Strictness and Accuracy of Simple Price Tests of Merger Control

42 Pages Posted: 27 Mar 2019 Last revised: 15 Feb 2020

Date Written: February 14, 2020

Abstract

Competition authorities regularly use simple price indicators within merger control procedures those affect differentiated product markets, from initial screen to underpinning of final decisions. The fundamental flaw of these indicators is that their prediction properties and, as a consequence, their usefulness is almost completely unknown. This paper reveals these properties: the merger-subpopulations they flag as problematic and, assuming linear or isoelastic demand, the type I and II errors. This knowledge creates the opportunity for a more conscious use of these tools.

Keywords: merger control, differentiated products, UPP, GUPPI, CMCR, IPR, alarm probability, type I and II errors (false positives and negatives)

JEL Classification: L41, C02

Suggested Citation

Bokor, László, Strictness and Accuracy of Simple Price Tests of Merger Control (February 14, 2020). Available at SSRN: https://ssrn.com/abstract=3346549 or http://dx.doi.org/10.2139/ssrn.3346549

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