Saturday, February 27, 2010

Upward Pricing Pressure and Critical Loss Analysis: Response

Posted by D. Daniel Sokol

Joe Farrell (FTC) and Carl Shapiro (DOJ) responjd to the critics in Upward Pricing Pressure and Critical Loss Analysis: Response.


As members of the Department of Justice  and Federal Trace Commission working group that is reviewing the Horizontal Merger Guidelines, we thank Competition Policy International for organizing the nine papers in their December 2009 Release 1, Revising the Merger Guidelines. These papers helpfully supplement the information that the DOJ and FTC are receiving in the form of public comments and at the five scheduled public workshops. Public comments and information about the workshops are posted at the FTC web site for the Guidelines review project.

In this article, we respond to two articles that were published in this symposium that address ideas we had published in two papers written before taking our current positions at the FTC and DOJ:

Richard Schmalensee's Should New Merger Guidelines Give UPP Market Definition takes a look at our paper, Antitrust Evaluation of Horizontal Mergers: An Economic Alternative to Market Definition. In this paper, we developed a simple measure of the upward pricing pressure (“UPP”) that results from a merger between firms selling differentiated products and discussed whether this measure be used as an indicator of the merger’s likely unilateral effects.

Malcolm Coates & Joseph Simons, Critical Loss vs. Diversion Analysis, addresses ideas that we published Critical Loss Analysis. This paper specifically discusses whether in markets with differentiated products, the economics underlying critical loss analysis can instructively be illustrated by asking whether just two products form a relevant market under the Guidelines’ hypothetical monopolist test.

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