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3. Margin squeeze

What is margin squeeze? How could it harm competition?

Margin squeeze may arise when a vertically integrated undertaking with substantial market power supplies an important input (e.g. an indispensable raw material) to downstream businesses while it also operates in that downstream market.

 

Margin squeeze occurs if the undertaking with substantial market power reduces the margin between the price it charges for the input to its competitors in downstream market (i.e. the upstream price) and the price its downstream operations charged to its own customers (i.e. the downstream price), to an extent that the margin is insufficient to cover the its own downstream product-specific costs, such that the downstream competitors will be unable to compete effectively.

 

[Source: Commission’s Guideline on the Second Conduct Rule Paras 5.13-5.14]

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