Price Discrimination and Competition in Two-Sided Markets: Evidence from the Spanish Local TV Industry

Abstract

In this paper, we empirically test the relation between price discrimination and product market competition in a two-sided market setting using a new data set of Spanish local TV stations that provides information on subscription and advertising prices per station for 1996, 1999 and 2002. During these years, changes in regulation in this sector had a deep impact on the degree of local market competition. We use differences in market structure across markets and across years to study the relation between competition and price discrimination in this setting. Our findings suggest that stations in more competitive markets are less likely to use price discrimination. We also find evidence that stations price discriminating in a market are also more likely to price discriminate on the other market. Finally, cable subscription fees and advertising prices are higher in more competitive markets, which suggests that tougher competition may increase market segmentation through station differentiation, driving stations to charge higher uniform prices to more loyal customers. This may indicate that less price discrimination may be associated with lower consumer surplus in all markets.

Keywords: price discrimination, market competition, local TV industry, product, subscription, advertising