The authors apply an upward pricing pressure metric to hospital mergers.
This paper, published by The Journal of Industrial Economics, develops an upward pricing pressure metric for evaluating mergers when prices are negotiated through bilateral bargaining. The framework is based on deriving the marginal cost reduction required to just offset a price increase due to a horizontal merger assuming suppliers negotiate with buyers using an all-or-nothing strategy. The metric is simple to implement and only requires information that is readily available in merger investigations.
Christopher Lau of Cornerstone Research, along with coauthor Keith Brand of the Federal Trade Commission, assess the accuracy of the framework by applying it to a hospital merger setting. The paper makes this assessment through Monte Carlo simulations and retrospective analysis that compares predicted to observed price changes from consummated mergers. The paper concludes that this metric offers important advantages over alternative methods.
This paper was originally published online as an Early View article by The Journal of Industrial Economics in June 2025.
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