Stricter margin squeeze regulation to achieve non-discrimination in digital markets

Non-discrimination clauses are once again central in digital markets, echoing the 1990s debates on telecom liberalization and resurfacing in later discussions on net neutrality. In practice, they often appear as margin squeeze regulations, requiring vertically integrated firms to offer wholesale access with a minimum margin between retail and wholesale prices—the margin’s size determining the rule’s strictness. We show that binding margin squeeze constraints can soften downstream competition, creating a trade-off between product variety and retail prices for both total and consumer welfare. Stricter rules, however, do not spur wholesale access competition, unlike direct wholesale price caps. These results have important implications for telecom and digital market regulation, where regulation of gatekeepers is tightening.