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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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