It is common for vertically integrated firms to sell wholesale products to other firms, while competing against those same firms in retail markets. In this situation the vertically integrated firm can obtain sensitive commercial or business information through its wholesale transactions that gives it a competitive advantage in its retail activities.
Two of the three anti-competitive practices proscribed by the WTO [1] concern misuse of information:
(a) engaging in anti-competitive cross-subsidization;
(b) using information obtained from competitors with anti-competitive results; and
(c) not making available to other services suppliers on a timely basis technical information about essential facilities and commercially relevant information which are necessary for them to provide services.
For example, suppose a vertically integrated incumbent firm is the sole source of dedicated access lines needed to provide retail private line services. Other firms may have no choice but to acquire wholesale dedicated access lines from the incumbent. To complete the wholesale transaction, the incumbent needs information about the identity, size, and other characteristics of end-users being targeted by its competitors. It could use this information to target the same end-users with superior service offerings, placing its competitors at a considerable competitive disadvantage. This would constitute a misuse of information.
Figure 2.6: Responding to misuse of information
Remedies for misuse of information are generally ex ante in nature, and include:
- Establishing strict rules or procedures governing the use or disclosure of commercially sensitive information, and setting limits on the sharing of sensitive information between a carrier and its affiliates
- “Win back” rules, limiting the extent to which the vertically integrated firm may directly market to customers that choose to switch to a competitor.
END NOTES
[1] World Trade Organisation Reference Paper, available online at: http://www.wto.org/english/news_e/pres97_e/refpap-e.htm.