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Entry and Competition in Local Newspaper Retail Markets - When two are enough

Balmer, Roberto (2013): Entry and Competition in Local Newspaper Retail Markets - When two are enough. Published in:

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Abstract

This chapter estimates sustainable coverage and competitive effects of entry for Swiss newspaper sellers which sell composite goods, including a range of other products such as food and near-food items. It utilises the applied entry threshold ratio methodology from Bresnahan and Reiss (1991), which allows estimation even when the range of products under examination is not exactly defined and when price and quantity data are not available. It is found that under monopoly pricing, single firm entry is sustainable in communes with a market size of over 482 people (leaving 310 Swiss communes without a selling point). With duopoly prices, instead, a first firm would only be able to enter a market with 921 people (leaving another 263 communes, corresponding to 2,1% of the population, without coverage). There are therefore tangible benefits from above duopoly prices in monopoly regions. Thus, a clear and quantifiable trade-off between prices in monopoly regions and coverage exists. Moreover, it is found that a second entrant in this market strongly increases competition, while further entry doesn’t have significant additional competitive effects. From a welfare perspective, therefore, “two is enough” to ensure competition in this market. It is shown that this is not the case in some other retail markets, where entry by a third firm may significantly affect competition. Finally, using the estimation results, it is show that the public policy, which consisted of having the government controlled Swiss Post enter the newspaper sellers’ retail market, was not optimal as it was focused on urban areas where neither coverage nor competition could be enhanced, while risking competitive distortions. At the same time, it is shown that there are communes in which such a government policy may be welfare enhancing.

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