Economics Oligopoly Questions
Price squeezing is a strategy employed by dominant firms in an oligopoly to limit competition and maintain their market power. It involves setting the price of the final product at a level that is close to or slightly above the cost of production, while simultaneously reducing the price of an essential input or complementary product to a level that is below the cost of production for potential competitors. This strategy makes it difficult for competitors to enter the market or remain profitable, as they are unable to match the low input prices set by the dominant firm. Ultimately, price squeezing allows the dominant firm to control both the input and final product markets, limiting competition and maximizing their profits.