Is the Whole Greater than the Sum of Its Parts? Pricing Pressure Indices for Mergers of Vertically Integrated Firms

Abstract

The paper analyzes gross upward pricing pressure indices—texttt {iGUPPI}—to assess the anti-competitive effects of mergers between vertically integrated firms where independent rivals are active in the downstream market. Such indices could be used, for example, to screen mergers between mobile network operators that compete with mobile virtual network operators in the downstream retail market. It is shown that the texttt {iGUPPI} for the downstream divisions of the merging firms corresponds to the sum of two well-known upward pricing pressure indices: the texttt {GUPPI} concept of Salop and Moresi (Georget Law J, 2009), and the texttt {vGUPPI} concept of Moresi and Salop (Antitrust Law J 79(1):185–214, 2013). However, this simple decomposition does not hold for their upstream divisions a priori. Here, additional effects that are not included in the two concepts arise. Further assumptions with respect to the price reactions of the downstream divisions to increases in the input prices are imposed so that the texttt {iGUPPI} for the upstream divisions is decomposable into an upstream market version of the texttt {GUPPI} and the texttt {vGUPPI}.