similar to Predatory Pricing, but not below production costs. Basically selling price = price of production
A margin squeeze in the context of EU competition law refers to a situation where a dominant company or a group of companies with significant market power (typically above 40%) sets prices for their products or services in such a way that it reduces the already thin profit margins of its competitors, making it difficult for them to operate efficiently and competitively.
In essence, a margin squeeze occurs when the dominant company:
- Sets prices: Charges its competitors prices that are significantly lower than its own cost of production, effectively forcing its rivals to sell at a loss.
- Limits output: Restricts the quantity of products or services it sells, thereby reducing competition and market offerings.
- Exercises market power: Uses its dominant position to dictate market conditions, making it difficult for competitors to survive.
The EU’s competition authorities (e.g., the European Commission) may investigate a margin squeeze if it determines that:
- The dominant company has significant market power (>40%).
- The competitor(s) are experiencing or will likely experience financial difficulties due to the reduced profit margins.
- The dominant company is abusing its market position, causing harm to competition and consumers.
If found guilty of engaging in a margin squeeze, a company can face fines, penalties, or even be forced to divest certain assets or change its business practices.