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Upward pricing pressure as a predictor of merger price effects

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

International Journal of Industrial Organization, 2017, vol. 52, issue C, 216-247

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.

Keywords: Upward pricing pressure; UPP; Merger simulation; Merger enforcement; Herfindahl-Hirschman Index; Unilateral effects (search for similar items in EconPapers)
JEL-codes: K21 L13 L41 (search for similar items in EconPapers)
Date: 2017
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Working Paper: Upward Pricing Pressure as a Predictor of Merger Price Effects (2016) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:indorg:v:52:y:2017:i:c:p:216-247

DOI: 10.1016/j.ijindorg.2017.01.010

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