Relaxing whilst doing Competition Law is not an Oxymoron

New merger guidelines in the UK and the US/ Upward Pressure on Price Index

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The OFT and the Competition Commission released their  joint merger guidelines yesterday. Perhaps the most significant novelty brought by the guidelines is the explicit move towards the direct assesment of effects on competition to the detriment of the classic detailed assessment of market definition.

This shift, which is logically most apparent  in sections 5.4.6 to 5.4.12 of the guidelines, which deal with the analysis of unilateral effects in markets with significant product differentiation, is in line with the prevailing trend in the U.S, as reflected in the new DOJ/FTC merger guidelines (also released less than a month ago; see particularly section 6.1). Both the US and the UK guidelines seem to be strongly inspired by, and leave  ample room for the application of,  the “Upward Pressure on Price”  index proposed by Joseph Farrell and Carl Shapiro, the leading economists at the FTC and DOJ respectively (pictured above).

In essence, the UPP index moves away from the rigidness of structural analysis (which ignores the degree of actual substitutability between heterogeneous products) towards a greater  focus on diversion ratios and the value of diverted sales.  A detailed explanation about this tool doesn´t belong here, but  for those interested in learning some stuff about it, here are some links to the original 2008 proposal by Farrell and Shapiro  as well as to an interesting paper by Joseph Simons and Malcolm Coate proposing certain refinements. Unfortunately for non-Spanish speakers, the best short summary for non-economists that I´ve read on the UPP index -authored by Eric Gippini (who has a remarkable ability to identify hot topics)- appeared in the last number of the Gaceta Jurídica de la UE y de la Competencia (not available online).  We´ll certainly be hearing a lot about the “UPP” index from now onwards.

Written by Alfonso Lamadrid

17 September 2010 at 12:40 pm

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