Two Hands Up for GUPPI: A GUPPI Measuring Both Merging Firms’ Incentives to Raise Prices

Two Hands Up for GUPPI: A GUPPI Measuring Both Merging Firms’ Incentives to Raise Prices

Shawn W. Ulrick

U.S. Federal Trade Commission (FTC)

Seth B. Sacher

Independent

Paul R. Zimmerman

U.S. Federal Trade Commission - Bureau of Economics

John M. Yun

George Mason University - Antonin Scalia Law School

Abstract

GUPPIs continue to be a common tool in antitrust investigations and court decisions since they were introduced in the 2010 Horizontal Merger Guidelines. The standard GUPPI is calculated under the assumption that a merger of two single-product firms results in the combined entity raising only one product’s price, not both. We introduce a two-product GUPPI that relaxes this restriction, allowing for the merged firm to raise both products’ prices. GUPPIs are also commonly used as a scaled-down merger simulation to predict post-merger price effects. We illustrate with a simulation method that—in the context of a linear-demand model—the two-product GUPPI more accurately predicts the price increase.  Our simulation method can be used to examine other demand forms (this research is in progress).