price squeezethe 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 squeezea 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).