Horizontal mergers on platform markets: cost savings v. cross-group network effects?

Baranes, Edmond and Cortade, Thomas and Cosnita-Langlais, Andreea (2019): Horizontal mergers on platform markets: cost savings v. cross-group network effects?

Abstract

We study the impact of cost savings on the outcome of horizontal mergers between two-sided platforms. We consider four symmetrically differentiated platforms located equidistantly on the unit circle and competing in membership fees. Users on both sides single-home, and we allow for both positive and negative cross-group externalities. We find that the impact of merger cost savings on prices is generally not monotonic, and that synergies are necessary for horizontal platform mergers to be Pareto-improving. Furthermore, the merger may benefit users on one side while harming users on the opposite side, which raises some interesting questions for the enforcement of merger control on two-sided markets.

• Item Type: MPRA Paper
• Language: English
• Keywords: horizontal merger, two-sided markets, cost savings, indirect network effects, merger control
• Subjects: D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; K - Law and Economics > K2 - Regulation and Business Law > K21 - Antitrust Law; L - Industrial Organization > L4 - Antitrust Issues and Policies > L41 - Monopolization ; Horizontal Anticompetitive Practices

References

[1] Anderson, S.P. and McLaren, J. (2012) "Media Mergers And Media Bias With Rational Consumers." Journal of the European Economic Association 10(4), 831-859. [2] Anderson, S.P., Ø. Foros, Kind, H.J. (2018) "The importance of consumer multi-homing (joint purchases) for market performance: mergers and entry in media markets." mimeo. [3] Affeldt, P, Filistrucchi, L. and Klein, T. (2013) "Upward Pricing Pressure in Two-Sided Markets." The Economic Journal, 123(572), 505—523. [4] Argentesi, E. and Filistrucchi, L. (2007) "Estimating Market Power in a Two-Sided Market: The Case of Newspapers" Journal of Applied Econometrics (22), 1247-1266. [5] Armstrong, M. (2006) "Competition in Two-Sided Markets." RAND Journal of Economics 37(3), 668—691. [6] Belleflamme, P. and M. Peitz (2015) Industrial Organization: Markets and Strategies, Cambridge University Press. [7] Brito, D. (2003) "Preemptive mergers under spatial competition." International Journal of Industrial Organization 21(10), 1601-1622. [8] Brito, D. (2005) "Should alternative mergers or acquisitions be considered by antitrust authorities?" International Journal of Industrial Organization 23(1-2), 129-153. [9] Chandra, A. and Collard-Wexler, A. (2009) "Mergers in Two-Sided Markets: An Application to the Canadian Newspaper Industry." Journal of Economics andManagement Strategy 18(1), 1045-1070. [10] Correia-da-Silva, J., Jullien, B., Lefouili, Y. and Pinho, J. (2018) "Mergers in Two-Sided Markets: Insights from Cournot Competition". Journal of Economics and Management Strategy 28, 109-124. [11] Cosnita-Langlais, A., Johansen, B.O., and Sørgard L. (2018) "Upward pricing pressure in two-sided markets: incorporating feedback effects". WP EconomiX 2018-3. [12] Ducci, F. (2016) "Out-of-market efficiencies, two-sided platforms and consumer welfare: A legal and economic analysis". Journal of Competition Law & Economics 12(3), 591-622. [13] Economides, N. (2008) "Public Policy in Network Industries." in Paolo Buccirossi (ed.), Handbook of Antitrust Economics, Cambridge: The MIT Press. [14] Economides, N. (2010) "Antitrust Issues in Network Industries." in The Reform of EC Competition Law, Ioannis Kokkoris and Ioannis Lianos (eds.), Kluwer. [15] Evans, D.S. (2003) "The Anti-trust Economics of Multi-Sided Platform Markets." Yale Journal on Regulation 20(2), 325-382. [16] Evans, D.S. and . Noel, M.D. (2008) "The Analysis of Mergers that Involve Multi-sided Platform Businesses." Journal of Competition Law and Economics 4(3), 663-695. [17] Evans, D.S. and Schmalensee, R. (2013) "The antitrust analysis of multi-sided platform businesses". NBER working paper No. w18783. [18] Fan, Y. (2013) "Ownership Consolidation and Product Characteristics: A Study of the U.S. Daily Newspaper Market." American Economic Review 103(5), 1598-1628. [19] Filistrucchi L., Klein T.J. (2013) "Price Competition in Two-Sided Markets with Heterogeneous Consumers and Network Effects", Net Institute Working Paper No. 2013-20 [20] Filistrucchi, L. Klein, T. and Michielsen, T. (2012) "Assessing Unilateral Merger Effects in a Two-Sided Market: An Application to the Dutch Daily Newspaper Market." Journal of Competition Law and Economics 8(2), 297-329. [21] Jeziorski, P. (2014) "Effects of mergers in two-sided markets: The U.S. radio industry." American Economic Journal: Microeconomics 6(4), 35-73. [22] Kaiser, U., and Wright, J. (2006) "Price structure in two-sided markets: Evidence from the magazine industry". International Journal of Industrial Organization 24(1), 1-28. [23] Kaiser, U. and Song, M. (2009) "Do media consumers really dislike advertising? An empirical assessment of the role of advertising in print media markets", International Journal of Industrial Organization 27, 292-301. [24] Leonello, A. (2010) "Horizontal Mergers in Two-Sided Markets." European University Institute, mimeo. [25] Levy, D. and Reitzes, J. (1992) "Anticompetitive effects of mergers in markets with localized competition." Journal of Law, Economics, and Organization 8(2), 427-440. [26] Malam, C. R. (2011) "Mergers of Ad-sponsored Media Platforms", mimeo. [27] OECD (2018) "Rethinking Antitrust Tools for Multi-Sided Platforms" Available at www.oecd.org/competition/rethinking-antitrust-tools-for-multi-sided-platforms.htm [28] Rochet, J.C. and Tirole, J. (2002) "Cooperation among Competitors: Some Economics of Payment Card Associations." RAND Journal of Economics 33(4), 1-22. [29] Rochet, J.C. and Tirole, J. (2003) "Platform Competition in Two-Sided Markets." Journal of the European Economic Association 1(4), 990-1029. [30] Rochet, J.C. and Tirole, J. (2006) "Two-SidedMarkets: A Progress Report" RAND Journal of Economics 37(3), 645—667. [31] Salop, S. (1979) "Monopolist competition with outside goods." Bell Journal of Economics 10(1), 141—156. [32] Tan, G. and Zhou, J. (2019) "Price Competition in Multi-Sided Markets." Working paper, https://ssrn.com/abstract=3029134 or http://dx.doi.org/10.2139/ssrn.3029134. [33] Van Cayselee P. and Vanormelingen, S. (2018) "Merger Analysis in Two-Sided Markets: the Belgian Newspaper industry", forthcoming Review of Industrial Organization, 1-33. [34] Weyl, E. G. (2010) "A Price Theory of Multi-Sided Platforms." American Economic Review 100(4), 1642-1672. [35] Wilbur, K. C. (2008) "A Two-Sided, Empirical Model of Television Advertising and Viewing Markets". Marketing Science 27 (3), 356-378. [36] Wright, J. (2004) "One-sided logic in two-sided markets". Review of Network Economics 3, 44-64.