Cost Efficiencies and Upward Pricing Pressure

45 Pages Posted: 31 Jan 2019

See all articles by Jessica Dutra

Jessica Dutra

University of Kansas

Tarun Sabarwal

University of Kansas

Date Written: December 18, 2018

Abstract

We investigate the accuracy of UPP as a tool in antitrust analysis when there are cost efficiencies from a horizontal merger. We include model-based, merger-specific cost efficiencies in a tractable manner and extend the standard UPP formulation to account for these efficiencies. The efficacy of the new UPP formulations is analyzed using Monte Carlo simulation of 40,000 mergers (8 scenarios, 5,000 mergers in each scenario). We find that the new UPP formulations yield substantial gains in prediction of post-merger prices, as compared to existing practice, and there are substantial gains in merger screening accuracy as well. Moreover, the new UPP formulations outperform the standard UPP formulation at higher thresholds for all the standard cases in the paper. The results support the inclusion of model-based cost efficiencies in the standard UPP formulation for more accurate antitrust decision-making.

Keywords: Upward Pricing Pressure, Merger Efficiency, Monte Carlo, UPP, Mergers, Antitrust, Unilateral Effects, Cost Efficiencies

JEL Classification: K21, L11, L41, L13

Suggested Citation

Dutra, Jessica and Sabarwal, Tarun, Cost Efficiencies and Upward Pricing Pressure (December 18, 2018). Available at SSRN: https://ssrn.com/abstract=3322168 or http://dx.doi.org/10.2139/ssrn.3322168

Jessica Dutra

University of Kansas ( email )

1415
Lawrence, KS 66045
United States

Tarun Sabarwal (Contact Author)

University of Kansas ( email )

1415
Lawrence, KS 66045
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
54
Abstract Views
424
rank
372,997
PlumX Metrics