Stress Testing the UPP - An Empirical Analysis

Jimmy Gårdebrink & Scott Egan

Student thesis: Master thesis

Abstract

This paper uses data from the United States airline industry to examine the efficacy of the upward pricing pressure (UPP) measurement in predicting price changes after a merger. The predictions of the UPP are directly compared to those of a logit merger simulation and the actual, ex-post price changes that occured. Our results indicate that when used under a particular set of assumptions, the UPP produces results similar to those of a merger simulation. Thus we find that the UPP is a reasonable alternative to more intensive structural estimations and simulations. In examining the observed price changes and comparing them to both the merger simulation and the UPP, our results indicate that neither tool has strong predictive accuracy, however we cannot draw further conclusions about the usefulness of such analytical tools.

EducationsMSc in Advanced Economics and Finance, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2016
Number of pages89
SupervisorsCédric Schneider