The following Competition practice note provides comprehensive and up to date legal information covering:
Margin squeeze is an example of ‘exclusionary' conduct that targets competitors with the aim of eliminating or weakening their position as viable rivals—either by forcing them out of the market or by making entry unattractive in the first instance. In particular, where a vertically-integrated undertaking holds a dominant position in an upstream market for the supply of an essential input and supplies this input to wholesale customers who are also retail competitors, it may have the ability and incentive to exclude these competitors from the downstream (retail) market.
In effect, the dominant undertaking ‘squeezes’ the downstream competitors’ margins (ie the gap between the cost of its required inputs and the price it can achieve on the downstream market) by charging a high wholesale price, a low retail price or a combination of both. The resulting ‘spread’ between the price at which the dominant undertaking sells the good/service on the retail market and the price at which it sells the upstream input to its rivals, is insufficient to allow an efficient retail rival to compete effectively. This reduction in effective downstream competition can lead to higher prices, decreased quality or a lack of product/service innovation.
The focus of concern when analysing a margin squeeze under Article 102 TFEU is on the 'unfairness' of this spread (between wholesale and retail prices) rather than the issue of either
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