Predation in a Two-Sided Market: the Price War among UK newspapers in the ‘90s
Lapo Filistrucchi
Last modified: 2009-11-23
Abstract
The aim of the research project is the development of a theoretical model and econometric method to test for predatory behaviour in two-sided markets with differentiated products. As discussed in Anderson & Gabszewicz (2008), the newspapers’ market, and more generally media markets, are a typical example of two-sided market. We therefore apply the proposed methodology to identify predatory pricing in a two-sided market to the newspaper industry. We look at the price war in the UK quality daily newspapers in the ‘90s and test whether the pricing strategy of The Times from September 1993 to December 1995 was an example of predatory pricing, as claimed by its competitors, particularly by the Independent. The case was investigated by the Office of Fair Trading (OFT) that concluded against the existence of predatory behaviour. We build a structural model which encompasses demand for differentiated products on both sides of the market and profit maximization by competing oligopolistic publishers who choose cover prices, advertising prices and product location on the political line taking into account the interactions between the two-sides of the market. Building on an idea first proposed by Behringer (2007), the model extends Argentesi & Filistrucchi (2007) by endogenising the choice of political position. In doing so it builds on the very recent work of Fan (2008).
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