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Upward Pricing Pressure as a Predictor of Merger Price Effects

Author

Listed:
  • Nathan Miller

    (Georgetown University, McDonough School of Business)

  • Marc Remer

    (Swarthmore College, Department of Economics)

  • Conor Ryan

    (University of Minnesota, Department of Economics)

  • Gloria Sheu

    (Economic Analysis Group, U.S. Department of Justice)

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.

Suggested Citation

  • Nathan Miller & Marc Remer & Conor Ryan & Gloria Sheu, 2016. "Upward Pricing Pressure as a Predictor of Merger Price Effects," EAG Discussions Papers 201602, Department of Justice, Antitrust Division.
    • Handle: RePEc:doj:eagpap:201602
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    File URL: https://www.justice.gov/atr/upward-pricing-pressure-predictor-merger-price-effects
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    References listed on IDEAS

    as
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    6. Nathan H. Miller & Marc Remer & Conor Ryan & Gloria Sheu, 2016. "Pass-Through and the Prediction of Merger Price Effects," Journal of Industrial Economics, Wiley Blackwell, vol. 64(4), pages 683-709, December.
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    More about this item

    JEL classification:

    • K21 - Law and Economics - - Regulation and Business Law - - - Antitrust Law
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
    • L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices

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