BENCHMARKING THE UPWARD PRICING PRESSURE MODEL WITH FEDERAL TRADE COMMISSION EVIDENCE

The upward pricing pressure (UPP) model was introduced in the 2010 revision of the Merger Guidelines, although little insight was offered for how to operationalize an UPP screen. Abstracting from the potential for efficiencies, this article defines an UPP-related benchmark of 15 percent using data from a review of Federal Trade Commission merger challenge decisions. While the historical record highlights the importance of diversion ratios, the other key input into the UPP index, the margin, appears to play little role in the review process. A supplemental analysis of the case-specific evidence associated with unilateral merger review serves to confirm the benchmark results. Moreover, a detailed case study of unilateral-effects analyses identifies a number of application issues that may negate the finding of an UPP-based competitive concern. Thus, careful study should be undertaken before (1) using an UPP index as a merger screen with a benchmark well below 15 percent (diversions well below 30 percent), (2) customizing the UPP calculation for either high or low values of the margin, or (3) using an UPP index to impose a strong presumption of a competitive concern.