Two-sided markets The A- press’ acquisition of Edda media Asbjørn Englund 14th Desember 2013
Overview of the presentation 1. How the two-sidedness of markets impact the merger assessment 2. Did the NCA make the right assessment of the A- press’ acquisition of Edda Media?
How the two-sidedness of markets impact the merger assessment
The newspaper market is two-sided The more readers a The “better” the newspaper has – the newspaper is – the more Advertisers more attractive the attractive the paper is to paper is to advertisers readers A two-sided tradeoff between the two groups Newspaper - Even if there are many newspapers, readers and advertisers converge towards some large newspapers Readers - This converging effect is labeled a two-sided network effect among economists
Some degree of market power can benefit consumers (and advertisers) - Too many newspapers leads to: Advertisers - Few readers per newspaper - Lower income from advertising - Lower capacity to produce quality content due to fewer journalists - Few large newspapers leads to Newspaper - Many readers per paper - High income from advertising - Some degree of market power - Since market power in one market benefits the other, market power has Readers positive effects
A merger might re-distribute from one group to another Three possible outcomes: Advertisers 1. Restricted competition in both the advertising and the newspaper market 2. Restricted competition in the advertising market but not in the Newspaper newspaper market 3. Restricted competition in the newspaper market, but not in the advertising market Readers
Under the Norwegian Competition Law, redistribution is not relevant Price Total Welfare Before the acquisition: A + B + C After the acquisition: C + B + D Demand Difference : D – A Total welfare increases Increased dead C weight loss EU - rule The cost synergies do not benefit P1 consumers Not allowed? B A P0=MC Norwegian - rule D Total welfare increases allowed? MC1 Volume X X*
Did the NCA make the right assessment of the A- press’ acquisition of Edda Media?
Different conclusions in different counties The NCA evaluated a number of local newspaper markets, but ended up with two «problem-areas»: Telemark and Østfold, both counties in Norway Telemark: Edda and A-pressen owned the two largest newspapers; Varden • and Telemark Arbeiderblad . • NCA argued that a merger would restrict the competition in both the newspaper and the advertising market A-pressen had to divest one of them. Østfold: The competition was regarded as restricted in Fredrikstad’s • advertising market, but not in the newspaper market
Telemark Telemark Arbeiderblad and Varden were the two largest • newspapers in Telemark The NCA diversion-ratio investigation suggested they were close • substitutes in both the advertising and the newspaper markets BUT • There was a high level of double advertising and reading Evidence from other markets suggested low diversion • Moss: No diversion to Moss Avis when Moss Dagblad closed down • The design of the diversion-investigation partly explained the high • ratios: Margins were not investigated • There were significant cost-savings •
Fredrikstad
Fredrikstad Demokraten : a small newspaper with 3 issues per week Fredriksstad Blad : a medium sized daily newspaper Fredriksstad blad Demokraten • Total approved copies: 20 052 Total approved copies: 5605 • • Circulation: 378 single-copy Circulation: 75 single-cop • Readers: 56 000 • • Readers: 17 000 Pages (average): 50 • • Pages (average): 45 • Format: Tabloid • Format: Tabloid • Language: Bokmål Language: Bokmål • • Distribution: Courier, Post, Casual Distribution: Courier, Post, Casual • PDF: Not available • • PDF: Not available Classification: Local dailies • • Classification: Other local newspapers • Competitive situation: Ranked #1 Competitive situation: Ranked #2 • • Number of issues per week: 7 Number of issues per week: 3 • Release Day: [Monday, Tuesday, • Release Day: [Tuesday, Thursday, • Wednesday, Thursday, Friday, Saturday] Saturday, Sunday] • Time: Morning Edition • Time: Morning Edition Source: Aviskatalogen
Fredrikstad There were negligible effects in the newsreader market • According to the NCA diversion-ratio investigation, Demokraten • and FB were close substitutes in the advertising market BUT There was a high level of double advertising • 83 % of Demokraten’s advertisers also advertised in Fredriksstad Blad (Not • communicated in the decision) and 31 % did the opposite The design of the diversion-investigation partly explained the high • ratios Margins were not investigated • There were significant cost-savings • The two-sidedness of the market was not given weight •
What if Fredriksstad Blad and Demokraten raised their advertising prices? If the NCA is right the prices on advertising will rise • It is unclear whether the NCA is of the opinion that this will benefit • the readers: • From 277 in the decision: • “When the prices on advertising rises this would lead to increased income per reader. The isolated effect is reduced price and improved quality” • “But the total effect on incentives also depend on how advertisers evaluation of more readers changes” • “The total effect is uncertain” Does the NCA take into account that there is a re-distribution • effect? Is it unclear to the NCA what the “total effect on consumers” or • the “total welfare effect (before synergies)” would be? Some lines under (283), the NCA refer to the examination above, • and concludes that the total effect is negative
Conclusions Although the parties disagree with the premises, the NCAs • decision in Telemark was consistent • The situation in Fredrikstad differs from Telemark. ― The downstream competition in the newsreader market is not restricted/does not change since the newspapers of A-pressen and Edda media do not compete ― The evaluation of the upstream competition is based on a poorly performed diversion-ratio investigation ― If the NCA is right about the up-stream competition, then there is a re-distribution to newsreaders The NCA provided no logical justification why the merger • would lead to increased dead-weight loss
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