Antitrust market definition using statistical learning techniques and consumer characteristics

Market definition is the first step in an antitrust case and relies on empirical evidence of substitution patterns. Cross-price elasticity estimates are preferred evidence for studying substitution patterns, due to advances in IO econometric modelling. However, the data and time requirements of these models weigh against their universal adoption for market definition purposes. These practical constraints — and the need for a greater variety of evidence — lead practitioners to rely on a larger set of less sophisticated tools for market definition. The paper proposes an addition to the existing toolkit, namely an analysis of consumer characteristics for market definition purposes. The paper shows how cluster analysis can be used to identify meaningful groups of substitutes on the basis of homogeneity of their consumer profiles. Cluster analysis enforces consistency, while recent bootstrap techniques ensure robust conclusions. To illustrate the tool, the paper relies on data from a recently concluded radio merger in South Africa.market definition substitutes media demography clusters bootstrap

Gasoline, diesel fuel and jet fuel demand in South Africa

In recent years, the price and income elasticity of fuel demand in South Africa has featured prominently in energy and competition policy proceedings and in major corporate planning projects. The paper investigates the price and income elasticity of gasoline (petrol), diesel and jet fuel demand in South Africa. Such a study is essential, given the significant structural change in fuel consumption behaviour over the 1990s and the paper builds compare the results of econometric models based on a longer sample period covering 1982Q1 to 2010Q4 and a shorter sample period covering 1998Q1 to 2010Q4. The econometric model is based on an autoregressive distributed lag (ARDL) model, reduced to a parsimonious specification using an automated reduction algorithm.gasoline petrol diesel jet fuel price elasticity income elasticity South Africa bounds test

The strategic implications of black empowerment in South Africa: a case study of boundary choice and client preferences in a small firm

This paper initiates a research programme on the strategic implications of BEE, through an in-depth case study of a small South African services firm. The case involves a meter-reading firm that has adapted flexible boundaries within the value chain to accommodate heterogeneous client preferences shaped by BEE policy. While the case is very specific, the analysis highlights three core features of BEE policy as a strategic variable. Firstly, the case supports an assertion that BEE policy is a demand-based intervention, altering client preferences regarding the value chain. Secondly, the case confirms that BEE is a market-based policy that may be implemented in a variety of ways by different clients. Thirdly, the case shows that firms do not passively respond to BEE policy but explore strategic responses that balance BEE requirements with other organizational goals.Boundaries, Vertical integration, Demand-side; Black empowerment

The transmission of foreign financial crises to South Africa: a firm-level study

The process of financial integration has increased the exposure of South African financial markets to foreign financial crises. This paper contributes to the understanding of crisis transmission by evaluating several hypotheses that claim to explain how financial crises are transmitted to South African financial markets. The study proceeds from a firm-level perspective, which it argues overcomes the potential loss of information when using aggregate economic data. Consequently, the different transmission hypotheses are evaluated for the East Asian, Russian and Argentinean crises using firm-level daily stock return data from the JSE Securities Exchange. A multivariate regression model, supplemented by sensitivity tests, forms the core of the empirical methodology.financial contagion; crisis; South Africa; financial linkages

Band-pass filters and business cycle analysis: Highfrequency and medium-term deviation cycles in South Africa and what they measure

Many analysts use band-pass filters to remove so-called permanent components from output and then study the remainder, which is then termed the "business cycle". Building on the critique of these deviation cycles by Harding and Pagan and on the recent work on the mediumterm persistence of business cycles by Comin and Gertler, we study the extent of information loss accompanying this practice. Specifically, we compare the properties of deviation cycles obtained when allowing and disallowing medium-run information to be included with the permanent component and show the dramatic differences in stylized facts. The paper then considers the economic context of high-frequency and medium-term deviation cycles. The results suggest that the high-frequency deviation cycle is not an appropriate measure of demand shocks, which are equally approximated by the medium-term deviation cycle — even though the two cycles differ significantly in terms of persistence, volatility and co-movement with cycles in the US, UK, Europe and Australia. The medium-term deviation cycle appears to capture the cumulated demand and supply shocks to the economy, which is relevant for medium-run analysis but is not useful for business cycle research. The study focuses on four sample periods, one longer and one shorter sample period as well as one including and one excluding the recent financial crisis period, and the results therefore also shed light on whether and how the financial crisis and structural change in South Africa may alter conclusions.

The significance of the Cape trade route to economic activity in the Cape colony: a medium-term business cycle analysis

Trade is a critical component of economic growth in newly settled societies. This paper tests the impact of ship traffic on the Cape economy using a time series smoothing technique borrowed from the business cycle literature and employing an econometric procedure to test for long-run relationships. The results suggest a strong systematic co-movement between wheat production and ship traffic, with less evidence for wine production and stock herding activities. While ship traffic created demand for wheat exports, the size of the co-movement provides evidence that ship traffic also stimulated local demand through secondary and tertiary sector activities, supporting the hypothesis that ship traffic acted as a catalyst for growth in the Cape economy.Colonial trade, Cape of Good Hope, Dutch East India, Band-pass filter, Medium-term fluctuations, Business cycle, South Africa, Ships, Harvest cycles, Colonial economy

Ship Traffic and the Economy of the Cape Colony: 1652-1793

Most historians regard the Cape Colony of the seventeenth and eighteenth centuries as an impoverished and destitute settlement, primarily because of the many restrictions and prohibitions enforced by the Dutch East India Company, who founded the Cape settlement as a refreshment station for its ships. The mercantilist thinking of the time ensured that the free burghers in the Cape were to comply with the demands of the Company, dependent on the number of passing ships, for a market, and with little economic incentive to expand production. This assumption of poor economic performance only came to be challenged in the late 1980s. Using new data collected from the so-called opgaaf rolls (tax return records) in The Hague, Van Duin and Ross (1987) argue that, in fact, the Cape economy grew significantly through out the eighteenth century. However, these authors emphasise that local demand played the dominant role in the development of the economy and dismiss the traditional argument that passing ships were essential to the welfare of the Cape Colony. Using new empirical evidence on the number of ships in Table Bay combined with techniques from business cycle theory, this paper tests whether ship traffic had any significant relationship with agricultural production in the Cape Colony and, if so, the direction and size of association. The results suggest a strong systematic co-movement between wheat and ship traffic in Table Bay, with less evidence for wine production and stock herding activities.Band-pass …lter, Medium-term ‡uctuations, Dutch East India, Cape, Busi- ness Cycle, South Africa, Cliometrics, Ships, Harvest Cycles, Colonial Economy.

The transmission of foreign financial crises to South Africa: a firm-level study

The process of financial integration has increased the exposure of South African financial markets to foreign financial crises. This paper contributes to the understanding of crisis transmission by evaluating several hypotheses that claim to explain how financial crises are transmitted to South African financial markets. The study proceeds from a firm-level perspective, which it argues overcomes the potential loss of information when using aggregate economic data. Consequently, the different transmission hypotheses are evaluated for the East Asian, Russian and Argentinean crises using firm-level daily stock return data from the JSE Securities Exchange. A multivariate regression model, supplemented by sensitivity tests, forms the core of the empirical methodology

Rethinking ASGISA and the rand exchange rate

Abstract: The ASGISA policy document identifies the exchange rate as one of the factors constraining accelerated growth in South Africa. This note argues that currency developments do not translate into business cycle movements in the aggregate economy, and that a weaker exchange rate is less likely to boost either foreign investment or export performance in the face of regulatory uncertainty. The South African government has recently launched the Accelerated and Shared Growth Initiative (ASGISA) aimed at raising the long-term growth path of the economy. The plan identifies several so-called “binding constraints” that are considered to be inhibiting the economy from rising to more elevated levels of economic growth. One such “constraint”, according to the ASGISA policy document, is the “volatility and level of the currency” (Republic of South Africa, 2006). By including this issue, policymakers have signalled that fluctuations in the Rand are considered significant to broader economic fluctuations in South Africa. This research note questions such a conviction by offering evidence that currency fluctuations are not mirrored in the South African business cycle. Nonetheless, proponents may argue that a weaker Rand will stimulate particular sectors, mostly those that are export-oriented, while it will boost Foreign Direct Investment (FDI). However, this note argues further that a weaker Rand is less likely to generate sustainable improvement in either export-oriented industries or FDI in the absence of other reforms. The following sections consider these two issues in sequence

The transmission of foreign financial crises to South Africa: a firm-level study

The process of financial integration has increased the exposure of South African financial markets to foreign financial crises. This paper contributes to the understanding of crisis transmission by evaluating several hypotheses that claim to explain how financial crises are transmitted to South African financial markets. The study proceeds from a firm-level perspective, which it argues overcomes the potential loss of information when using aggregate economic data. Consequently, the different transmission hypotheses are evaluated for the East Asian, Russian and Argentinean crises using firm-level daily stock return data from the JSE Securities Exchange. A multivariate regression model, supplemented by sensitivity tests, forms the core of the empirical methodology