A GUPPI Measuring Both Merging Firms’ Incentives to Raise Prices

GUPPIs continue to be a common tool in antitrust investigations and court decisions since they were introduced in the 2010 Horizontal Merger Guidelines. The standard GUPPI is calculated under the assumption that a merger of two single-product firms results in the combined entity raising only one product’s price, not both. When combined with an assumed product-specific passthrough rate, the single-product GUPPI provides a first-order approximation of post-merger price effects, thereby serving as a “scaled-down” merger simulation model. We illustrate with a simulation method that—in the context of a linear-demand model—the two-product GUPPI more accurately predicts price increases relative to an average of the single-product GUPPIs. More mixed results obtain when considering a double-logarithmic demand model. Our simulation method and empirical approach to estimating scaling factors that transform upward pricing pressure indexes into direct predictors of the relative price changes imposed by merging firms can be readily extended to other demand forms.

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