DP14895 Platform Mergers: Lessons from a Case in the Digital TV Market

Author(s): Marc Ivaldi, Jiekai Zhang
Publication Date: June 2020
Date Revised: March 2021
Keyword(s): advertising, competition policy, platform merger, TV market, two-sided market
JEL(s): K21, L10, L40, L82, M37
Programme Areas: Industrial Organization
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14895

This paper contributes to the analysis of mergers in two-sided markets, notably those in which a platform provides its service for free on one side but obtains all its revenues from the other, as in the digital TV industry. Specifically, we assess a decision of the French competition authority which approved the merger of the broadcasting services of the TV channels involved but imposed a behavioral remedy prohibiting the merger of their respective advertising sales services. To do so, we build a structural model allowing for multi-homing of advertisers and, using a comprehensive dataset, we estimate the demand of viewers and advertisers. Welfare analysis suggests that the approved merger harms consumers (both viewers and advertisers) and benefits the TV stations. In other words, the implemented behavioral remedy is ineffective. On the broadcasting side, the merger tends to increase the amount of advertising, which reinforces the negative externalities that advertisers generate for viewers; on the advertising side, this impetus counterbalances the risk of an increase of market power, which restrains the increase in advertising prices. Overall, the main lesson of our analysis is that, in the process of designing competition or regulatory policy for two-sided markets, ignoring the interaction between the two sides of platforms can result in unexpected outcomes.