Prices and Network Effects in Two-Sided Markets: The Belgian Newspaper Industry

Posted by D. Daniel Sokol

Patrick J. G. Van Cayseele, Catholic University of Leuven (KUL) - Department of Economics and Stijn Vanormelingen, Hogeschool-Universiteit Brussel (HUBrussel), Catholic University of Leuven (KUL) explain Prices and Network Effects in Two-Sided Markets: The Belgian Newspaper Industry.

ABSTRACT: This paper investigates the two-sided nature of the newspaper industry. We explicitly take into account cross network effects that exist between advertisers and newspaper readers. On one side, advertisers' demand for publicity space depends on the number of newspaper readers and their characteristics. On the other side, readers' demand can be, positively or negatively, influenced by the number of advertisements. In addition, editors may own several newspapers and hence a variety of cross-market effects that result from changes in market prices exist. To estimate demand parameters for both sides of the market, a specific structural model is needed that takes into account those effects. We estimate network effects and price elasticities for Belgian newspaper publishers to assess market power and the degree of competition in the market, which experienced a large consolidation wave over the last decades. This allows us to evaluate a recent merger in the Belgian newspaper industry.