Unilateral Effects Analysis and the Upward Pricing Pressure Model: Evidence from the Federal Trade Commission

Abstract

This paper explores the Federal Trade Commission’s unilateral effects analysis from the perspectives of both the 1992 and 2010 Merger Guidelines. Historical enforcement data is used to define a diversion benchmark of 30 percent, but is unable to detect a role for the margin variable. A related analysis shows a deterministic model based on the number of significant rivals appears to out-perform alternative structural proxies. Case study evidence explores the factors that tend to affect the implications of the structural model, with evidence showing diversions are low suggesting closing merger investigations involving few rivals, while evidence of high diversions supports a challenge even in the presence of an unusually high number of rivals. A broader case study identifies a range of considerations under which a unilateral effects model should not be applied to a differentiated products merger. This paper is a reorganized and streamlined version of an earlier working paper "Counting Rivals or Measuring Share: Modeling Unilateral Effects for Merger Analysis," 2011, available at SSRN: http://ssrn.com/abstract=1722846.

Keywords: mergers, competition policy, unilateral effects, UPP, Federal Trade Commission

JEL Classification: K21, L40