Economics Oligopoly Questions
Price squeezing theory in oligopoly refers to a situation where a vertically integrated firm with both upstream and downstream operations uses its market power to manipulate prices in order to squeeze out competitors. This occurs when the firm charges a high price for its upstream product (input) and a low price for its downstream product (output), making it difficult for independent firms operating only in one segment of the market to compete. The vertically integrated firm can effectively eliminate competition by creating a price gap that is unsustainable for independent firms, leading to their exit from the market.