFEU’s under-used abuse of collective dominance doctrine (O’Donoghue and Padilla, 2009, p.158).

That said, traditionnally, the economics of oligopolistic retaliation are still seen as too equivocal to be imported into a legal standard.  Economists for instance disagree on the magnitude of retaliation measures.  Whilst some believe that only measures akin to predatory pricing constitute an effective retaliatory mechanism, others view a mere temporary breakdown of collusion as a sufficient deterrent mechanism.  Moreover, economists still disagree on whether retaliation must be specifically targeted at the cheating firm or whether general retaliation through market-wide price reductions is a sufficient disciplining factor.

Now, what is interesting in the Free Mobile case, is that retaliation is not just confined to prices. Incumbents seems to be engaged in a broadening pattern of retaliation tactics, the purpose of which is to force Free Mobile off the market.  Those include the sending of anticompetitive signals through the press, agressive price competition, and possibly judicial/contractual harassment.

If things go on this way, and new retaliation measures are taken by incumbent oligopolists, Free Mobile may well solicit the protection of competition authorities under Article 102 TFEU. The fact that there are additional retaliation measures in addition to aggressive price competition  could indeed make a strong case of  abuse, under a  Karate-competition law approach. Moreover, the incumbents might have coordinated their response to Free Mobile’s entry, as they did back in the day when they organized a Yalta on mobile telephony.

A last reason to believe: at the press conference announcing the launching of  Free Mobile’s offer, X. Niel, the CEO of Free Mobile  praised Bruno Lasserre, the head of the French CA, for his support in the last few years. And in reading Bruno Lasserre’s own words about free, it seems the French CA is quite enthusiastic with the entry of a fourth player in the market.