Sound Guppi Safe Harbor : A Calibrated Unilateral Effects Screen for Merger Enforcement

The 2010 Horizontal Merger Guidelines (Guidelines) advance the use of the Gross Upward Pricing Pressure Index (GUPPI) for analyzing unilateral effects of mergers in differentiated-products industries. However, the Guidelines do not quantify a GUPPI safe harbor threshold, whereas the Guidelines do quantify thresholds for concentration (HHI) and change in concentration (ΔHHI) below which a merger is considered unlikely to harm competition, i.e., to lie within a safe harbor. Prior proposals for a GUPPI safe harbor threshold reflect a calibration to the 5 percent benchmark for the “small but significant nontransitory increase in price” (SSNIP) in the Guidelines, but the benchmark SSNIP is not a safe harbor threshold. This paper presents a GUPPI safe harbor defined as (a.) a GUPPI threshold that is derived from the ΔHHI safe harbor, along with (b.) a diversion ratio threshold to address the concern that a GUPPI safe harbor threshold produces false negatives under specific conditions. A sound GUPPI safe harbor, as derived in this paper, improves the clarity, consistency, and transparency of merger enforcement under the Guidelines