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Upward Pricing Pressure as a Predictor of Merger Price Effects

Nathan Miller, Marc Remer, Conor Ryan and Gloria Sheu
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Nathan Miller: Georgetown University, McDonough School of Business
Conor Ryan: University of Minnesota, Department of Economics

No 201602, EAG Discussions Papers from Department of Justice, Antitrust Division

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 misspecifed simulation models, nor is it much greater than that of correctly-specifed models simulated with imprecise demand elasticities. The results also support that both UPP and the HHI change provide accurate screens for anticompetitive mergers.

Pages: 28 pages
Date: 2016-03
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