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Upward pricing pressure under capacity constraints, kinked demand and other cases of a constrained pre-merger equilibrium

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  • Neurohr, Bertram

Abstract

Upward pricing pressure formulas for merger analysis (UPP and GUPPI) are adjusted for cases where pre-merger prices correspond to an equilibrium that is constrained in some way, and therefore do not satisfy regular pre-merger first-order conditions. This is the case in particular when pre-merger prices are higher as a result of capacity constraints or a kinked demand curve. The extent of the adjustment to the upward pricing pressure formulas is shown to be given simply by the extent to which pre-merger prices violate the Lerner condition.

Suggested Citation

  • Neurohr, Bertram, 2016. "Upward pricing pressure under capacity constraints, kinked demand and other cases of a constrained pre-merger equilibrium," Economics Letters, Elsevier, vol. 139(C), pages 49-51.
    • Handle: RePEc:eee:ecolet:v:139:y:2016:i:c:p:49-51
    DOI: 10.1016/j.econlet.2015.12.020
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    References listed on IDEAS

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    1. Farrell Joseph & Shapiro Carl, 2010. "Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-41, March.
    2. Hausman, Jerry & Moresi, Serge & Rainey, Mark, 2011. "Unilateral effects of mergers with general linear demand," Economics Letters, Elsevier, vol. 111(2), pages 119-121, May.
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    Cited by:

    1. Michael Trost, 2021. "Is the Whole Greater than the Sum of Its Parts? Pricing Pressure Indices for Mergers of Vertically Integrated Firms," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(2), pages 235-262, March.
    2. Daniel Greenfield & Jeremy A. Sandford, 2021. "Upward pricing pressure in mergers of capacity‐constrained firms," Economic Inquiry, Western Economic Association International, vol. 59(4), pages 1723-1747, October.
    3. Trost, Michael, 2018. "The whole is greater than the sum of its parts: Pricing pressure indices for mergers of vertically integrated firms," Hohenheim Discussion Papers in Business, Economics and Social Sciences 06-2018, University of Hohenheim, Faculty of Business, Economics and Social Sciences.

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    More about this item

    Keywords

    Horizontal mergers; Unilateral effects; Capacity constraints; Kinked demand; Upward pricing pressure;
    All these keywords.

    JEL classification:

    • L4 - Industrial Organization - - Antitrust Issues and Policies

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