Upward Pricing Pressure in Two-Sided Markets

TILEC Discussion Paper No. 2012-029

CentER Discussion Paper Series No. 2012-069

28 Pages Posted: 23 Jul 2012 Last revised: 29 Aug 2012

Pauline Affeldt

German Institute for Economic Research (DIW Berlin); Technische Universität Berlin (TU Berlin)

Lapo Filistrucchi

Tilburg University, TILEC; University of Florence, Dipartimento di Scienze Economiche

Tobias J. Klein

Tilburg University - Department of Econometrics & Operations Research; Tilburg University - Center for Economic Research (CentER); IZA Institute of Labor Economics; Netspar; Tilburg Law and Economics Center (TILEC)

Multiple version iconThere are 2 versions of this paper

Date Written: July 23, 2012

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.

Keywords: merger evaluation, two-sided markets, network effects, UPP

JEL Classification: L13, L40, L82

Suggested Citation

Affeldt, Pauline and Filistrucchi, Lapo and Klein, Tobias J., Upward Pricing Pressure in Two-Sided Markets (July 23, 2012). TILEC Discussion Paper No. 2012-029. Available at SSRN: https://ssrn.com/abstract=2115382 or http://dx.doi.org/10.2139/ssrn.2115382

Pauline Affeldt (Contact Author)

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Technische Universität Berlin (TU Berlin) ( email )

Straße des 17
Juni 135
Berlin, 10623
Germany

Lapo Filistrucchi

Tilburg University, TILEC ( email )

P.O. Box 90153
Tilburg, Noord-Brabant NL-5000 LE
Netherlands
+31 13 466 3360 (Phone)
+31 13 466 3042 (Fax)

HOME PAGE: http://www.lapofilistrucchi.com

University of Florence, Dipartimento di Scienze Economiche ( email )

via delle Pandette 9
Florence, Florence IT-50127
Italy
+39 055 2759579 (Phone)
+39 055 2759910 (Fax)

HOME PAGE: http://www.lapofilistrucchi.com

Tobias J. Klein

Tilburg University - Department of Econometrics & Operations Research ( email )

Tilburg, 5000 LE
Netherlands

HOME PAGE: http://center.uvt.nl/staff/klein/index.html

Tilburg University - Center for Economic Research (CentER)

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

IZA Institute of Labor Economics ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Netspar

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Tilburg Law and Economics Center (TILEC)

Warandelaan 2
Tilburg, 5000 LE
Netherlands

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