Multisided Platforms and Market PowerSome empirical evidence

Marc Ivaldi

2nd Lear Conference on the Economics of Competition LawRome, June 7-8, 2007

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Content

Printed media industries Market delineation

Standard approach Model-based approach

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Market definition in printed media industries

Distinctive features Differentiated products

Content (general vs specialized information) Quality (tabloids vs art magazines) Frequency Scope

Local vs national

Bidimensional products Readership Advertising

Substitutes Other medias

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Market definition in printed media industries

Examples Differentiated products

Recoletos / Unedisa case Dialy and non dialy publications General information, sport and financial papers Tabloids and quality press

Gruner+Jahr / Financial Times / JV Ballarino / Grandi quotidiani

Local and national publication (separate markets) Conclusion

Demand side perspective Printed media markets segmented in tiny sub-markets

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Market definition in printed media industries

Examples Substitutability

Recoletos / Unedisa case Newsquest Ltd / Independent News Conclusion : Not taken into account

Written press distinct from other media products Why? Not the same depth and range of information

However supply side arguments

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Market definition in printed media industries

Examples Advertising

Newspaper publishing decision Class Editori / Sole 24 Ore case Recoletos / Unedisa Conclusion

Different types of advertising define different types of readers and vice-versa

Readership and advertising are separate markets

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Market definition in printed media industries

Methods Usually qualitative Now quantitative

Archant Limited / Independent News and Media Limited Commission claims to have performed a SSNIP test Commission concludes that the relevant market is th

local one

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An econometric illustration

Merger SOCPRESSE / Groupe Express-Expansion French weekly magazines of general

information Decision : the merger has been authorized

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An econometric illustration

Econometric analysis by the competition authority Individual demand are price inelastic Aggregate demand is elastic Conclusion

Cross-price elasticities are small The market is larger??

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An econometric illustration

0%10%20%30%40%50%60%70%80%90%

100%

Share of Unit Purchases in Total Sales

(Average – 1996-2001)

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Subscription

Unit purchase Outside good

… …

Titles Titles

An econometric illustration

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An econometric illustration

Alternative model Accounts for differentiation

0ln( ) ln( ) ln( )xj j j j j ms s p s

Relative

market shares

Quality-Price

tradeoff

Differentiation

effect

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An econometric illustration

Alternative model Accounts for differentiation

Accounts for endogeneity First set of instruments : All exogenous variables +

previous’ year circulation Second set of instruments : All exogenous variables +

advertising revenue and its lagged value

0ln( ) ln( ) ln( )xj j j j j ms s p s

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Estimation without

advertising as an instrument

Estimation withadvertising as an

instrument

Le Figaro Magazine -0.36(0.001)

-1.22(0.003)

Le Nouvel Observateur -0.31(0.000)

-1.06(0.001)

Le Point -0.28(0.000)

-0.95(0.001)

L’Express -0.28(0.001)

-0.95(0.002)

Paris Match -0.20(0.002)

-0.67(0.005)

Valeurs Actuelles -0.36(0.044)

-1.22(0.148)

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Estimation withoutadvertising as an

instrument

Estimation withadvertising as an

instrument

La Vie 0.000(0.000)

0.001(0.000)

Le Figaro Magazine 0.041(0.001)

0.137(0.003)

Le Nouvel Observateur 0.008(0.000)

0.025(0.001)

Le Point 0.006(0.000)

0.020(0.001)

L’Express 0.008(0.001)

0.027(0.002)

Paris Match 0.026(0.002)

0.087(0.005)

Valeurs Actuelles 0.001(0.000)

0.002(0.001)

VSD 0.009(0.001)

0.031(0.002)

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Econometric illustration ….

…. of neglecting feedback effects between the two sides of the market

This can translate in bad estimates of market power …

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Example: The market for academic journals

Academic journals = intermediary role Research output dissemination Cerification

Academic journal = Two-sided structure

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Structure

AUTHORSAUTHORS

PUBLISHERSPUBLISHERS

LIBRARIESLIBRARIES

READERSREADERS

0 €

K €

0 €

ARCHIVEARCHIVE

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Academic journals

A model

Main result: not recognizing the endogeneity of the impact factor yields zero correlation between the impact factor and the demand for journals !!

0ln ln lnj j j j jg js s X I p s

Impact factor

1jt jt j jtI I Z u

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Acadamic journals: main result

Own Elasticity Cross Elasticity Marginal Cost Mark Up (%)

  Mean Median Mean Median Mean Median Mean Median

Model 1 -29.02 -18.28 0.526 0.108 1058.64 645.10 9.80 6.92

Model 2 -52.27 -32.94 0.987 0.203 1081.26 668.69 5.56 3.85

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More general models

Argentesi – Filistrucchi (2006) Kaiser – Wright (2006) Rysman (2004)

0, , ;it it it ity f adv x y

0, , ;it it it itadv h p y y

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More general models

Argentesi – Filistrucchi (2006) Collusion on readership / Competition on

advertisng

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Concluding remarks

Market delineation under structural econometric provides a very differnt view of relevant markets

Needs more work « Real » interaction effects Dynamics Sensitivity analysis

Mark Rysman