SSNIP, State-owned Enterprises, Public Goods and Complements

State-owned enterprises sometimes operate in markets below marginal costs in order to provide public goods. In practice it happens that they can cross-subsidise their activity in other markets since regulation is not perfect. Based on a simple model, I show that such cross-subsidisation reduces at least consumer welfare. In competition law, the SSNIP test is used to identify market power. If the state-owned enterprises have some scope for price discrimination, the paper argues that the paradox of the SSNIP test that companies operating below marginal costs are a monopolist on a "relevant market" makes sense. The paper recommends imposing a duty to deal as a special responsibility for these companies. Finally, it is argued that some criteria are necessary to refine the applicability of competition law in such situations. Subadditivity of the underlying cost structure should be one sufficient condition to apply competition law.