How Accurate is the Coordinate Price Pressure Index to Predict Mergers’ Coordinated Effects?

Marc Ivaldi and Vicente Lagos

No 18-915, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: The Coordinate Price Pressure Index (CPPI) measures the incentives of two competitors to engage in a particular type of Parallel Accommodating Conduct (PAC). Specifically, it measures the incentives of a leader firm to initiate a unilateral percentage price increase, with the expectation that a follower firm will match it. Using a large set of simulated markets, we measure the accuracy of the index in terms of predicting the impact of a merger on firms’ incentives to engage in PAC. Results suggest that the CPPI only displays a fair performance when predicting an increase in firm’s incentives to engage in PAC, and only in mergers in which the diversion ratio between the target and the acquiring firm is low. However, the index displays a poor performance when predicting mergers with a significant anticompetitive effect.

Keywords: Coordinate Price Pressure Index; Parallel Accommodating Conduct; Merger Simulation (search for similar items in EconPapers)
JEL-codes: K21 L41 (search for similar items in EconPapers)
Date: 2018-04
New Economics Papers: this item is included in nep-bec, nep-cmp, nep-com and nep-law
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:32620

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