Estimating Platform Market Power in Two-Sided Markets with an Application to Magazine Advertising

Abstract

In this paper I develop a structural model of platform demand in two-sided markets and use it to estimate platform market power and predict price changes in post-merger markets. My model and estimation procedure are applicable to settings where (1) agents on each side care about the presence of agents on the other side and (2) platforms charge access fees on both sides. Using data on TV magazines in Germany I show that the magazines typically set copy prices below marginal costs and make profits from selling advertising space. I also show that platform mergers are much less harmful to consumers (readers and advertisers) than what the one-sided market model predicts.

Keywords: platform competition, two-sided single-homing, competitive bottleneck, merger simulation

JEL Classification: C51, D43, L13, L40