Some Economics of Margin Squeeze

The recent wave of deregulation resulted into a series of cases in which vertically integrated firms, often former public monopolies, were accused of abusively squeezing the margins of their non-integrated competitors by setting high upstream prices and low downstream prices. A margin squeeze can sometimes be viewed as excessive pricing, predatory pricing, refusal to supply, bundling or discrimination, which raises the issue of the consistency of the treatment of various abuses under Article 82. The naïve foreclosure theory of margin squeeze is logically flawed, as the Chicago critique has demonstrated, but several post-Chicago theories of harm allow us to delineate circumstances under which an anticompetitive margin squeeze could occur. These theories, together with the identification of the many factors making procompetitive practices look deceivingly like a squeeze, should be taken into account in order to complement accounting-based squeeze tests.