A Hedgehog in Fox's Clothing? The Misapplication of GUPPI Analysis

Abstract

Merger analysis in the United States has witnessed significant improvement over the last 50 years. The antitrust agencies steadily have moved away from a rigid step-by-step approach that focuses on counting the number of firms in a market to assess whether a proposed transaction is likely to substantially lessen competition. In place of this simplistic analytical framework, the agencies have shifted toward a more sophisticated evidence-based method that is grounded in modern economics and that employs a variety of new tools to determine a merger’s likely competitive effects. Among the most significant changes is the discussion of the value of diverted sales as part of unilateral price effects analysis and the endorsement of the Gross Upward Pricing Pressure Index (GUPPI). In this paper we assess how the GUPPI has been applied in modern merger analysis and whether it truly has lived up to its promise. We argue that the GUPPI regularly fails to live up to its promise for two principal reasons: (1) the GUPPI all too often is based on inaccurate or incomplete data and (2) there is insufficient guidance to allow the business community and the antitrust bar to draw reliable conclusions about how the GUPPI will be incorporated into the antitrust agencies’ enforcement decisions. As a result, GUPPI often fails to deliver the more rigorous and effects-based analysis we expect under modern merger review and instead reverts to an outdated focus on market concentration.