Strictness of Simple Price Tests of Merger Control

Competition authorities regularly use simple price indicators within merger control procedures those affect differentiated product markets, from initial screen to underpinning of final decisions. The fundamental flaw of these indicators is that their prediction properties and, as a consequence, their usefulness is almost completely unknown. This paper reveals these properties: the merger-subpopulations they flag as problematic and, assuming linear or isoelastic demand, the type I and II errors. This knowledge creates the opportunity for a more conscious use of these tools.