Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition

Abstract

We describe a simple initial indicator of whether a proposed merger between rivals in a differentiated product industry is likely to raise prices through unilateral effects. Our diagnostic calibrates upward pricing pressure (UPP) resulting from the merger, based on the price/cost margins of the merging firms’ products and the extent of direct substitution between them. As a screen for likely unilateral effects, this approach is practical, more transparent, and better grounded in economics than are concentration-based methods.

Keywords: mergers, antitrust, unilateral effects, market definition, relevant market

JEL Classification: K21, L13, L4, L40