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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. The paper. BLP approach to the dutch newspaper market Estimation of demand

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Filistrucchi klein and michielsen merger simulation in a two sided market

Filistrucchi, Klein and Michielsen:Mergersimulation in a two-sided market

Comment by

Lars Sørgard, NorwegianSchoolofEconomics

Media economicsconference, Moscow, 28-29.10.11

Merger simulation


The paper
The paper

  • BLP approachto thedutchnewspaper market

  • Estimationofdemand

  • Appliestheestimateddemand system to

    • Perform a SSNIP test

    • Perform a full mergersimulation

  • Key point is to capturethetwo-sidednessofthe market

  • Want to show thatignoringtwo-sidedness matters

    • Disclaimer: I have not seenthe BLP model or estimation

Merger simulation


Capturing two sidedness
Capturingtwo-sidedness

  • In theorytwomechanisms:

    • More advertisementswill lead to more (or less) demand from readers

    • More readerswill lead to more demand from advertisers

  • Butthe first effect is ruledout, becausenoempiricalfindingofsuch an effect

  • Thentwo-sidedness is rather limited in this market

    • Goodexampleof a whatmighthappen in a two-sided market?

    • Canoneusetheempiricalresult to arguethattheeffectshall be ignored in thetheoreticalmodel?

Merger simulation


Ssnip test
SSNIP test

  • Profitable for a hypothetical monopolist to increaseany or all priceswith 5 %?

  • In thepaperoneparticularapproach:

    • Incresingsubscriptionpriceswith 5 % given thatadvertisingpricesareoptimallyset

  • Butwhy is thistheonlypossible SSNIP?

    • Couldinsteadincreaseadvertisingprices for optimal subscriptionprices

    • Couldincreaseonlyoneoftheprices, not theotherone

  • Whyπ = 0 whenhigherprices and nochange in readership (seeTable 4)?

Merger simulation


Upp rather than ssnip
UPP ratherthan SSNIP?

  • Have arguedthatlowermcmay lead to nochange in prices

  • Why not relatethat to the UPP test?

    • UpwardPricingPressure

    • UPP closer to a competitiveassessmentthan SSNIP (seeFarrell/Shapiro)

  • Couldapplytheempiricalmodelon UPP

    • On which side ofthe market largest UPP?

    • Avoidsomeofthe problems withboth SSNIP and mergersimulation (seenextpoint)

Merger simulation


Merger simulation challenges
Mergersimulation - challenges

  • Whylargerincrease in subscriptionpriceswiththanwithoutnetworkeffects (Table 5)?

  • Resultsarevery sensitive to somecrucial parameters thatare hard to estimate?

    • Demandcurvate

    • List pricesonads – a goodmeasureofnetprices?

  • Mergingfirm’schoice is limited

    • Repositioning not allowed

    • Butisn’tthatquiteunrealistic?

      • Couldspreadoutafterthemerger

      • Or closedownonebranchafterthemerger

Merger simulation


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