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Upward Pricing Pressure in Two‐sided Markets

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  • Pauline Affeldt
  • Lapo Filistrucchi
  • Tobias J. Klein

Abstract

Pricing pressure indices have recently been proposed as alternative screening devices for horizontal mergers involving differentiated products. We extend the concept of Upward Pricing Pressure (UPP) proposed by Farrell and Shapiro (2010) to two-sided markets. Examples of such markets are the newspaper market, where the demand for advertising is related to the number of readers, and the market for online search, where advertising demand depends on the number of users. The formulas we derive are useful for screening mergers among two-sided platforms. Due to the two-sidedness they depend on four sets of diversion ratios that can either be estimated using market-level demand data or elicited in surveys. In an application, we evaluate a hypothetical merger in the Dutch daily newspaper market. Our results indicate that it is important to take the two-sidedness of the market into account when evaluating UPP.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 123 (2013)
Issue (Month): 11 (November)
Pages: F505-F523

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Handle: RePEc:ecj:econjl:v:123:y:2013:i:11:p:f505-f523

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References

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  1. Sonia Jaffe & Glen Weyl, 2011. "Price Theory and Merger Guidelines, II," Antitrust Chronicle, Competition Policy International, vol. 12.
  2. Lapo Filistrucchi & Tobias Klein & Thomas Michielsen, 2010. "Merger Simulation in a Two-Sided Market: The Case of the Dutch Daily Newspapers," Working Papers 10-15, NET Institute.
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Cited by:
  1. Lapo Filistrucchi & Tobias J. Klein, 2013. "Price Competition in Two-Sided Markets with Heterogeneous Consumers and Network Effects," Working Papers 13-20, NET Institute.
  2. Haucap, Justus & Heimeshoff, Ulrich & Klein, Gordon J. & Rickert, Dennis & Wey, Christian, 2013. "Inter-format competition among retailers: The role of private label products in market delineation," DICE Discussion Papers 101, Heinrich‐Heine‐Universität Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
  3. Volodymyr Bilotkach & Nicholas G. Rupp & Vivek Pai, 2013. "Value of a Platform to a Seller: Case of American Airlines and Online Travel Agencies," Working Papers 13-08, NET Institute.
  4. Filistrucchi, L. & Geradin, D.A.A.G. & Damme, E.E.C. van, 2012. "Identifying Two-Sided Markets," Discussion Paper 2012-008, Tilburg University, Tilburg Law and Economic Center.
  5. David S. Evans & Richard Schmalensee, 2013. "The Antitrust Analysis of Multi-Sided Platform Businesses," NBER Working Papers 18783, National Bureau of Economic Research, Inc.
  6. Etro, Federico, 2013. "Advertising and search engines. A model of leadership in search advertising," Research in Economics, Elsevier, vol. 67(1), pages 25-38.

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