Sound GUPPI Safe Harbor: A Calibrated Unilateral Effects Screen for Horizontal Mergers with Differentiated Products

Abstract

The U.S. Horizontal Merger Guidelines (“Guidelines”) include an enforcement standard specifying that, “If the value of diverted sales is proportionately small, significant unilateral price effects are unlikely.” However, the Guidelines do not quantify the relative value of diverted sales (GUPPI) regarded as “proportionately small”. This article presents a novel quantification — calibrating a GUPPI safeharbor to existing Guidelines standards, which yields a GUPPI bound of 6% and a diversion-ratio limit of 20% under present Guidelines parameters — and characterizes the calibrated GUPPI safeharbor both graphically and in terms of “intrinsic clearance rates”, defined herein.