thereby increase the differentiation. The theoretical argument is presented in Section 6.3,
where we also present a brief overview of empirical findings.
32
Repositioning has been an issue in some media mergers. One example is GCap
Media’s acquisition of Global Radio UK in 2008. The OFT in the UK cleared the acqui-
sition, given that the parties accepted certain remedies. Interestingly, repositioning was
explicitly considered by the OFT. They referred to the theoretical study by
Gandhi et al.
(2008)
, in which it is shown that merging parties might have an incentive to reposition
their products after a merger and offer more differentiated products. In this particular
case, the parties claimed that after the acquisition the radio stations would be more dif-
ferentiated in terms of demographic space, and the OFT wrote the following:
“[I]t is only upon the bringing of the different stations under common ownership that it would be
rational for the owner of those stations commercially to take the decision to differentiate the sta-
tions further in terms of demographic space. This claim gains weight, because it is consistent with
the U.S. evidence on product repositioning of radio stations format that occurred after a wave of
mergers following U.S. deregulation of ownership restrictions, but not before it.”
The OFT also referred to Berry and Waldfogel (2001) and Romeo and Dick (2005), both
empirical studies of the radio market in the US (see the discussion earlier in this chapter)
that found that mergers led to more product differentiation.
There are several examples from the US where the competition authorities in their
merger review have taken into account the potential effects of product repositioning.
Examples of merger cases are the merger between Whole Foods Market and Wild Oats
Market in the retail market for organic foods, and the merger between Oracle and Peo-
pleSoft.
33
Repositioning is mentioned in the US Horizontal Merger Guidelines,
although very briefly.
34
However, as far as we know, there are no examples of merger
reviews by the competition authorities in the US in media markets where repositioning
has been an important issue.
6.5. CONCLUDING REMARKS
In this chapter, we present a survey of the media economics literature on mergers. We put
emphasis on where the effects of mergers differ between conventional one-sided markets
and two-sided media markets.
32
In particular, see Berry and Waldfogel (2001), Sweeting (2010), and Romeo and Dick (2005) concerning
the radio market,
Spitzer (2010) concerning the television market, and George (2007) concerning the
newspaper market.
33
For a description of these and other merger cases, see Mazzeo et al. (2013).
34
See DOJ/FTC (2010). Note that repositioning is considered as a possible constraint on the merging firms’
incentives to raise prices. For example, they mention that the non-merging firms might reposition their
product close to the merging firms’ products (see p. 21).
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Handbook of Media Economics
In the first part of the chapter, we discuss the price effects of mergers. The two-sided
markets literature has shown that the price effects of mergers of ad-financed platforms
differ from predictions in the conventional one-sided merger literature. 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). In their seminal paper on two-
sided media markets,
Anderson and Coate (2005) predict that a merger leads the plat-
forms to charge lower ad prices if consumers dislike ads. A crucial force leading to this
puzzling result is the assumption of single-homing consumers; competition for advertisers
is then closed down. When allowing for competition for advertisers by allowing for
multi-homing consumers, recent contributions show that ad prices may increase when
ad-financed platforms are merged (
Ambrus et al., 2015; Anderson and Peitz, 2014a,b;
Anderson et al., 2015a; Athey et al., 2013
).
In the second part of the chapter, we discuss how mergers affect competing media
platforms’ choice of genre. In his seminal paper,
Steiner (1952) shows that mergers
may reduce duplication of genres and increase diversity. The prediction is given empirical
support in recent empirical papers (
Baker and George, 2010; Berry and Waldfogel, 2001;
George 2007; George and Oberholzer-Gee, 2011; Jeziorski, 2014; Sweeting, 2010
).
However,
Beebe (1977) casts doubt on Steiner’s prediction that mergers tend to increase
diversity. If a given consumer’s favorite genre is not available, he might be willing to
watch some other genre instead. If so, Beebe shows that a merger to monopoly might
reduce the number of genres broadcasted. In a recent two-sided Hotelling framework,
Anderson et al. (2015b) allow for multi-homing consumers. They show that a merger of
two platforms might have no effect on the choice of genres (location on the Hotelling
line), and thus no effect on diversity.
In the third part of the chapter, we discuss how antitrust policy takes on merger con-
trol in two-sided media markets. A common message from the recent two-sided markets
literature is that the consequences of mergers in one-sided and two-sided markets might
be very different both with respect to effects on prices and diversity. Consequently, an
important issue is how antitrust authorities take on mergers with a two-sided market
nature. In numerous cases, antitrust authorities have applied the traditional one-sided
market logic to media markets. Such a procedure might be flawed. With respect to
the price effects, the methodology used by antitrust authorities for analyzing two-sided
mergers has improved in recent years. Less progress has been made in the antitrust author-
ities’ analysis of non-price effects of mergers (e.g., how mergers affect media diversity).
Antitrust authorities are typically concerned about horizontal mergers, and this has
been the focus of this chapter. In media markets, however, antitrust authorities have also
paid a lot of attention to vertical mergers (integration) and mergers between players oper-
ating in adjacent markets. We started out in the Introduction by mentioning the AOL–
Time Warner merger from 2001, perhaps the most prominent merger from the dot-com
era. Prior to the merger, these companies were considered to be operating in adjacent or
259Merger Policy and Regulation in Media Industries
vertically integrated markets. An issue to which we have not given attention in this
chapter is the concern that such mergers might generate abilities and incentives to fore-
close competing non-integrated firms that need to buy some kind of access from the ver-
tically integrated firm (
Rubinfeld and Singer, 2001, discuss foreclosure incentives in the
AOL–Time Warner case). Much attention was also given by competition authorities to
BSkyB’s attempt to acquire Manchester United. Antitrust authorities were concerned
about input foreclosure. The comprehensive literature on access and foreclosure is typ-
ically restricted to one-sided frameworks although a few recent papers analyze the vertical
relationship within two-sided markets (e.g.,
D’Annunzio, 2014; Stennek, 2014; Weeds,
2015
).
35
Among market players, the interplay between vertical layers has gained attention
as a trigger behind mergers: “Comcast’s agreement to buy Time Warner Cable was followed by
AT&T’s agreement to buy DirecTV for $48.5 billion. Even media giants like 21st Century Fox,
run by Rupert Murdoch, looked to deal making, in part to give them more clout to use against
distributors.” (New York Times, November 17, 2014).
While complete mergers, i.e., mergers which transfer corporate control, have been
the main concern among antitrust authorities, partial ownership has been a hot topic
within media markets. The largest UK pay-TV provider, BSkyB, announced in 2006
that it had acquired 17.9% of the shares in ITV.
The UK Competition Commission
(2007)
were concerned that the transaction would give BSkyB a significant degree of
corporate control in ITV. If so, BSkyB would have incentives and the ability to weaken
the competitive constraint of ITV on BSkyB. The Commission required that BSkyB’s
shareholding in ITV should be reduced to below 7.5% in order to prevent BSkyB from
taking corporate control in ITV. Media and entertainment markets are also the illustrative
examples used by
O’Brien and Salop (2000) in their seminal paper on anticompetitive
effects of partial ownership.
Merger control is in most cases restricted to structural remedies that modify the allo-
cation of property rights. In addition to competition regulation, several media markets
are restricted by sector-specific regulations that impose both structural and behavioral
remedies. In the US market for newspapers, three remedies have been used in order
to ensure ideological diversity: joint operating agreements (JOAs), restrictions on joint
ownership, and provision of subsidies (
Gentzkow et al., 2014, 2015).
36
Restrictions
on joint ownership have also been used in radio and television markets both in the
US and in Europe.
Finally, a regulatory issue in two-sided markets which has been high on the agenda in
recent years is net neutrality.
Weyl (2010) accentuates: “[T]he novel element in two-sided
markets is that regulators should focus most on reducing price opposite a side with a large Spence
distortion. Thus regulators of ISPs should focus on limiting prices to Web sites (net neutrality) if
35
Armstrong (1999) considers the pure pay-TV platforms (no ads).
36
See Chandra and Kaiser (2015, this volume) on JOAs in the newspaper market.
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Handbook of Media Economics
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