Economics 321 at Wesleyan requires an 80 minute group presentation on an academic journal we read through out the semester. This is the slideshow we used

1. Benjamin Firn
Gerald Lucey
Jimmy Hill

2. Purpose of paper is to investigate an
“upward pricing pres-sure (“UPP”) tool for
analyzing unilateral competitive effects of
horizontal mergers on differentiated
products that is featured in the 2010
Guidelines.”
Willig, Robert. “Unilateral Competitive Effects of Mergers.” Page 19.

4. Increased Market Share
Decreased Costs
Increased Quality of Product (“hedonic”
quality adjusted prices)

5. Wiriadinata, Michael. “Economies of Scale, Scope and
Learning Curve.” Page 1.

6. “Unilateral Competitive Effects of Mergers:
Upward Pricing Pressure, Product Quality,
and Other Extensions” by Robert Willig
 Abstract
 Upward Pricing Pressure 2010 Guidelines
 The GUPPI, Marginal Cost Efficiencies and UPP Calibration
 UPP With Merger Impacts on Product Quality
 Multiproduct UPP Analysis
 UPP Analysis of Partial Equity Stakes
 Upward Market Power Pressure: Price Increases and Output Decreases
 Conclusion

7. UPP
GUPPI
“Hedonic Prices”
Diversion Ratio
Diverted Sales
Economies of Scale
Cross Elasticity of Demand

18. Willig’s Definition: “The diversion ratio
between goods 1 and 2 is the fraction of
the sales that a price rise suppresses of
good 1 that divert to good 2”.
Shapiro’s Definition: “If the price of Brand A
were to rise, what fraction of the customers
leaving Brand A would switch to Brand B?”
Willig, Robert. “Unilateral Competitive Effects of Mergers.” Page 26.
Shapiro, Carl . “Mergers with Differentiated Products.” Page
1.

19. Assume Coke and Pepsi Merge
Pre-Merger:
Pc = $1 Pp = $1.50
Qc = 10(-Pc + Pp) Qp = 7(-Pp + Pc)
What is the diversion ratio?

20. What happens when the diversion ratio is
1?
What does this mean?
Under what conditions should the firm
raise its post-merger price?

23. Pepsi/Coke in real life
Duopolistic Competition
Cross Elasticity of Demand
 Brand Loyalty

24. DOJ
• Horizontal Merger Guidelines 0f 2010
UPP (Price Increases)
Social Welfare

25. Willig, Robert. “Unilateral Competitive Effects of Mergers.” Page 26.
CRA. “Scoring Unilateral Effects with the GUPPI.” Page 4.

26. Willig, Robert. “Unilateral Competitive Effects of Mergers.” Page 29.

27. Other firms and consumers reacting to the
merger is unaccounted for
Market Entry
Product Repositioning

28. Judges are not economists
Both sides estimate their own UPP
Ambiguity (3.8% of cases flagged between
1988 – 2005)
Good way to screen for potential anti-trust
cases
Wienberg, Matthew. “The Price Effects of Horizontal Mergers.” Page 1.

29.  Anheuser-Busch proposed $20.1 for
GrupoModelo
 Projected to affect half of $80 billion sales in
market
 DOJ feared “the deal could lead to higher
beer prices in this country because it would
reduce competition in the U.S. beer market.”
 Assistant Attorney General cites “The big
folks were working hard to set price increases
and Modelo was a significant constraint.”
The Inquisitr. “Price of Beer Saved: Corona And Budweiser Merger Denied by
DOJ.” Page 1

30.  Willig, Robert. “Unilateral Competitive Effects of
Mergers.” Pages 20 – 37.
 The Inquisitr. “Price of Beer Saved: Corona And
Budweiser Merger Denied by DOJ.” Page 1.
 Weinberg, Matthew. “The Price Effects of
Horizontal Mergers.” Pages 1 – 21.
 CRA. “Scoring Unilateral Effects with the GUPPI.”
Pages 1 - 6.
 Shapiro, Carl . “Mergers with Differentiated
Products.” Page 1 - 8.
 Wiriadinata, Michael. “Economies of Scale, Scope
and Learning Curve.” Page 1.