Department of Economics

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Browsing Department of Economics by browse.metadata.advisor "Boshoff, Willem Hendrik"

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    Bargaining competition and vertical mergers
    (Stellenbosch : Stellenbosch University, 2022-04) Minnie, Roan Johan; Boshoff, Willem Hendrik; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Economics.
    ENGLISH SUMMARY: Vertically related markets and vertical mergers are complex systems that comprise a number of distinct features. The modelling of such complex systems involves several modelling choices that affect the predicted model outcomes. We rely on simulation-based methods to consider how choices of key model parameters, assumptions and industry structures map onto competitive outcomes in vertically related markets and for vertical mergers. Our simulation results can help guide practitioners in selecting models that best characterise the features of a given vertical relationship, especially since assumptions that distinguish the models from one another — how and over what parties bargain — are typically not observed. In particular, this dissertation studies vertically related markets and vertical mergers along three dimensions. Firstly, we focus on comparing alternative models of vertical competition, based on different assumptions regarding the nature and object of vertical contracting. As far as the nature of vertical contracting is concerned, models may assume upstream and downstream firms reaching agreement through take-it-or-leave-it offers, bargaining or recursive bargaining. As far as the object of vertical contracting is concerned, models may assume vertical contracting is over linear prices (a marginal wholesale price) or two-part prices (a marginal wholesale price and a fixed f ee). We systematically compare the corpus of models of vertically related markets across two simple industry structures (‘1 _ 2’, one upstream and two downstream firms; and ‘2_1’, two upstream and one downstream firm) to allow direct comparisons. Our comparisons show that in a linear pricing setting, a modelling choice between bargaining and recursive bargaining is irrelevant to the outcome. In two-part pricing, however, bargaining leads to a more competitive outcome than the joint profit maximising outcome under recursive bargaining. Secondly, we study and compare models for vertical merger analysis, in order to investigate how assumptions regarding vertical contracting map onto observable merger effects. We also examine the extent to which predictions from models of vertical mergers are robust to different specifications of substitutability. In particular, we compare models calibrated to an increasing aggregate elasticity (i.e. the substitutability of the inside goods with the outside good) with models calibrated to the nest strength parameter of the demand function. Our results show that the predicted merger effects from different models are consistent for the two measures of substitutability. The results also illustrate that modelling choices such as the specification of the industry structure or object and nature of vertical contracting that determined outcomes in the pre-merger world, can also predetermine post-merger outcomes. Lastly, we introduce a vertical merger simulator tool to allow an assessment of vertical merger scenarios in practice. We illustrate the utility of the simulator as a screening tool by reference to a number of examples reflecting modelling choices often faced by practitioners. In this regard, we illustrate three examples where the exogenous variables of interest are the marginal cost of the upstream firm and downstream firms, the market shares and the prices of the downstream firms respectively. We compare the simulator to incentive scoring methods (comprising of various upward pricing pressure indices), which have received extensive attention in literature and policy circles as a screening tool for merger effects, including for vertical mergers. While direct comparisons are challenging, it is evident that the data requirements of our vertical merger simulator are not particularly onerous compared to those of incentive scoring indices. The simulator offers the additional benefit of full equilibrium analysis, compared to the partial equilibrium focus of incentive scoring methods. We conclude that the simulator can be a useful complementary tool for vertical merger screening.
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    The law and economics of potential competition in digital markets
    (Stellenbosch : Stellenbosch University, 2022-04) Friday, Megan; Boshoff, Willem Hendrik; Stellenbosch University. Faculty of Economic and Management Sciences. Dept. of Economics.
    ENGLISH SUMMARY: This research aims to explore how authorities in different jurisdictions respond to potential competition in the online automotive classifieds platform markets. This is done by means of a review of cases in South Africa, the United Kingdom and Australia. This thesis considers how actual competition should be measured within markets as well as how potential competitors are identified and ranked against one another according to the firm that imposes the largest competitive constraint on its rivals. Previous research and literature have identified the method to be used when defining a relevant potential competitor in a market. This thesis evaluates how potential competition considerations should affect the evaluation of a merger or acquisition, specifically in the online automotive classifieds platform markets. Potential competition issues arising in intermediation platform markets exists as more firms are developing their own intermediation platforms and competition authorities are seeking to regulate these firms that bring about novel competition issues compared to those experienced by a traditional firm. This research seeks to provide an understanding to its readers and authorities on how potential competition concerns should be addressed and handled in platform markets, particularly those including a digital element. This research evaluates the literature surrounding this topic by taking a case studies approach.