The Economics of Upward Pricing Pressure - Understanding the Parkland Case

Abstract

The Parkland case is the first contested merger in which an upward pricing pressure ("UPP") theory of harm was presented. In most of the local geographic markets of concern to the Bureau the overlap was between an independent dealer supplied at wholesale by Parkland and a Pioneer corporate retailer station. The Bureau alleged that post-merger Parkland would increase retail prices at its corporate stations and also increase its wholesale margin to its dealer stations with the expectation that these dealers would increase their retail prices. The definition of local geographic markets and the attribution of volumes sold at dealer stations to the merging firms for the purposes of evaluating the competitive effects of the transaction were key drivers of the Bureau's concerns. In this commentary, we explain that while Parkland theoretically may have some incentive to unilaterally increase its wholesale margin post-merger, this incentive is limited by a number of factors that were not addressed by the Bureau's economic experts. Similarly, the Bureau's economic expert did not address the complications that Parkland would face as a wholesaler in seeking to facilitate coordination among downstream retailers.