Incumbent firms often control access to facilities that are essential inputs in the supply of services at the retail level. Competing retailers depend on the incumbent for access to the essential facility. In the telecommunications sector, the local loop connecting end customers to the local exchange is often regarded as an essential facility.
Incumbent firms may attempt to prevent competitors from entering the market by refusing to provide access to an essential facility or withhold information..
The figure below shows a vertically integrated incumbent firm (red) and a downstream entrant (blue). The incumbent firm controls an essential input, on which the downstream entrant depends in order to provide services to its customers. The incumbent also competes with the downstream entrant at the retail level. By refusing to supply the essential input, the incumbent can prevent the downstream entrant from competing.
Figure 2.2: Refusal to Supply an Essential Facility
To encourage competition, many jurisdictions require firms with control over essential facilities to provide access to competitors. Rules may also determine the way in which access prices will be agreed, and procedures for resolving any disputes.
Refusal to supply may include deliberate delays and obstruction such as 'losing the keys to the exchange' where a competitor has the right to co-locate equipment in an exchange under supervision.