Upward Pricing Pressure in Two-Sided Markets

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Abstract

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.
Original languageEnglish
Place of PublicationTilburg
PublisherTILEC
Number of pages28
Volume2012-029
Publication statusPublished - 2012

Publication series

NameTILEC Discussion Paper
Volume2012-029

Fingerprint

Two-sided markets
Pricing
Screening
Mergers
Differentiated products
Search advertising
Horizontal mergers
Diversion

Keywords

  • Merger evaluation
  • two-sided markets
  • network effects
  • UPP

Cite this

Affeldt, P., Filistrucchi, L., & Klein, T. J. (2012). Upward Pricing Pressure in Two-Sided Markets. (TILEC Discussion Paper; Vol. 2012-029). Tilburg: TILEC.
Affeldt, P. ; Filistrucchi, L. ; Klein, T.J. / Upward Pricing Pressure in Two-Sided Markets. Tilburg : TILEC, 2012. (TILEC Discussion Paper).
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Affeldt, P, Filistrucchi, L & Klein, TJ 2012 'Upward Pricing Pressure in Two-Sided Markets' TILEC Discussion Paper, vol. 2012-029, TILEC, Tilburg.

Upward Pricing Pressure in Two-Sided Markets. / Affeldt, P.; Filistrucchi, L.; Klein, T.J.

Tilburg : TILEC, 2012. (TILEC Discussion Paper; Vol. 2012-029).

Research output: Working paperDiscussion paperOther research output

TY - UNPB

T1 - Upward Pricing Pressure in Two-Sided Markets

AU - Affeldt, P.

AU - Filistrucchi, L.

AU - Klein, T.J.

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N2 - 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.

AB - 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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Affeldt P, Filistrucchi L, Klein TJ. Upward Pricing Pressure in Two-Sided Markets. Tilburg: TILEC. 2012. (TILEC Discussion Paper).