Π
m
¼ω
X
2
i¼1
D
i
ϕ
i
+ D
12
ϕ
12
"#
:
The marginal value for channel i of increasing the advertising intensity is independent of
whether it has merged with channel j; the gain from increasing the advertising intensity
by one unit is still equal to ω D
i
@ϕ
i
=@n
i
ðÞ
+ D
12
@ϕ
12
=@n
i
ðÞ½
. However, the merged
company will take into account the fact that the larger the advertising intensity of channel
i, the greater is the number of exclusive viewers at channel j, @D
j
=@n
i
> 0. The marginal
costs of increasing the advertising intensity are consequently equal to
MC
m
i
¼ωϕ
i
@D
i
=@n
i
ðÞ+ ϕ
12
@D
12
=@n
i
ðÞϕ
j
@D
j
=@n
i
hi
. Recall, though, that the total
size of the audience on either channel is independent of the advertising level on the other
channel. This means that @D
j
=@n
i
¼@D
12
=@n
i
, which in turn implies that the marginal
costs of increasing the advertising intensity are the same for a two-channel monopoly and
a duopolist, MC
m
i
¼ωϕ
i
@D
i
=@n
i
ðÞ+ ϕ
12
ϕ
j
@D
12
=@n
i
ðÞ
hi
¼MC
d
i
. The equilibrium
advertising intensity is consequently the same with a merged company as with a duopoly.
Ambrus et al. thus reach the striking result that the equilibrium advertising level does not
depend on the ownership structure (i.e., whether we have monopoly or duopoly). This
they label the neutrality property. Ambrus et al. prove that the result survives also with
heterogeneous advertisers as long as some viewers multi-home, and further that it survives
if the platforms are financed both through viewer charges and through advertising.
8
Ambrus et al. (2015) also analyze the effects of entry, and show that a previous one-
channel monopoly might actually increase its advertising level if there is a change in mar-
ket structure from monopoly to duopoly. This is in sharp contrast to earlier studies, which
show that since viewers dislike ads, the advertising level at a platform will unambiguously
fall if it faces competition. The logic behind Ambrus et al.’s result is that some viewers
become less valuable once a new channel appears; this is true for those viewers who have
now become multi-homers. Since the cost of losing these viewers is relatively small, it
might thus be optimal to increase the advertising intensity and accept a greater reduction
in the size of the audience than would otherwise be the case. Indeed, if the value of a
multi-homer approaches zero, there is approximately no cost in losing him.
8
From Anderson and Coate (2005), it is well known that competition between media firms might lead to
underprovision of ads.
Ambrus et al. (2015) demonstrate that this need not be the case with multi-homing
consumers. This is seen clearly if we first consider a monopoly and homogeneous advertisers; in this case
the monopoly will, as argued above, extract the whole surplus from the advertising side of the market.
However, it will not internalize the viewers’ disutility of ads (but will of course take into account how
viewer participation varies with ad levels). In other words, the monopoly internalizes all benefits from
advertising, but not all (consumer) costs. Obviously, this leads to overprovision of ads from a social point
of view, and the neutrality property implies that this does not change with competition. It should be noted,
though, that the overprovision result might break down with heterogeneous advertisers.
233
Merger Policy and Regulation in Media Industries
Even though they use a different equilibrium concept (passive beliefs as in Katz and
Shapiro, 1985
), Anderson et al. (2015a) find similar incremental pricing results as
Ambrus, Calvano, and Reisinger.
9
In particular, they show that both the price per ad
and the price per ad per viewer may increase when merging platforms have some
multi-homing consumers. The model of
Anderson et al. (2015a) is presented in more
detail in
Peitz and Reisinger (2015).
Both
Anderson et al. (2015a) and Ambrus et al. (2015) assume that availability of more
content will increase total consumption. In contrast,
Athey et al. (2013) keep total media
consumption per capita fixed in order to isolate the effects of the observation that con-
sumers spend less time on traditional media and more time on online media. Importantly,
their model is able to explain the collapse of advertising revenue for printed newspapers.
The fraction of multi-homing consumers has increased with online platforms according
to Athey et al., and when consumer attention is scarce, consumers divide their fixed con-
sumption between more outlets. The advertisers may then reach the same person more
times than necessary if they place ads on multiple platforms. On the contrary, if they place
ads on just a few of the platforms, advertisers would not reach all consumers. Conse-
quently, bigger is better: A platform with a larger audience may increase its ad prices since
it reaches more consumers with a lower risk of duplication (i.e., reaching the same
consumer more than once). This may obviously induce mergers among ad-financed plat-
forms. Despite differences in assumptions, the incremental pricing mechanisms in Athey
et al. are similar to those in
Anderson et al. (2015a,b) and Ambrus et al. (2015).
Also two recent papers by
Anderson and Peitz (2014a, b) analyze competition for
advertisers.
Anderson and Peitz (2014a) introduce aggregative games into media eco-
nomics, i.e., games where each firm i’s payoff depends on its own actions (ψ
i
) and the
aggregate of all n players’ actions Ψ ¼
X
n
j¼1
ψ
j
!
.
10
Denoting profits for firm i as
Π
i
(ψ
i
, Ψ ), its first-order condition reads
Π
i
1
ψ
i
, ΨðÞ+ Π
i
2
ψ
i
, ΨðÞ¼0:
Under certain assumptions the best reply function of firm i, r
i
, is a function of all firms’
actions, r
i
¼r
i
ΨðÞ, with r
i
being upward-sloping if actions are strategic complements.
Anderson and Peitz model the advertiser side of the market in a fairly standard way,
but the consumer side has several interesting features. Specifically, they use a represen-
tative consumer model, normalize the aggregate time that consumers spend on media
consumption to 1, and label the fraction of the time spent on platform i as λ
i
, with
9
See Anderson and Jullien (2015, this volume) and Peitz and Reisinger (2015, this volume) for further
discussions of equilibrium concepts.
10
See Selton (1970).
234
Handbook of Media Economics
X
n
i¼1
λ
i
¼1.
11
Denoting the content quality and advertising level on platform i by s
i
and
a
i
respectively, they write consumer utility as
U ¼ max
λ
1
,…,λ
n
X
n
i¼1
s
i
1 a
i
ðÞλ
i
½
α
,
where α is an exogenous parameter. The negative sign of a
i
reflects the assumption that
consumers are ad-averse and, most notably, Anderson and Peitz assume that α 2ð0,1Þ.
This implies that each consumer will spend some time on each platform. By assumption,
the consumers are thus multi-homers. Within this framework, they show that mergers
among ad-financed platforms reduce consumer surplus.
Anderson and Peitz (2014b) introduce competition for advertisers by allowing for
limited consumer attention. When consumers move between platforms (multi-homing),
they find that a merger between ad-financed platforms reduces ad levels and increases ad
prices. The result is thus similar to that of
Ambrus et al. (2015) and Anderson et al.
(2015a)
. The driving force in Anderson and Peitz (2014b) is that a merged platform inter-
nalizes the congestion problem. See
Anderson and Jullien (2015, this volume) for more
details on
Anderson and Peitz (2014a,b).
6.2.4 Effects of Semi-Collusion Through Joint Ope rating Agreements
In the United States, Joint Operating Agreements have been an important feature where
competing newspapers cooperate on advertising and circulation functions (see, e.g.,
Romeo and Dick, 2005). Policymakers have accepted these arrangements as a means
to ensure ideological diversity (
Gentzkow et al., 2014). See also Gentzkow et al.
(2015)
and Chandra and Kaiser (2015).
Dewenter et al. (2011) show that even if we abstract from diversity issues and effi-
ciency gains:
• semi-collusion, where platforms choose ad levels cooperatively but compete in the
reader market, may benefit all players (consumers, advertisers, and media platforms);
• a merger may reduce prices within a two-sided market.
Dewenter et al. (2011) consider a representative consumer framework with a continuum
of advertisers and two newspapers. They assume that consumers are ad lovers such that
competing newspapers seek to attract consumers from the rival by having a larger adver-
tising volume than what would otherwise maximize profits.
12
This negatively affects the
profits they earn from the advertising side of the market. Dewenter et al. consequently
find that the ad volume will fall and the ad price increase if the newspapers choose
ad levels collusively, compared to the outcome when they compete on both sides of
11
Like Athey et al. (2013), they thus assume that consumers have a fixed amount of time to allocate among
platforms.
12
Dewenter et al. (2011) find that their main results, which we describe below, hold also with ad-averse
consumers.
235
Merger Policy and Regulation in Media Industries
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