2015, this volume, on radio and Armstrong and Crawford, 2015, this volume, on tele-
vision), there is a negative externality from advertisers to consumers. In contrast, for mag-
azines, readers may like ads (see
Chandra and Kaiser, 2015, this volume), in which case
there is also a positive externality from advertisers to consumers.
Anderson and Jullien
(2015
, this volume) provide a complete treatment of the economics of two-sided mar-
kets. We restrict our attention to the effects of mergers. In
Section 6.3, we analyze how a
merger affects media platforms’ choice of genre. First, in this section, we hold product
characteristics and the number of goods fixed. We do this in order to focus on pure price
(and quantity) effects. General insight tells us that increased market power on one side of
the market tends to reduce prices on the other side (see, e.g.,
Rochet and Tirole, 2006;
Weyl, 2010
).
2
6.2.1 Backdrop: Price and Quantity Effects of Mergers in One-Sided
Markets
Holding factors like product characteristics, costs, and the number of goods fixed, the pure
price effects of mergers in one-sided markets are typically straightforward. To set the
scene, consider two newspapers that are financed by subscription fees alone (no ads). Stan-
dard economic theory predicts that the closer substitutes the newspapers are in the eyes of
the consumers, the less profit they will make if they compete, other things being equal.
Each of the newspapers has incentives to set a low subscription price in order to steal busi-
ness from the rival, and more so the more prone the consumers are to shift from one news-
paper to the other. If the newspapers merge (or set prices cooperatively), the owners will
internalize these business-stealing effects. Prices will thus unambiguously increase.
Farrell and Shapiro (1990) analyze possible welfare effects of mergers in a one-sided
market.
3
First, they consider a potential price increase subsequent to a merger. If there are
no changes in costs, they show that a merger between firms that produce substitutes will
always lead to higher prices. While a reduction in fixed costs will not change this, a reduc-
tion in marginal costs will matter. In a market with Cournot competition, Farrell and
Shapiro derive the criteria for how large the reduction in marginal costs must be to pre-
vent upward price pressure after the merger. Works that are more recent have extended
their analyses to other market structures, and in particular to Bertrand competition with
differentiated products.
4
This approach has become quite important in antitrust author-
ities’ analysis of mergers (see
Section 6.4 for more details). One reason is that antitrust
2
Weyl (2010) also provides an informal discussion of the effects of mergers in media markets.
3
Their model builds on the more informal model in Williamson (1968), where he shows the tradeoff in
welfare between reduction in competition and cost savings.
4
See Werden (1996) for an extension to Bertrand competition and differentiated products, which was
further developed in
Farrell and Shapiro (2010).
229
Merger Policy and Regulation in Media Industries