Upward Pricing Pressure in Mergers Where Prices Are Determined Through Joint Bargaining

ABSTRACT We develop an upward pricing pressure metric for evaluating mergers when prices are negotiated through bilateral bargaining. Our framework is based on deriving the marginal cost reduction required to just offset a price increase due to a horizontal merger in a Nash‐in‐Nash bargaining equilibrium assuming suppliers negotiate with buyers using an all‐or‐nothing strategy. We assess the accuracy of our framework by applying it to a hospital merger setting, where we conduct Monte Carlo simulations and compare to observed price changes from consummated mergers. We find that our metric offers important advantages over alternative methods and only requires information that is readily available in merger investigations.