Filistrucchi, Klein and Michielsen: Merger simulation in a two-sided market Comment by Lars Sørgard, Norwegian School of Economics Media economics conference, Moscow, Merger simulation

The paper BLP approach to the dutch newspaper market Estimation of demand Applies the estimated demand system to – Perform a SSNIP test – Perform a full merger simulation Key point is to capture the two-sidedness of the market Want to show that ignoring two-sidedness matters – Disclaimer: I have not seen the BLP model or estimation Merger simulation2

Capturing two-sidedness In theory two mechanisms: – More advertisements will lead to more (or less) demand from readers – More readers will lead to more demand from advertisers But the first effect is ruled out, because no empirical finding of such an effect Then two-sidedness is rather limited in this market – Good example of a what might happen in a two-sided market? – Can one use the empirical result to argue that the effect shall be ignored in the theoretical model? Merger simulation3

SSNIP test Profitable for a hypothetical monopolist to increase any or all prices with 5 %? In the paper one particular approach: – Incresing subscription prices with 5 % given that advertising prices are optimally set But why is this the only possible SSNIP? – Could instead increase advertising prices for optimal subscription prices – Could increase only one of the prices, not the other one Why  π = 0 when higher prices and no change in readership (see Table 4)? Merger simulation4

UPP rather than SSNIP? Have argued that lower mc may lead to no change in prices Why not relate that to the UPP test? – Upward Pricing Pressure – UPP closer to a competitive assessment than SSNIP (see Farrell/Shapiro) Could apply the empirical model on UPP – On which side of the market largest UPP? – Avoid some of the problems with both SSNIP and merger simulation (see next point) Merger simulation5

Merger simulation - challenges Why larger increase in subscription prices with than without network effects (Table 5)? Results are very sensitive to some crucial parameters that are hard to estimate? – Demand curvate – List prices on ads – a good measure of net prices? Merging firm’s choice is limited – Repositioning not allowed – But isn’t that quite unrealistic? Could spread out after the merger Or close down one branch after the merger Merger simulation6