A Note on Upward Pricing Pressure:The possibility of false positives

Posted by D. Daniel Sokol

Lars Mathiesen (Dept. of Economics, Norwegian School of Economics and Business Administration), Oivind Anti Nilsen (Dept. of Economics, Norwegian School of Economics and Business Administration) and Lars Sorgard (Dept. of Economics, Norwegian School of Economics and Business Administration) offer A Note on Upward Pricing Pressure:The possibility of false positives.

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.