Lecture 3c Horizontal Merger.pdf

Lecture 3c Horizontal Merger.pdf - Lecture 3c Horizontal...

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Lecture 3c: Horizontal Merger (2)
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Unilateral Effect The possible unilateral effects of merger: – Market power effect which raises prices – Efficiency effect which reduces prices The net effect is ambiguous The unilateral effect of merger depends on whether the efficiency gains effect outweighed the market power effect
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Upward Pricing Pressure 1 The concentration test based on HHI index has been used for merger evaluation since 1982 Horizontal Merger Guideline. HHI test is based on Cournot competition model which assumes that firms compete in output. The 2010 Horizontal Merger Guideline introduces the concept of Upward Pricing Pressure (UPP) test. UPP test is based on price competition model.
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