Working Paper: CEPR ID: DP14895
Authors: Marc Ivaldi; Jiekai Zhang
Abstract: This paper contributes to the analysis of mergers in two-sided markets, notably those in whicha platform provides its service for free on one side but obtains all its revenues from the other,as in the digital TV industry. Specifically, we assess a decision of the French competitionauthority which approved the merger of the broadcasting services of the TV channels involvedbut imposed a behavioral remedy prohibiting the merger of their respective advertising salesservices. To do so, we build a structural model allowing for multi-homing of advertisers and,using a comprehensive dataset, we estimate the demand of viewers and advertisers. Welfareanalysis suggests that the approved merger harms consumers (both viewers and advertisers)and benefits the TV stations. In other words, the implemented behavioral remedy is ineffective.On the broadcasting side, the merger tends to increase the amount of advertising, whichreinforces the negative externalities that advertisers generate for viewers; on the advertisingside, this impetus counterbalances the risk of an increase of market power, which restrains theincrease in advertising prices. Overall, the main lesson of our analysis is that, in the processof designing competition or regulatory policy for two-sided markets, ignoring the interactionbetween the two sides of platforms can result in unexpected outcomes.
Keywords: two-sided market; platform merger; advertising; TV market; competition policy
JEL Codes: K21; L10; L40; L82; M37
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| amount of advertising (M37) | viewer demand (Y10) |
| merger of broadcasting services (L96) | advertising prices (M37) |
| merger of broadcasting services (L96) | consumer welfare (D69) |
| increase in advertising (M37) | audience size (L25) |
| merger of broadcasting services (L96) | amount of advertising (M37) |
| increase in advertising (M37) | advertising prices (M37) |
| increased quality of broadcasting (L15) | advertising prices (M37) |