Antitrust Analysis with Upward Pricing Pressure and Cost Efficiencies

PLOS ONE, January 2020

31 Pages Posted: 9 Oct 2020

See all articles by Jessica Dutra

Jessica Dutra

University of Kansas

Tarun Sabarwal

University of Kansas

Date Written: January 8, 2020

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, 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, Antitrust Analysis with Upward Pricing Pressure and Cost Efficiencies (January 8, 2020). PLOS ONE, January 2020, Available at SSRN: https://ssrn.com/abstract=3678281

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

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