Deutsche Telekom and Pacific Bell v. Linkline: Does a Regulatory Obligation to Deal Suffice to Establish a Price Squeeze? And does Competition Law have a Place in Regulated Industries?

Abstract

In two recent cases, the Supreme Court of the United States and the Court of First Instance of the European Communities gave very different answers to the question of how much involvement the competition authorities should have in the telecom industry. This paper takes those cases as a starting point to examine their legal reasoning, focusing on the question of whether those results were required by the substantive competition laws, and whether they make sense from the point of view of economic science. Subsequently, an attempt is made to model the costs and benefits of having more than one government agency supervise the same industry. The results show that the rulings of each court are consistent with the well known trends in competition law, resulting in a more interventionist European approach contrasted with an American result that rules out certain theories of liability that are, economically speaking, undoubtedly meritorious. The model that is proposed to consider the uncertainties involved in regulating a high-innovation industry offers a framework for thinking about such matters without – for now – allowing specific recommendations for either Europe or the US.