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Upward pricing pressure as a predictor of merger price effects

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  • Miller, Nathan H.
  • Remer, Marc
  • Ryan, Conor
  • Sheu, Gloria

Abstract

We use Monte Carlo experiments to evaluate whether “upward pricing pressure” (UPP) accurately predicts the price effects of mergers, motivated by the observation that UPP is a restricted form of the first order approximation derived in Jaffe and Weyl (2013). Results indicate that UPP is quite accurate with standard log-concave demand systems, but understates price effects if demand exhibits greater convexity. Prediction error does not systematically exceed that of misspecified simulation models, nor is it much greater than that of correctly-specified models simulated with imprecise demand elasticities. The results also support that UPP provides accurate screens for anticompetitive mergers.

Suggested Citation

  • Miller, Nathan H. & Remer, Marc & Ryan, Conor & Sheu, Gloria, 2017. "Upward pricing pressure as a predictor of merger price effects," International Journal of Industrial Organization, Elsevier, vol. 52(C), pages 216-247.
    • Handle: RePEc:eee:indorg:v:52:y:2017:i:c:p:216-247
    DOI: 10.1016/j.ijindorg.2017.01.010
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    More about this item

    Keywords

    Upward pricing pressure; UPP; Merger simulation; Merger enforcement; Herfindahl-Hirschman Index; Unilateral effects;
    All these keywords.

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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