Gauging Parallel Accommodating Conduct Concerns with the CPPI

The 2010 Merger Guidelines give greater prominence to the concept of parallel accommodating conduct. Parallel accommodating conduct (PAC) has a long history in oligopoly theory, dating back more than seventy years. It is a type of coordinated conduct that does not require an agreement. Instead, it involves a firm engaging in a certain conduct, with the expectation that one or more other firms will follow that same conduct. For example, PAC could involve two leading firms raising their prices in parallel – but without an agreement – over and above the prices determined by their unilateral pricing incentives. One firm would raise price above the Bertrand equilibrium level and the other firm would simply follow. We have formulated an index for gauging PAC concerns, which we call the “Coordinated Price Pressure Index,” or CPPI. The CPPI corresponds to the largest price increase that the two coordinating firms would be willing both to initiate and follow. A larger CPPI implies an incentive of the two firms for larger PAC price increases, which suggests more serious PAC concerns, ceteris paribus. We also have applied the CPPI to merger analysis. The impact of a merger on the magnitude of the potential parallel price increases is measured by the increase in the CPPI (or “Delta CPPI”).