UPP (Upwards Pricing Pressure) Test

The UPP test is a diagnostical tool that is used in markets with substantial price competition and differentiated goods. In other words, the test defines to what extent prices can increase and marginal costs can decrease, so that efficiency gains are still positive.

With regard to the impact of the merger on the price, two reverse mechanisms have to be taken into consideration: If one good becomes more efficient through the merger (in general an increase in efficiency of 10% is assumed, given that this is hardly verifiable), then it is less likely that the price for this good would increase because, on the one hand, the profit margin would raise with the gains in efficiency and on the other hand, demand would decline as a result of the higher price. 

The UPP test provides an insight into the effects of substitutions and mergers and is an element in the overall analysis of the market situation. It may, however, not replace a market definition. Nonetheless it allows economists to verify whether prices will increase or decrease as a result of a merger. In doing so, it is not possible to draw conclusions about the amount of the expected price change.