The A- press acquisition of Edda media Asbjrn Englund 14th Desember - - PowerPoint PPT Presentation

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

• Even if there are many newspapers,

readers and advertisers converge towards some large newspapers

• This converging effect is labeled a

two-sided network effect among economists Advertisers Newspaper Readers

The more readers a newspaper has – the more attractive the paper is to advertisers The “better” the newspaper is – the more attractive the paper is to readers A two-sided tradeoff between the two groups

Some degree of market power can benefit consumers (and advertisers)

• Too many newspapers leads to:
• Few readers per newspaper
• Lower income from advertising
• Lower capacity to produce quality

content due to fewer journalists

• Few large newspapers leads to
• 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 positive effects

Advertisers Newspaper Readers

A merger might re-distribute from one group to another

Three possible outcomes:

• 1. Restricted competition in both the

advertising and the newspaper market

• 2. Restricted competition in the

advertising market but not in the newspaper market

• 3. Restricted competition in the

newspaper market, but not in the advertising market

Advertisers Newspaper Readers

Under the Norwegian Competition Law, redistribution is not relevant

Volume

Total Welfare Before the acquisition: A + B + C After the acquisition: C + B + D Difference : D – A  Total welfare increases EU - rule The cost synergies do not benefit consumers  Not allowed? Norwegian - rule Total welfare increases  allowed?

Price Demand X* X P0=MC P1 Increased dead weight loss B C D A MC1

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

Fredriksstad blad

• Total approved copies: 20 052
• Circulation: 378 single-copy
• Readers: 56 000
• Pages (average): 50
• Format: Tabloid
• Language: Bokmål
• Distribution: Courier, Post, Casual
• PDF: Not available
• Classification: Local dailies
• Competitive situation: Ranked #1
• Number of issues per week: 7
• Release Day: [Monday, Tuesday,

Wednesday, Thursday, Friday, Saturday, Sunday]

• Time: Morning Edition

Demokraten

• Total approved copies: 5605
• Circulation: 75 single-cop
• Readers: 17 000
• Pages (average): 45
• Format: Tabloid
• Language: Bokmål
• Distribution: Courier, Post, Casual
• PDF: Not available
• Classification: Other local newspapers
• Competitive situation: Ranked #2
• Number of issues per week: 3
• Release Day: [Tuesday, Thursday,

Saturday]

• Time: Morning Edition

Demokraten: a small newspaper with 3 issues per week Fredriksstad Blad: a medium sized daily newspaper

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

Fredrikstad

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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