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 ?
Yet, as the court itself admits, if things are actually getting better as a direct result of the WTO and other international liberalization efforts, and as the FCC's own admission that "increased global competition would drive rates towards cost-based levels,"(53) then why is more regulation needed to deal with a "heightened risk of price squeeze behavior"?(54)
Because the incumbent local exchange carriers control essential inputs needed by their competitors, the much more common (and sensible for the incumbent) practice is to put the competitor under a price squeeze. That is, the incumbent local exchange carrier charges the competitor a price for the essential input that is sufficiently high that a competitor that is just as efficient as the incumbent cannot match the incumbent's price for the services to end users for which they both compete.
In the face of this present price squeeze, vendors are looking for ways to buck the trend.
The problem is the price squeeze is so tight, we can't make any money." Or maybe you are one of the unfortunate ones getting squeezed out as world competitive pressures force elimination of your job in the latest corporate restructuring.
The theory of vertical foreclosure offered by the Chicago School is dismissed as a means to secure efficient routing, its alleged purpose, because of the inability to negotiate a perfect price squeeze. Such a squeeze would require zero transaction costs and perfect information about the connecting carrier's incremental costs and delta.
A simple illustration of the basic mechanics of a price squeeze can be provided by assuming that:
The company is about to report the first drop in annual profits in a decade and chief executive Mike Coupe warned today there were no immediate signs of a let-up in the price squeeze facing the sector.
competition authorities for their part consider a price squeeze claim to be a priority to open the telecommunication network to competition and will intervene despite regulation.
It is important to be clear at the outset as to the elements required for an anticompetitive price squeeze. First, the VIP must have a bottleneck in the supply of the essential input to downstream production.
The chamber found that 59 per cent of service businesses and 49 per cent of manufacturers said the price squeeze was their major concern compared with 24 and 15 per cent respectively in the first quarter of the year.
Lumber demand: Sawmills around the country are just recovering from a price squeeze.
Alfredo Bartholomaus, who imports both Chilean and Argentine wines for his company, Billington Imports in Virginia, agreed that there was no question that Chile was caught in a price squeeze. He also said it is of critical importance for Chilean wine prices to move up to get out of direct competition with Australian brands in the $5 to $7 range, such as [yellow tail], which will most likely move ahead of Concha y Toro in 2003 as the largest selling imported brand in the U.S.