A SSNIP Test for Two-Sided Markets: The Case of Media
Tilburg University, TILEC; University of Florence, Dipartimento di Scienze Economiche
NET Institute Working Paper No. 08-34
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.
Number of Pages in PDF File: 46
Keywords: two-sided markets, SSNIP test, Hypothetical Monopolist test, critical loss analysis,
JEL Classification: L40, L50, K20
Date posted: October 29, 2008