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

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

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  1. Filistrucchi, Klein and Michielsen:Mergersimulation in a two-sided market Comment by Lars Sørgard, NorwegianSchoolofEconomics Media economicsconference, Moscow, 28-29.10.11 Merger simulation

  2. 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

  3. 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

  4. 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

  5. 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

  6. 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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