Download Filistrucchi, Klein and Michielsen: Merger simulation in a two

Filistrucchi, Klein and Michielsen:
Merger simulation in a two-sided market
Comment by
Lars Sørgard, Norwegian School of Economics
Media economics conference, Moscow, 28-29.10.11
28.10.2011
Merger simulation
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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
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Merger simulation
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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?
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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)?
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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)
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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
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