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Upward pricing pressure under capacity constraints, kinked demand and other cases of a constrained pre-merger equilibrium

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  • Neurohr, Bertram

Abstract

Upward pricing pressure formulas for merger analysis (UPP and GUPPI) are adjusted for cases where pre-merger prices correspond to an equilibrium that is constrained in some way, and therefore do not satisfy regular pre-merger first-order conditions. This is the case in particular when pre-merger prices are higher as a result of capacity constraints or a kinked demand curve. The extent of the adjustment to the upward pricing pressure formulas is shown to be given simply by the extent to which pre-merger prices violate the Lerner condition.

Suggested Citation

  • Neurohr, Bertram, 2016. "Upward pricing pressure under capacity constraints, kinked demand and other cases of a constrained pre-merger equilibrium," Economics Letters, Elsevier, vol. 139(C), pages 49-51.
    • Handle: RePEc:eee:ecolet:v:139:y:2016:i:c:p:49-51
    DOI: 10.1016/j.econlet.2015.12.020
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    References listed on IDEAS

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    1. Farrell Joseph & Shapiro Carl, 2010. "Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 10(1), pages 1-41, March.
    2. Hausman, Jerry & Moresi, Serge & Rainey, Mark, 2011. "Unilateral effects of mergers with general linear demand," Economics Letters, Elsevier, vol. 111(2), pages 119-121, May.
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    Cited by:

    1. Trost, Michael, 2018. "The whole is greater than the sum of its parts: Pricing pressure indices for mergers of vertically integrated firms," Hohenheim Discussion Papers in Business, Economics and Social Sciences 06-2018, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    2. Michael Trost, 2021. "Is the Whole Greater than the Sum of Its Parts? Pricing Pressure Indices for Mergers of Vertically Integrated Firms," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 58(2), pages 235-262, March.
    3. Daniel Greenfield & Jeremy A. Sandford, 2021. "Upward pricing pressure in mergers of capacity‐constrained firms," Economic Inquiry, Western Economic Association International, vol. 59(4), pages 1723-1747, October.

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    More about this item

    Keywords

    Horizontal mergers; Unilateral effects; Capacity constraints; Kinked demand; Upward pricing pressure;
    All these keywords.

    JEL classification:

    • L4 - Industrial Organization - - Antitrust Issues and Policies

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