AN EMPIRICAL COMPARISON BETWEEN THE UPWARD PRICING PRESSURE TEST ANDMERGER SIMULATION IN DIFFERENTIATED PRODUCT MARKETS

Lydia Cheung

Journal of Competition Law and Economics, 2016, vol. 12, issue 4, 701-734

Abstract: The Upward Pricing Pressure (UPP) test is a new merger screen that focuses onprice effects instead of concentration changes. This article is one of the firstto compare its empirical predictions against that of merger simulations. This isvaluable for practitioners and economists alike, because it shows the extent towhich a quick screening tool will lead to the same decision as a structuralframework for market analysis. I use hypothetical mergers in a big cross-sectionof airline route markets to assess UPP's sign, rank, and magnitude predictions.In its “best case scenario,” it gives correct sign predictions in 90-percentobservations; correct decile predictions in 75-percent observations; and a meanmagnitude difference of $17, when compared against merger simulations. Iinvestigate the performance of both the first and second terms of the UPP usingdifferent hypothetical mergers. Lastly, I explore whether certain market orproduct characteristics lead to large discrepancies in the UPP using modelselection techniques.

JEL-codes: L11 L13 L41 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:oup:jcomle:v:12:y:2016:i:4:p:701-734.

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Journal of Competition Law and Economics is currently edited by Nicholas Economides, Amelia Fletcher, Michal Gal, Damien Geradin, Ioannis Lianos and Tommaso Valletti

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