Abstract
M.Com. (Development Economics)
This paper uses a difference in difference model to assess the effectiveness of supply conditions as remedies for significant input foreclosure concerns resulting from anti-competitive vertical mergers. The paper reviews supply conditions imposed by the South African Competition Authorities as remedies for input foreclosure concerns in the following vertical mergers, namely: Thaba Chueu merger and Senmin International merger. The results of the model shows that the effectiveness of the supply conditions as remedies for input foreclosure concerns depends mainly on upstream market dynamics.
The finding of the paper suggest that supply conditions would be effective in alleviating input foreclosure concerns resulting from vertical merger if the following conditions are met, namely: the upstream competitor(s) of the merger firm has capacity to supply the downstream non-integrated firm; if there is potential and/or imminent entry into the input market (upstream market); and if downstream competitors of the merged entity can within a reasonable time find and be able to procure alternative identical inputs from the alternative supplier without incurring significant switching costs, that is, the ability of downstream competitors to realign their purchase partners within the reasonable time frames.
The paper concludes and recommends that Competition Authorities should consider the presence of these conditions in trying to remedy input foreclosure concerns resulting from vertical mergers through long term supply conditions. Furthermore and equally important is that in drafting these supply agreements as effectively remedy the input foreclosure concerns, the agreements must be written in a manner that there are complete, that is, they do not result in opportunism or hold-ups. This include, amongst others, a clear product specification, required quality, and clear pricing methodology to be applied if necessary.