A price-cost squeeze is tactic used
A)to prevent potential competitors from entering a market.
B)by a vertically integrated firm to squeeze the margins of its competitors.
C)by a vertically integrated firm to charge downstream rivals a prohibitive price for an essential input; forcing rivals to use more costly substitutes or exit the industry.
D)to gain a critical mass of consumers by charging an initial low price.

Question

Quizplus · Accepted Answer

A price-cost squeeze is a strategy used by vertically integrated firms to charge downstream rivals a prohibitive price for an essential input, making it difficult for them to compete. This strategy squeeze the margins of competitors and forces them to use more costly substitutes or leave the industry. This can be used to create a monopoly and prevent potential competitors from entering the market. The strategy is not used to gain a critical mass of consumers by charging an initial low price.

A Price-Cost Squeeze Is Tactic Used