At a recent panel discussion during George Mason Law Review’s annual antitrust symposium, Deborah Feinstein, director of the Federal Trade Commission’s (FTC) Bureau of Competition, was asked what levels of gross upwards pricing pressure index (GUPPI) could raise concern in the FTC’s merger review process. Feinstein declined to provide a specific level that would raise concern, thereby rejecting movement towards a safe harbor for merging parties in markets where the GUPPI is particularly low.
The FTC’s policy regarding a GUPPI safe harbor has a substantial impact on its investigations of mergers with potential unilateral price effects. Generally unilateral price effects exist where the merged entity has the incentive to raise the price of the products of one or both firms. One way to conceptualize the potential unilateral effects of a merger is to consider the opposing forces of downwards and upwards pricing pressures. The elimination of competition between merging firms creates upwards pricing pressure. The benefits gained from efficiencies generate downward pricing pressure. GUPPI is an economic measure that attempts to estimate the upwards pricing pressure for a particular product resulting from a merger. Three market conditions lead to a higher GUPPI: 1) a high diversion ratio to the merging partner’s product; 2) a higher margin for the merging partner’s product; and 3) a higher price for the merging partner’s product (Moresi 2010). (more…)