Multisided Platforms and Market Power Some empirical evidence Marc Ivaldi 2nd Lear Conference on the Economics of Competition Law Rome, June 7-8, 2007

2 Content  Printed media industries  Market delineation Standard approach Model-based approach

3 Market definition in printed media industries  Distinctive features Differentiated products  Content (general vs specialized information)  Quality (tabloids vs art magazines)  Frequency  Scope Local vs national Bidimensional products  Readership  Advertising Substitutes  Other medias

4 Market definition in printed media industries  Examples Differentiated products  Recoletos / Unedisa case Dialy and non dialy publications General information, sport and financial papers Tabloids and quality press  Gruner+Jahr / Financial Times / JV  Ballarino / Grandi quotidiani Local and national publication (separate markets)  Conclusion Demand side perspective Printed media markets segmented in tiny sub-markets

5 Market definition in printed media industries  Examples Substitutability  Recoletos / Unedisa case  Newsquest Ltd / Independent News  Conclusion : Not taken into account Written press distinct from other media products  Why? Not the same depth and range of information However supply side arguments

6 Market definition in printed media industries  Examples Advertising  Newspaper publishing decision  Class Editori / Sole 24 Ore case  Recoletos / Unedisa  Conclusion Different types of advertising define different types of readers and vice-versa Readership and advertising are separate markets

7 Market definition in printed media industries  Methods Usually qualitative Now quantitative  Archant Limited / Independent News and Media Limited Commission claims to have performed a SSNIP test Commission concludes that the relevant market is th local one

8 An econometric illustration  Merger SOCPRESSE / Groupe Express- Expansion French weekly magazines of general information Decision : the merger has been authorized

9 An econometric illustration  Econometric analysis by the competition authority Individual demand are price inelastic Aggregate demand is elastic Conclusion  Cross-price elasticities are small  The market is larger??

10 An econometric illustration Share of Unit Purchases in Total Sales (Average – )

11 Subscription Unit purchase Outside good …… Titles An econometric illustration

12 An econometric illustration  Alternative model Accounts for differentiation Relative market shares Quality-Price tradeoff Differentiation effect

13 An econometric illustration  Alternative model Accounts for differentiation Accounts for endogeneity  First set of instruments : All exogenous variables + previous’ year circulation  Second set of instruments : All exogenous variables + advertising revenue and its lagged value

14 Estimation without advertising as an instrument Estimation with advertising as an instrument Le Figaro Magazine-0.36 (0.001) (0.003) Le Nouvel Observateur-0.31 (0.000) (0.001) Le Point-0.28 (0.000) (0.001) L’Express-0.28 (0.001) (0.002) Paris Match-0.20 (0.002) (0.005) Valeurs Actuelles-0.36 (0.044) (0.148)

15 Estimation without advertising as an instrument Estimation with advertising as an instrument La Vie0.000 (0.000) (0.000) Le Figaro Magazine0.041 (0.001) (0.003) Le Nouvel Observateur0.008 (0.000) (0.001) Le Point0.006 (0.000) (0.001) L’Express0.008 (0.001) (0.002) Paris Match0.026 (0.002) (0.005) Valeurs Actuelles0.001 (0.000) (0.001) VSD0.009 (0.001) (0.002)

16 Econometric illustration ….  …. of neglecting feedback effects between the two sides of the market  This can translate in bad estimates of market power …

17 Example: The market for academic journals  Academic journals = intermediary role Research output dissemination Cerification  Academic journal = Two-sided structure

18 Structure AUTHORS PUBLISHERS LIBRARIES READERS 0 € K € 0 € ARCHIVE

19 Academic journals  A model  Main result: not recognizing the endogeneity of the impact factor yields zero correlation between the impact factor and the demand for journals !! Impact factor

20 Acadamic journals: main result Own ElasticityCross ElasticityMarginal CostMark Up (%) MeanMedianMeanMedianMeanMedianMeanMedian Model Model

21 More general models  Argentesi – Filistrucchi (2006)  Kaiser – Wright (2006)  Rysman (2004)

22 More general models  Argentesi – Filistrucchi (2006) Collusion on readership / Competition on advertisng

23 Concluding remarks  Market delineation under structural econometric provides a very differnt view of relevant markets  Needs more work « Real » interaction effects Dynamics Sensitivity analysis  Mark Rysman