price squeeze

price squeeze

the charging of discriminatory prices by a vertically integrated firm (see VERTICAL INTEGRATION) for the supply of inputs to non-integrated rivals, as a means of putting them at a competitive disadvantage. This occurs when the integrated firm produces both the input and the finished product, while the unintegrated firms produce only the finished product but have to rely on the integrated firm for their input supply. A ‘squeeze’ is applied if the integrated firm charges the non-integrated firms a high price for the input but sells its own finished product at a low price, thus allowing non-integrated firms only minimal profits or forcing losses on them. In market situations where there is a substantial number of alternative, independent supply sources, rival producers are unlikely to be harmed. However, the control by a DOMINANT FIRM of the input, combined with limitations on the establishment of new sources of supply could have serious anti-competitive consequences. Under UK COMPETITION POLICY cases of vertical integration may be referred to the COMPETITION COMMISSION for investigation. See PRICE DISCRIMINATION, TRANSFER PRICE.

price squeeze

a type of practice whereby vertically integrated firms (see VERTICAL INTEGRATION) are able to injure nonintegrated competitors. This arises when the integrated firms produce both a raw material and the finished good, while the nonintegrated firms produce only the finished good but have to rely on the integrated firms for their raw material supplies. A ‘squeeze’ is applied if the integrated firms charge the nonintegrated firms a high price for the raw material and sell the finished product at a price that allows nonintegrated firms only minimal profits or forces losses on them.

Situations can also arise where the integrated firms produce raw materials and finished goods, while the nonintegrated firms produce only the raw material but have to rely on the integrated firms as a market for their raw materials. A ‘squeeze’ can be applied if the integrated firms pay a low price for the raw material from nonintegrated firms but a high price for the raw material from integrated firms, allowing the nonintegrated firms only minimal profits or forcing losses on them.

In most circumstances, the ability to exercise a harmful price squeeze requires a firm to be the only or dominant supplier of the product, otherwise suppliers can switch to other suppliers for their raw material supplies. See MARKET DOMINANCE, COMPETITION POLICY (UK).

References in periodicals archive ?
Regarding price squeeze and improvement of the purchasing power of employees, Taboubi said minutes relating to previous social negotiations will be implemented.
Its chairman, Ian Buchanan, said the carpet wool sector was suffering due to a price squeeze by retailers and the increasing use of polypropylene.
GROCERY RECOVERY The UK grocery sector is seeing its first "green shoots of recovery" after a price squeeze that has lasted over two years, according to a new report.
Contract notice: General call with european advertising on behalf of the belgian institute for postal services and telecommunications (bipt) on the designation of a body responsible for developing a testing tool of price squeeze.
The company is about to report the first drop in annual profits in a decade and chief executive Mike Coupe warned there were no immediate signs of a let-up in the price squeeze facing the sector.
Agriculture in general is under pressure with costs of production continuing to rise and a real price squeeze on farmers in the processing and retail end of the scale.
Traditionally, a price squeeze theory could succeed when a firm with a monopoly in an upstream market also sold in a downstream market and set the prices of its upstream and downstream products at a level that made it impossible for competitors in the downstream market to survive.
The judges noted that the Spanish Telecommunications Market Commission had underlined the squeeze effect resulting from the price difference and that Telefonica was free to reduce the price of its regional wholesale product, which was not subject to regulations, and to increase its retail prices to end the price squeeze.
The result of this collision of ideas was a resounding success: without suffering loss of quality, or comprising the product's luxury appeal, the price squeeze immediately led to the birth of a legendary object.
Simultaneously, the ruling altered the meaning of what constitutes a price squeeze.
This Article presents a critical analysis of the Linkline case that refuses to recognize price squeeze claims as antitrust claims under [section] 2 of the Sherman Act.
What is different this time compared with the cereal price squeeze of 2007/8 is that global residual stock levels are much higher after two years of record crop output, while cereal production in other regions such as the US looks like it is going to be robust.