A Note on Upward Pricing Pressure: The Possibility of False Positives

13 Pages Posted: 1 Jun 2012  

Lars Mathiesen

Norwegian School of Economics (NHH) - Department of Economics

Øivind Anti Nilsen

Norwegian School of Economics (NHH) - Department of Economics; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute

Lars Sorgard

Norwegian School of Economics and Business Administration (NHH); Norwegian School of Economics (NHH) - Department of Economics

Date Written: May 8, 2012

Abstract

Farrell and Shapiro proposed a simple test of the possible upward pricing pressure (UPP) following a merger. They showed that the test may give false negatives, that is, indicate that a merger may not give an UPP, while a more comprehensive test would indicate the opposite. We show that their test applied to a case with asymmetric firms may give false positives.

Keywords: Unilateral merger effects, post-merger price effects

JEL Classification: K21, L41

Suggested Citation

Mathiesen, Lars and Nilsen, Øivind Anti and Sorgard, Lars, A Note on Upward Pricing Pressure: The Possibility of False Positives (May 8, 2012). NHH Dept. of Economics Discussion Paper No. 11/2012. Available at SSRN: https://ssrn.com/abstract=2071173 or http://dx.doi.org/10.2139/ssrn.2071173

Lars Mathiesen

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5035 Bergen
Norway

Oivind Anti Nilsen

Norwegian School of Economics (NHH) - Department of Economics ( email )

Helleveien 30
N-5045 Bergen
Norway

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

CESifo (Center for Economic Studies and Ifo Institute) - Ifo Institute ( email )

Poschinger Str. 5
Munich, 01069
Germany

Lars Sorgard (Contact Author)

Norwegian School of Economics and Business Administration (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway
+47 5 595 9723 (Phone)
+47 5 595 9543 (Fax)

Norwegian School of Economics (NHH) - Department of Economics

Helleveien 30
N-5035 Bergen
Norway

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