This dissertation first develops a theoretical framework to enable the estimation of cost efficiency and conduct parameter without total cost data. By validating this framework using U.S. airline data, this dissertation shows the feasibility of the theoretical framework. Based on the estimates of marginal cost efficiency and conduct parameter, this dissertation also finds some support for the Quiet Life Hypothesis. In Chapter III, this dissertation analyzes the determinants for price dispersion, especially conduct parameter and cost efficiency. Generally speaking, we find negative relationship between conduct parameter and price dispersion and negative relationship between marginal cost efficiency and price dispersion. In Chapter IV, this thesis examines the dynamics that lead to high price dispersion. To be more specific, this thesis concentrates on advanced days purchased and load factor.

In three essays, the relationship between environmental regulation and firm behavior is explored. First, firms are found to influence the price in a regulatory market for emissions permits by exercising market power within their own price market. As the degree of market power in three high emitting industries increased, the price of NOx permits in Southern California’s RECLAIM permit increased as well. Second, the process of firm learning is explored. Power plants facing more stringent environmental regulation are found to learn from environmental regulation and experience efficiency gains. These gains are found to spillover to other power plants facing less stringent regulation through knowledge networks. Third, the decision of electricity firms to participate in reserve markets is modeled and simulated in order to measure the effect of increased wind power in the market on this decision. As the amount of wind power in the market increased, the expected capacity available in the market decreased, inviting the possibility of electricity shortages. However, the reduced variability in market outcomes when wind penetration increases suggests that policy makers may be better able to manipulate existing market mechanisms to induce investment in new capacity.

Market power mitigation has been an integral part of wholesale electricity markets since deregulation. In wholesale electricity markets, different regions in the US take different approaches to regulating market power. While the exercise of market power has received considerable attention in the literature, the issue of market power mitigation has attracted scant attention. In the first chapter, I examine the market power mitigation rules used in New York ISO (Independent System Operator) and California ISO (CAISO) with respect to day-ahead and real-time energy markets. I test whether markups associated with New York in-city generators would be lower with an alternative approach to mitigation, the CAISO approach. Results indicate the difference in markups between these two mitigation rules is driven by the shape of residual demand curves for suppliers. Analysis of residual demand curves faced by New York in-city suppliers show similar markups under both mitigation rules when no one supplier is necessary to meet the demand (i.e., when no supplier is pivotal). However, when some supplier is crucial for the market to clear, the mitigation rule adopted by the NYISO consistently leads to higher markups than would the CAISO rule. This result suggest that market power episodes in New York is confined to periods where some supplier is pivotal. As a result, I find that applying the CAISOs' mitigation rules to the New York market could lower wholesale electricity prices by 18%. The second chapter of my dissertation focuses on supply function equilibrium. In power markets, suppliers submit offer curves in auctions, indicating their willingness to supply at different price levels. Although firms are allowed to submit different offer curves for different time periods, surprisingly many firms stick to a single offer curve for the entire day. This essentially means that firms are submitting a single offer curve for multiple demand realizations. A suitable framework to analyze such oligopolistic competition between power market suppliers is supply function equilibrium models. Using detailed bidding data, I develop equilibrium in supply functions by restricting supplier offers to a class of supply functions. By collating equilibrium supply functions corresponding to different realizations of demand, I obtain a single optimal supply function for the entire day. Then I compare the resulting supply function with actual day-ahead offers in New York. In addition to supply function equilibrium, I also develop a conservative bidding approach in which each firm assumes that rivals bid at marginal costs. Results show that the supply functions derived from equilibrium bidding model in this paper is not consistent with actual bidding in New York. This result is mainly driven by the class of supply functions used in this study to generate the equilibrium. Further, actual offers do not resemble offers generated by the conservative bidding algorithm.

Concerns on market power conferred by airport dominance and the debates of hub premiums have attracted longstanding attention from governments and academics alike. Most previous studies mainly focus on the fully deregulated markets such as the United States and Europe, what remains unknown is how such effects change when a country evolves from a tightly controlled regime to a deregulated market. This research analyses the effects of airport dominance on airline pricing power with the empirical study based on the Chinese domestic market using fixed- effect panel data models. Results from the regression analysis indicate that airport dominance is the most important source of pricing power in the gradually deregulated Chinese domestic market. Hub carriers are able to charge higher prices to premium class passengers and non-hub carriers can benefit from the “umbrella effects” of hub premiums. However, hub carriers are not able to translate their airport dominance to pricing power in the economy class market, whereas non-hub carriers even have to reduce the prices as their market shares at major airports increase. This study contributes to the literature by explicitly segmenting the market into economy and premium classes. The results have important policy implications.

Doctor of Philosophy / The apparent increase in market concentration and vertical integration in the Indonesian crude palm oil (CPO) industry has led to concerns about the presence of market power. For the Indonesian CPO industry, such concerns attract more attention because of the importance of this sector to the Indonesian economy. CPO is used as the main raw material for cooking oil (which is an essential commodity in Indonesia) and it contributes significantly to export earnings and employment. However, dominant producers argue that the increase in economies of scale and scope lead to an increase in the efficiency, which eventually will be beneficial for the end consumers and export earnings. This research seeks to examine whether the dominant producers do behave competitively and pass the efficiency gains to the end consumers, or they enhance inefficiency through market power instead. In order to identify the most suitable model to measure market power in the Indonesian CPO industry, different market power models are explored. These models can be divided into static and dynamic models. In general, all of them accept the price–cost margins as a measure of market power. However, static models fail to reveal the dynamic behaviour that determines market power; hence the dynamic models are likely to be more appropriate to modelling market power. Among these dynamic models, the adjustment model with a linear quadratic specification is considered to be a more appropriate model to measure market power in the Indonesian CPO industry. In the Indonesian CPO industry, producers can be divided into three groups, namely the public estates, private companies and smallholders. However, based on their ability to influence market price, smallholders are not considered as one of the dominant groups. By using the adjustment cost model, the market power of the dominant groups is estimated. The model is estimated using a Bayesian technique annual data spanning 1968–2003. The public estates and private companies are assumed to engage in a noncooperative game. They are assumed to use Markovian strategies, which permit firms to respond to changes in the state vector. In this case, the vector comprises the firms and their rivals’ previous action, implying that firms respond to changes in their rivals’ previous action. The key contribution of this thesis is the relaxation of the symmetry assumption in the estimation process. Although the existence of an asymmetric condition often complicates the estimation process, the different characteristics of the public estates and private companies lead to a need for relaxing such an assumption. In addition, the adjustment system—which can be seen as a type of reaction function—is not restricted to have downward slopes. Negative reaction functions are commonly assumed for a quantity setting game. However, the reverse may occur in particular circumstances. Without such restrictions, the analysis could reveal the type of interaction between the public estates and private companies. In addition, it provides insights into empirical examples of conditions that might lead to the positive reaction function. Furthermore, the analysis adds to the understanding of the impact of positive reaction functions to avoid the complicated estimation of the asymmetric case. As expected, the public estates act as the leader, while the private companies are the follower. Interestingly, results indicate that as well as the private companies, public estates do exert some degree of market power. Moreover, the public estates enjoy even higher market power than the private companies, as indicated by market power indices of -0.46 and -0.72, respectively. The exertion of market power by both the public estates and the private companies cast some doubts about the effectiveness of some current policies in the Indonesian CPO industry. With market power, the underlying assumption of a perfectly competitive market condition—that serves as the basis for the government interventions—is no longer applicable. Hence, many government interventions are unlikely to have the desired effect. The Indonesian competition law that has been imposed since 1999 might be effective in preventing firms to sign collusive contracts. In fact, even without such an agreement, firms in the CPO industry are likely to exert some degree of market power. As an alternative, eliminating the ‘sources’ of market power might be a better solution. If the public estates have the aim of maximising welfare, privatisation might improve their efficiency, hence they have ability to suppress the private companies’ market power. However, if in fact, the public estates deliberately reduce output to gain higher profit, privatisation might increase the degree of market power of both groups of companies even further. In such a condition, addressing the long term barriers of entry stemming from the requirement of high investment might be a better alternative to address the market power problem in the CPO industry.

O Brasil se destaca entre os países que mais utilizou das medidas antidumping desde 1988. Modelos teóricos de comércio mais recentes como o de Melitz e Ottaviano (2008) apontam que mercados maiores e mais integrados elevam a produtividade e reduzem o poder de mercado das firmas. Assim, o presente estudo tem como objetivo avaliar o impacto das medidas antidumping sobre a produtividade e o poder de mercado das firmas industriais brasileiras, por meio de um modelo de diferença em diferenças para as variáveis de markup e produtividade total dos fatores. / Brazil stands out among the countries that have most used antidumping measures since 1988. Recent theoretical models of commerce such as Melitz e Ottaviano (2008) point out that larger and more integrated markets raise productivity and reduce the market power of firms. Thus, the present study aims to evaluate the impact of antidumping measures on the productivity and market power of Brazilian industrial firms, through a difference-in-difference model for the markup and total factor productivity variables.

The thesis is an ex-post assessment of two horizontal mergers motivated by the dearth in post-merger analyses in the South African context. The objective is to examine whether market dynamics have changed as stated by the Competition Tribunal. The main theories tested are whether the merged firm post-merger was able to exert market power unilaterally or in coordinated manner. These constructs are examined against the ability of customers to restrain market power, barriers to entry, the effect of the remedies imposed and the financial performance.The results reveal that the Tribunal leans towards the SCP doctrine and demonstrates the need for a dynamic approach in competitive assessments informed by understanding how competitors and customers may react to a merger. The research findings indicate that the Tribunal’s conclusions on both the Nampak/Burcap and Scaw/Ozz transactions were unproven, post-merger. The research also demonstrates the need and importance of ex-post evaluations to improve future decisions on mergers. / Dissertation (MBA)--University of Pretoria, 2012. / Gordon Institute of Business Science (GIBS) / unrestricted

The identification of factors contributing to the farmers' non-retention of subsidy dollars is key in identifying the impact of the subsidy within and across the sector. Relaxing the assumption of perfect competition, amongst input suppliers, allows for an analysis of two upstream of complementary goods. Because it is the case that the farmers are price takers for some inputs (seed) and may negotiate over the price of others (land), I assume the upstream input providers are more akin to Bertrand competition. General findings, from the theoretical and experimental results, indicate upstream market power as having a significant impact on the economic subsidy incidence; and the complementary between the farmer’s inputs is the main driving force of the results.

Globally, China is the number one soybean importer, and the United States, Brazil, and Argentina are the top three soybean exporters. This research, based on the reverse residual demand model, developed and estimated a two-country partial equilibrium trade model to test who has stronger market power in the Chinese soybean import market. This two-country partial equilibrium trade model incorporates the U.S. residual soybean supply for China, the Chinese residual demand for U.S. soybeans, and the equilibrium condition, where the U.S. residual soybean supply equals the Chinese residual soybean demand. Data used in this research are monthly data from January 1999 to February 2005, 74 observations. Empirical results indicated that Chinese soybean importers have stronger market power relative to U.S. soybean exporters.This research also conducted the competitive analysis of the Chinese soybean import market by examining both annual and monthly data of Chinese soybean imports from the U.S. and South America (Brazil and Argentina). Results implied that the U.S. and South America are seasonal complementary soybean suppliers for China. Possible reasons include: 1) seasonal difference--the U.S. and South America have opposing growing seasons, i.e., different time periods to supply soybeans to markets; and 2) stronger market power of Chinese soybean importers–China's strategic choice, diversifying their soybean suppliers and reducing price increase risk, made the U.S. and South America complementary soybean suppliers to China.Additionally, this research compared the soybean export costs to China for the three countries. Results showed that Brazil has the greatest advantage for production costs, followed by Argentina and the U.S.; the U.S. has the greatest advantage for internal and international transportation and marketing costs, followed by Argentina and Brazil. In aggregate, the total soybean export costs for Brazil were the lowest and the export costs for Argentina were the highest, with U.S. costs between them.In terms of policy implications for the U.S. soybean industry facing strong competition from South America, we cannot expect that U.S. market share in the Chinese soybean import market can be expanded much. With the development of infrastructure in Brazil and Argentina, the U.S. advantage will become less and less. Therefore, if the U.S. soybean industry wants to keep its current position in the Chinese soybean import market, some governmental policy supports are still necessary.

The United States acute care hospital (ACH) market provides a unique environment in which to examine questions about market structure and performance. The ACHs operate in a mature market of health services that is highly regulated and has one dominant primary consumer of services. The uncharacteristic industry structure offers the opportunity to analyze pervasive agency relationships and capital structure issues in a new setting. In addition, the policies of the U.S. Government have created an environment in which tacit collusion is likely to flourish, which leads to market buyer power (monopsony, or buyers acting as one monopoly buyer). A key question is the extent to which monopsony and agency affect capital structure decisions. Agency is defined by Ross (1973, p.134) as a relationship formed between a principle and their agents, “when one, designated as the agent, acts for, on behalf of, or as representative for the other, designated the principal, in a particular domain of decision problems.” This thesis extends the agency framework provided by Jensen and Meckling (1976), along with the econometric understanding of monopsony in healthcare via tacit collusion, as suggested by Pauly (1998) and Sevilla (2005), and the research constraints of monopsony under an all-or-nothing contract, as outlined by Taylor (2003). Using data on ACHs from the period of 1995 to 2007 for approximately 5,000 ACHs, which was derived from the Medicare Cost Report and medical payments for a sub-population of 1,500, this research examines the determinants of capital structure in a distorted market. Building upon this initial analysis, the research seeks to examine the effects of market distortions upon free cash flow, and ultimately, capital structure. Two theories of distortion are presented that would affect free cash flow: The first is that of the agency cost of free cash flow and signaling, and the second is a theory of monopsony via tacit collusion between buyers. A model of the agency relationship between ACHs and the U.S. Government is proposed, promoting agency cost (signaling and the agency cost of free cash flows) as a causal relation with free cash flows and capital structure (Jensen & Meckling 1976; Jensen 1986). Empirical models of agency are constructed, examining the dependence on government business and the relation to the leverage (signaling) and free cash flows (agency cost of free cash flows) for ACHs. In addition, a complementary theory of capital structure determinant via market power (monopsony) is formulated, suggesting that monopsony conditions within the ACH market affect free cash flows and capital structure. The analysis provides a framework for understanding the environments in which ACHs operate and the strength of bargaining within the market. The research concludes with a review of the determinants of capital structure in light of the inefficiencies and distortions of the industry and the relationships observed.