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A SSNIP test for two-sided markets: the case of media

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Abstract

I discuss the design and implementation of a SSNIP test in order to identify the relevant market in a media market. I argue that in such a two-sided market the traditional SSNIP test cannot be applied as it is usually conceived but rather should be modified in order to take into account indirect network externalities. I discuss the issues of which price the hypothetical monopolist should be thought of as raising, of whether we should look at profits changes on only one side or on both sides of the market and of which feedback among the two sides of the market we should take into account. I then derive the relevant formulas for Critical Loss Analysis. These look much uglier than in a single-sided market but in fact they are easy to calculate as they are still expressed in terms of elasticities and of current observed markups, prices and quantities. Data requirements are however higher as one needs to estimate the matrixes of the own and cross price elasticities of demand on the two-sides of the market and the matrixes of the network effects. The paper fills a gap in the economic literature, so much more as market definition in media markets is at the centre of many recent competition policy and regulation cases around the world.

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Bibliographic Info

Paper provided by NET Institute in its series Working Papers with number 08-34.

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Length: 45 pages
Date of creation: Oct 2008
Date of revision: Oct 2008
Handle: RePEc:net:wpaper:0834

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Web page: http://www.NETinst.org/

Related research

Keywords: two-sided markets; SSNIP test; Hypothetical Monopolist test; critical loss analysis; critical elasticity analysis; market definition; media;

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References

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  1. Kaiser, Ulrich & Wright, Julian, 2006. "Price structure in two-sided markets: Evidence from the magazine industry," International Journal of Industrial Organization, Elsevier, vol. 24(1), pages 1-28, January.
  2. David S. Evans & Richard Schmalensee, 2005. "The Industrial Organization of Markets with Two-Sided Platforms," NBER Working Papers 11603, National Bureau of Economic Research, Inc.
  3. Elena Argentesi & Lapo Filistrucchi, 2005. "Estimating market power in a two-sided market: the case of newspapers," Economics Working Papers ECO2005/07, European University Institute.
  4. Jean-Charles Rochet & Jean Triole, 2002. "Platform Competition in Two Sided Markets," FMG Discussion Papers dp409, Financial Markets Group.
  5. Ambarish Chandra & Allan Collard-Wexler, 2009. "Mergers in Two-Sided Markets: An Application to the Canadian Newspaper Industry," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(4), pages 1045-1070, December.
  6. Argentesi, Elena & Ivaldi, Marc, 2005. "Market Definition in Printed Media Industry: Theory and Practice," IDEI Working Papers 376, Institut d'Économie Industrielle (IDEI), Toulouse.
  7. Unknown & Dennis Carlton, 2007. "Market Definition: Use and Abuse," CPI Journal, Competition Policy International, vol. 3.
  8. Marc Rysman, 2004. "Competition Between Networks: A�Study of the Market for Yellow�Pages," Review of Economic Studies, Wiley Blackwell, vol. 71(2), pages 483-512, 04.
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Cited by:
  1. 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.
  2. Tosza, Katarzyna, 2009. "Payment Card Systems as an Example of two-sided Markets - a Challenge for Antitrust Authorities," MPRA Paper 23822, University Library of Munich, Germany.
  3. Willem H. Boshoff, 2011. "Antitrust market definition using statistical learning techniques and consumer characteristics," Working Papers 224, Economic Research Southern Africa.

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