Vertical mergers and the vGUPPI: quantifying vertical foreclosure

Abstract

Competition authorities around the world have for many years used sophisticated quantitative tools to assess the likely scale of harm from horizontal mergers. More recently, vertical mergers have also been increasingly scrutinized by competition authorities using a range of quantitative tools. These tools help the authorities to quantify the incentive of the merging parties to enact vertical foreclosure strategies that would harm competition. One of those tools, known as the vGUPPI (vertical gross upward pricing pressure index), uses the same theoretical economic framework as the quantitative assessment used in horizontal merger assessments. This article explains how the vGUPPI tool works and uses two recent merger decisions of the Competition and Markets Authority in the groceries sector as case studies.