Abstract
This paper simulates the price effects of the proposed Ferro Industrial Products (Ferro) and Powder-Lak merger in order to suggest the role that merger simulation models should play in South African merger control. Merger simulation can provide support to the Commission’s analysis by; focusing parties’ attentions on verifiable economic arguments; making transparent the values of the key parameters and assumptions in the Commission’s analysis; producing quantitative estimates of the results of a given transaction; and indicating the amount of resources to allocate to proposed merger cases. However, it offers only one piece of evidence in a case and its results must be interpreted with an understanding of the potential limitations.
Highlights
The 1992 US Horizontal Merger Guidelines introduced an important distinction between coordinated effects and unilateral effects of mergers
The Commission’s assessment of the proposed merger led it to prohibit the transaction given the potential unilateral effects, a finding supported by our merger simulation exercise
The main thrust of this paper is to show how merger simulation can be a useful tool to evaluate the unilateral effects of mergers
Summary
The 1992 US Horizontal Merger Guidelines introduced an important distinction between coordinated effects and unilateral effects of mergers. Oracle and PeopleSoft were the second and third largest vendors of enterprise application software (EAS) worldwide Both the United States of America’s Department of Justice and the Federal Trade Commission undertook in-depth investigations using a simulation model measuring the unilateral effects of the merger. Both models found high and similar price effects despite the different assumptions and market definitions made in the beginning of the study. Calibrated simulation models use small data to infer relevant unilateral effects of a merger. This means that the precision of the results in this paper affected by the closeness of the model to reality and data quality. In South Africa, Akzo Nobel and Ferro are the largest producers of powder coating while Powder-Lak is a relatively small player
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