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On the Profitability of Media Mergers

Author

Listed:
  • Esther Gal-Or

    (University of Pittsburgh)

  • Anthony Dukes

    (University of Aarhus)

Abstract

We examine incentives for nonconsolidating horizontal mergers in commercial media industries. In a model with differentiated media and products, we show that such a merger is profitable if merging media firms gain a relative bargaining advantage vis-à-vis advertisers in the negotiations for advertising space. Whether a bargaining advantage yields profitable conditions for a merger depends on the extent of competition for audiences among media firms. Higher levels of competition make media mergers more profitable. This result contrasts those implied by oligopoly models for traditional product markets, which suggest that mergers become less profitable for higher levels of competition.

Suggested Citation

  • Esther Gal-Or & Anthony Dukes, 2006. "On the Profitability of Media Mergers," The Journal of Business, University of Chicago Press, vol. 79(2), pages 489-526, March.
    • Handle: RePEc:ucp:jnlbus:v:79:y:2006:i:2:p:489-526
    DOI: 10.1086/499129
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    Citations

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    Cited by:

    1. Edmond Baranes & Thomas Cortade & Andreea Cosnita-Langlais, 2014. "Merger Control on Two-Sided Markets: Is There Need for an Efficiency Defense?," Working Papers hal-01830016, HAL.
    2. Anderson, Simon P. & Gabszewicz, Jean J., 2006. "The Media and Advertising: A Tale of Two-Sided Markets," Handbook of the Economics of Art and Culture, in: V.A. Ginsburgh & D. Throsby (ed.), Handbook of the Economics of Art and Culture, edition 1, volume 1, chapter 18, pages 567-614, Elsevier.
    3. Rennhoff, Adam D. & Wilbur, Kenneth C., 2012. "Local media ownership and media quality," Information Economics and Policy, Elsevier, vol. 24(3), pages 231-242.
    4. Reisinger, Markus, 2004. "Two-Sided Markets with Negative Externalities," Discussion Papers in Economics 478, University of Munich, Department of Economics.
    5. Schmidtke, Richard, 2006. "Two-Sided Markets with Pecuniary and Participation Externalities," Discussion Papers in Economics 963, University of Munich, Department of Economics.
    6. Alberto Iozzi & Tommaso Valletti, 2014. "Vertical Bargaining and Countervailing Power," American Economic Journal: Microeconomics, American Economic Association, vol. 6(3), pages 106-135, August.
    7. Tobias Wenzel, 2011. "Deregulation of Shopping Hours: The Impact on Independent Retailers and Chain Stores," Scandinavian Journal of Economics, Wiley Blackwell, vol. 113(1), pages 145-166, March.
    8. Przemyslaw Jeziorski, 2010. "Merger enforcement in two-sided markets," Economics Working Paper Archive 570, The Johns Hopkins University,Department of Economics.
    9. Anderson, Simon P. & Foros, Øystein & Kind, Hans Jarle & Peitz, Martin, 2012. "Media market concentration, advertising levels, and ad prices," International Journal of Industrial Organization, Elsevier, vol. 30(3), pages 321-325.
    10. Sara Fisher Ellison & Christopher M. Snyder, 2010. "Countervailing Power In Wholesale Pharmaceuticals," Journal of Industrial Economics, Wiley Blackwell, vol. 58(1), pages 32-53, March.
    11. Suchan Chae & Paul Heidhues, 2004. "Buyers' Alliances for Bargaining Power," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(4), pages 731-754, December.
    12. Reisinger, Markus, 2012. "Platform competition for advertisers and users in media markets," International Journal of Industrial Organization, Elsevier, vol. 30(2), pages 243-252.
    13. Przemyslaw Jeziorski, 2010. "Estimation of cost synergies from mergers without cost data: Application to U.S. radio," Economics Working Paper Archive 571, The Johns Hopkins University,Department of Economics.
    14. Richard Schmidtke, 2006. "Two–Sided Markets with Pecuniary and Participation Externalities," Working Papers 003, Bavarian Graduate Program in Economics (BGPE).
    15. Hans Jarle Kind & Tore Nilssen & Lars Sørgard, 2009. "Business Models for Media Firms: Does Competition Matter for How They Raise Revenue?," Marketing Science, INFORMS, vol. 28(6), pages 1112-1128, 11-12.
    16. Firgo, Matthias & Kügler, Agnes, 2018. "Cooperative pricing in spatially differentiated markets," Regional Science and Urban Economics, Elsevier, vol. 73(C), pages 51-67.
    17. Soberman, David A., 2009. "Marketing agencies, media experts and sales agents: Helping competitive firms improve the effectiveness of marketing," International Journal of Research in Marketing, Elsevier, vol. 26(1), pages 21-33.
    18. Przemysław Jeziorski, 2014. "Estimation of cost efficiencies from mergers: application to US radio," RAND Journal of Economics, RAND Corporation, vol. 45(4), pages 816-846, December.
    19. Peitz, Martin & Valletti, Tommaso M., 2008. "Content and advertising in the media: Pay-tv versus free-to-air," International Journal of Industrial Organization, Elsevier, vol. 26(4), pages 949-965, July.
    20. Choi, Jay Pil, 2006. "Broadcast competition and advertising with free entry: Subscription vs. free-to-air," Information Economics and Policy, Elsevier, vol. 18(2), pages 181-196, June.
    21. Anthony J. Dukes, 2005. "Economic Perspectives on Media Mergers and Consolidation," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 74(3), pages 38-48.
    22. Schmidtke, Richard, 2006. "Two-Sided Markets with Pecuniary and Participation Externalities," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 133, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    23. Markus Reisinger & Ludwig Ressner & Richard Schmidtke, 2009. "Two‐Sided Markets With Pecuniary And Participation Externalities," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 32-57, March.

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