Merger Enforcement in Two-Sided Markets

Posted by D. Daniel Sokol

Przemyslaw Jeziorski, Johns Hopkins University - Department of Economics explores Merger Enforcement in Two-Sided Markets.

ABSTRACT: This paper studies mergers in two-sided markets by estimating a structural supply and demand model and performing counter-factual experiments. The analysis is performed on data for a merger wave in U.S. radio that occurred between 1996 and 2006. The paper makes two main contributions. First, I identify the conflicting incentives of merged firms to exercise market power on both sides of the market (listeners and advertisers in the case of radio). Second, I dis-aggregate the effects of mergers on consumers into changes in product variety and changes in supplied ad quantity. I find that firms have moderate market power over listeners in all markets, extensive market power over advertisers in small markets and no market power over advertisers in large markets. Counter-factuals reveal that extra product variety created by post-merger repositioning increased listeners’ welfare by 1.3% and decreased advertisers’ welfare by about $160m per-year. However, subsequent changes in supplied ad quantity decreased listener welfare by 0.4% (for a total impact of 0.9%) and advertiser welfare by an additional $140m (for a total impact of -$300m).