Critical Efficiencies as Upward Pricing Pressure with Feedback Effects
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Bertram Neurohr
Abstract
Farrell and Shapiro’s upward pricing pressure (‘UPP’) is widely used in merger analysis due to its intuitiveness, despite not accounting for the interdependence between the merging firms’ pricing incentives (‘feedback effects’). However, ignoring feedback effects can have an impact on the way competition authorities rank mergers. The main result of this article is that UPP with feedback effects is equivalent to Werden’s critical efficiencies. Importantly, this link allows for the derivation of an expression that combines the intuition of UPP as the ‘value of diverted sales’ with the accuracy of critical efficiencies. Throughout, the focus is on the static unilateral effects of horizontal mergers with differentiated Bertrand competition.
Acknowledgments
The views and opinions expressed in this article are those of the author. The author would like to thank two anonymous referees for helpful comments.
References
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© 2019 Walter de Gruyter GmbH, Berlin/Boston
Articles in the same Issue
- Articles
- Privatizing Multi-subsidiary Public Firm in Location Model
- Efficient Combinatorial Allocations: Individual Rationality versus Stability
- On Decay Centrality
- Sequential Auctions with Decreasing Reserve Prices
- The core of a strategic game
- Targeted Advertising on Competing Platforms
- Representation in Multi-Issue Delegated Bargaining
- Endogenous Mergers in Markets with Vertically Differentiated Products
- Standards of Proof and Civil Litigation: A Game-Theoretic Analysis
- Retained Earnings, Interest Rates and Lending Relationship
- Uniform Price Auctions with Asymmetric Bidders
- Conformity and Influence
- Sellouts, Beliefs, and Bandwagon Behavior
- Notes
- Eco-Firms and the Sequential Adoption of Environmental Corporate Social Responsibility in the Managerial Delegation
- Vertical Contract and Competition Intensity in Hotelling’s Model
- Constrained Allocation of Projects to Heterogeneous Workers with Preferences over Peers
- Irrelevance of the Strategic Variable in the Case of Relative Performance Maximization
- Critical Efficiencies as Upward Pricing Pressure with Feedback Effects
- On the Openness of Unique Pure-Strategy Nash Equilibrium
- Forecast Dispersion in Finite-Player Forecasting Games
Articles in the same Issue
- Articles
- Privatizing Multi-subsidiary Public Firm in Location Model
- Efficient Combinatorial Allocations: Individual Rationality versus Stability
- On Decay Centrality
- Sequential Auctions with Decreasing Reserve Prices
- The core of a strategic game
- Targeted Advertising on Competing Platforms
- Representation in Multi-Issue Delegated Bargaining
- Endogenous Mergers in Markets with Vertically Differentiated Products
- Standards of Proof and Civil Litigation: A Game-Theoretic Analysis
- Retained Earnings, Interest Rates and Lending Relationship
- Uniform Price Auctions with Asymmetric Bidders
- Conformity and Influence
- Sellouts, Beliefs, and Bandwagon Behavior
- Notes
- Eco-Firms and the Sequential Adoption of Environmental Corporate Social Responsibility in the Managerial Delegation
- Vertical Contract and Competition Intensity in Hotelling’s Model
- Constrained Allocation of Projects to Heterogeneous Workers with Preferences over Peers
- Irrelevance of the Strategic Variable in the Case of Relative Performance Maximization
- Critical Efficiencies as Upward Pricing Pressure with Feedback Effects
- On the Openness of Unique Pure-Strategy Nash Equilibrium
- Forecast Dispersion in Finite-Player Forecasting Games
