Assessing Unilateral Merger Effects in a Two-Sided Market: An Application to the Dutch Daily Newspaper Market

Abstract

We compare different methods to assess unilateral merger effects in a two-sided market by applying them to a hypothetical merger in the Dutch newspaper industry. For this, we first specify and estimate a structural model of demand for differentiated products on both the readership and the advertising side of the market. This allows us to recover price elasticities and indirect network effects. Following Filistrucchi, Klein, and Michielsen (2010) marginal costs are then recovered from an oligopoly model of the supply side. We use these estimates of price elasticities, network effects and marginal costs to compare different methods that can be used to evaluate merger effects: We perform a concentration analysis based on the Herfindahl Hirschmann Index, a Small Significant Non-Transitory Increase in Price test, measure Upward Pricing Pressure, and conduct a full merger simulation.JEL Classification: L13, L40, L82.

Intermediaries in Two-Sided Markets: An Empirical Analysis of the US Cable Television Industry

“…Researchers have turned to newspaper and magazine markets where advertising and circulation information has been made available (e.g., Kaiser and Wright 2006;Argentesi and Filistrucchi 2007;Van Cayseele and Vanormelingen 2009;Filistrucchi, Klein, and Thomas 2011). These papers find evidence of textbook two-sided behavior, and that in general advertisers value readers more than vice-versa.…”

The Antitrust Analysis of Multisided Platform Businesses

“…These necessarily include estimates of indirect network effects. Similarly, Filistrucchi et al (2012) show how to perform a two-sided SSNIP test: they estimate the profitability of a small but significant and nontransitory post-merger increase in either or both of a two-sided platform's prices. This analysis 35 See Willig and Keating (2013) and Ordover (2013).…”

“…Both Affeldt et al (2012) and Filistrucchi et al (2012) use detailed econometric models of the Dutch newspaper market, and they study how taking account of two-sidedness affects the evaluation of hypothetical mergers. Affeldt et al (2012) find that when two-sidedness is ignored, the estimate of upward pricing pressure on advertising is essentially zero, while they find substantial upward pressure on advertising rates when account is taken of two-sidedness.…”

Identifying Two-Sided Markets

“…In the decision, in 34 See Filistrucchi, Geradin and van for a discussion of how the two-sided nature of the market should affect merger evaluation in theory and how it has influenced it so far in practice. See instead Filistrucchi, Klein and Michielsen (2012) for an example of how different methods to assess unilateral effects can be applied in two-sided markets. In particular, Affeldt and Filistrucchi (2012a) show how the upward pricing pressure test can be extended to two-sided markets.…”