Margin squeeze

A “margin squeeze” is an exclusionary abuse of dominance that arises when a vertically-integrated monopolist sells an upstream bottleneck input to rival firms that also compete in a downstream market with the monopolist in the provision of a downstream product. A margin squeeze is said to arise when the margin between the price at which the monopolist sells the downstream product and the price at which the monopolist sells the upstream bottleneck product to its rivals is “too small” to allow an efficient downstream rival to effectively compete or survive. In order for a margin squeeze case to arise, three elements must be present. First, an upstream firm must produce an essential or bottleneck input with no substitutes and no scope for other firms to provide the essential input themselves. Second, that firm must sell that essential input to one or more downstream firms which seek to use that input in the provision of some downstream product or service. Third, the upstream firm must itself use its own input to compete against those downstream firms in the market for that downstream product or service. A margin squeeze is said to arise when the margin between the price at which the integrated firm sells the downstream product and the price at which it sells the essential input to rivals is too small to allow downstream rivals to survive or effectively compete, to the detriment of downstream consumers. The primary antitrust concern is that a firm engaging in a margin squeeze may limit, restrict or prevent the development of competition in the downstream market. Depending on the circumstances this may raise the price or reduce the quality or variety of products available to downstream customers. It may also undermine the success of reforms aimed at promoting competition in the downstream market. Margin squeeze cases often arise in newly liberalised industries where incumbent firms have a regulatory obligation to provide certain essential inputs to downstream rivals – particular telecommunications, but also in the water sector, railways, postal services, pharmaceuticals, pay television, gasoline, and funeral services (amongst others). In almost all cases, margin squeeze cases fall under the general prohibition of abuse of dominance provisions in national competition laws. © OECD

On this topic see the e-Competitions special issue "Margin squeeze: An overview of EU and national case law"