More on the HMGs: Scoring Unilateral Effects with the GUPPI

Josh Wright —  31 August 2010

Steve Salop, Serge Moresi, and John Woodbury have posted a very useful primer on the new HMGs new “value of diverted sales” approach to unilateral effects: the gross upward pricing pressure index (GUPPI).  Here’s the basic idea:

This concept of “value of diverted sales measured in proportion to the lost revenues attributable to the reduction in unit sales resulting from the price increase” can be converted into a metric for scoring the “upward pricing pressure” from the unilateral effects of a merger. Because this metric of upward pricing pressure does not take merger synergies or certain other factors into account, we refer to it as the Gross Upward Pricing Pressure Index or GUPPI for short.3 This particular descriptive name for the metric is not used in the Guidelines, but the metric is in fact the measurement described by the Guidelines. As explained below, the GUPPI also is useful for defining the relevant market under the hypothetical monopolist test set out in the Guidelines.

The “technical appendix” is not too technical for lawyers to understand and provides a very clean and simple presentation.   If you are looking to catch up on your HMG reading, its a good place to start.