On 15 August 2013, the European Commission (EC) announced that it is consulting on proposals to end a “margin squeeze” investigation against Deutsche Bahn (DB), the German railway incumbent. A margin squeeze occurs when the prices charged by a dominant company on an upstream market in a situation in which that company or another in its group is also active in a downstream market do not allow competitors on that downstream market to trade profitably on a lasting basis.
In this case the alleged margin squeeze relates to the pricing of traction current by a DB subsidiary that is the only supplier in Germany and that is therefore dominant in that market. The EC considers that this company’s pricing may have created a margin squeeze on the downstream long-distance passenger rail transport and rail freight markets in Germany (in which its parent is active). DB has proposed a new pricing system for traction current that would apply uniformly to all railway companies in Germany for five years.
Companies that purchase from a dominant supplier and that compete with it or with one of its group companies should take note of this. A “margin squeeze” argument, backed up by a possible complaint to a regulator or court action in a national court, may be available, to force that supplier to offer better terms.