Abstract
Merging firms regularly argue that mergers involving capacity-constrained firms are unlikely to be anticompetitive, because a capacity-constrained firm does not represent a meaningful competitive constraint on its rivals. We construct a modified notion of upward pricing pressure called ccGUPPI, or capacity-constrained GUPPI, which accounts for upward pricing pressure from binding capacity constraints, in addition to standard merger effects. We show that the pricing pressure terms underlying ccGUPPI, calculated using pre-merger data, are sufficient to determine whether a merger of capacity-constrained firms will increase price, irrespective of the functional form of demand. Further, using Monte Carlo simulation, we show that ccGUPPI is generally a useful proxy for actual price effects, with lower informational requirements than full merger simulation.
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