platforms’ choice of genre. In the third part, we discuss how to take on merger control in two-sided
media markets. Motivated by some actual merger cases, we also discuss how antitrust authorities might
err if they use the conventional one-sided approach to evaluate mergers within media markets (even if
a case-by-case assessment is undertaken).
Keywords
Two-sided markets, Mergers, Advertising, Multi-homing, Antitrust policy
JEL Codes
L11, L13, L41, L82
6.1. INTROD UCTION
Because it is media, media mergers get huge media attention. In the first dot-com era,
there was a wave of entertainment and media mergers, led by the 2001 American Online
(AOL)–Time Warner merger, in which AOL acquired the more traditional media com-
pany Time Warner for $165 billion.
1
Within the radio market, consolidation took place
in the US market after the Telecommunication Act of 1996 (see
Sweeting, 2015, this
volume). Between 1996 and 2006, the US radio market experienced a merger wave,
and empirical work shows that the particularities of two-sided markets have important
implications for the effects of mergers on both product variety and advertising volume
(
Jeziorski, 2014).
The aim of this chapter is to survey the literature on the consequences of media
mergers, and to summarize how the outcomes of mergers might differ between two-
sided and conventional one-sided markets. In the first part, we focus on price effects,
while in the second part we discuss how mergers affect competing media platforms’
choice of genre. In
Section 6.3, we discuss how antitrust policy takes on merger control
in two-sided media markets.
The literature on two-sided markets has shown that the effects of mergers of
ad-financed platforms differ from what one might expect from the conventional litera-
ture on one-sided markets. Assuming away efficiency gains, a merger that increases mar-
ket power in a one-sided market leads to higher consumer prices. In a two-sided market,
on the other hand, a merger that increases 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). The
seminal papers on two-sided media markets (
Anderson and Coate, 2005) predict that a
merger leads the platforms to charge lower ad prices if consumers dislike ads. It turns out
that this puzzling result is due to the assumption that consumers visit only one media
platform (e.g., watch only one TV channel or read only one newspaper), so-called
1
The merger between Warner and Time took place in 1990.
226
Handbook of Media Economics
single-homing. Competition for advertisers is then closed down, since the platforms have
a monopoly position in delivering their exclusive eyeballs to advertisers (the competitive
bottleneck problem identified by
Armstrong, 2002, 2006). More recent contributions
open up for competition for advertisers by allowing consumers to multi-home
(
Ambrus et al., 2015; Anderson and Peitz, 2014a,b; Anderson et al., 2015a,b; Athey
et al., 2013
). Then the puzzling prediction from the single-homing model may vanish,
and ad prices may increase when ad-financed platforms are merged.
Analysis of how mergers affect diversity and differentiation incentives is considered
to be an important issue in media markets, with
Steiner (1952) and Beebe (1977) as
the classical theoretical contributions.
Steiner (1952) shows that mergers may reduce
duplication of genres among ad-financed channels, and thus increase diversity. This
prediction has found some empirical support within the markets for radio (see
Sweeting, 2015, this volume), newspapers (see Chandra and Kaiser, 2015, this volume),
and television (see
Crawford, 2015, this volume). An important assumption in Steiner is
that if people cannot watch their most preferred TV program, then they do not watch TV
at all.
Beebe (1977) relaxes this assumption, and allows consumers to have second pref-
erences; i.e., if their favorite genre is not available, they might be willing to watch some
other genre instead. Through this modification, Beebe casts doubt on Steiner’s prediction
that mergers tend to increase diversity. On the contrary, the opposite could be true: a
merger to monopoly might reduce the number of genres broadcasted. Worse still, it
could prevent consumers from being able to watch their first preferences.
More recently,
Anderson et al. (2015b) formulate a Hotelling model where (some)
consumers multi-home and two media platforms endogenously choose locations. They
arrive at the striking result that a merger of the two platforms might have no effect on the
choice of genres (location on the Hotelling line), and thus no effect on diversity.
Common for all the articles cited above is the prediction that the consequences of
mergers in one-sided and two-sided markets might be very different. An important issue
is how this is taken into account by the antitrust authorities in their assessment of media
mergers. There are numerous examples of antitrust authorities that have applied the tra-
ditional one-sided market logic to media markets, and thereby ended up focusing on only
one side of a two-sided market. Unfortunately, such a procedure might be flawed. For
one thing, it fails to take into account the fact that a price increase on one side of the
market can lead to a price reduction on the other side. Over the last few years, the meth-
odology used by antitrust authorities for analyzing the price effect of mergers has
improved and has been extended to a two-sided market framework. However, less pro-
gress has been made in the antitrust authorities’ analysis of non-price effects of mergers,
such as how mergers affect media diversity.
Not least due to the growth of the Internet, we have witnessed significant changes in
market structure and technology in the media market. These changes affect both the
incentives to merge and the effects thereof. Due to the transformation to online
227Merger Policy and Regulation in Media Industries
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