Abstract
Exclusionary conduct in two-sided markets with [indirect] network effects is investigated in this dissertation. The dissertation addresses these issues by making three main contributions. First, a profitability function for independent South African community newspaper businesses is quantified and used to consider the effectiveness of possible exclusionary strategies. For exclusionary conduct to be an attractive mechanism for a dominant firm it must undermine the ability of independent newspapers to be effective competitors such as through reducing their revenue by inducing customers not to deal with them, and/or raising their costs such as those of printing. In other instances, exclusionary conduct may be used to artifically raise entry costs by raising barriers to entry associated with building a credible readership base. Second, the economics of different types of conduct are assessed based on a critical evaluation of competition cases. These include, in particular, the fighting brand predatory pricing strategy, in the presence of product/customer differentiation and as applied to the economic characteristics of community newspapers, notably their two-sided nature. Third, given South Africa’s history and high levels of concentration, the dissertation considers the appropriate standards to be applied in competition law enforcement to ensure a fair environment for the participation of small businesses and those owned by historically disadvantaged individuals. It is found that the application of competition policy in assessing exclusionary conduct is skewed in favour of incumbent firms, particularly in the case of predatory pricing cases, because the economics of exclusionary conduct are inappropriately translated into legal tests. The conclusion is that the average variable cost or marginal cost measure specified in the law and the ‘as efficient’ competitor standard applied for assessing exclusionary below-cost pricing do not afford sufficient protection for small firms and provides leeway for dominant incumbents to engage in succesful exclusionary strategies.
M.Com. (Economics)