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title | ESSAYS ON HORIZONTAL MERGERS AND ANTITRUST
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text | A DISSERTATION
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| SUBMITTED TO THE GRADUATE SCHOOL OF BUSINESS
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| AND THE COMMITTEE ON GRADUATE STUDIES
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| OF STANFORD UNIVERSITY
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| IN PARTIAL FULFILLMENT OF THE REQUIREMENTS
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| FOR THE DEGREE OF
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| DOCTOR OF PHILOSOPHY
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text | Przemyslaw Jeziorski
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| June 2010
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| © 2010 by Przemyslaw Jeziorski. All Rights Reserved.
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| Re-distributed by Stanford University under license with the author.
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text | This work is licensed under a Creative Commons Attribution-
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| Noncommercial 3.0 United States License.
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| http://creativecommons.org/licenses/by-nc/3.0/us/
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text | This dissertation is online at: http://purl.stanford.edu/bb599nz4341
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meta | ii
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text | I certify that I have read this dissertation and that, in my opinion, it is fully adequate
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| in scope and quality as a dissertation for the degree of Doctor of Philosophy.
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text | Peter Reiss, Primary Adviser
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text | I certify that I have read this dissertation and that, in my opinion, it is fully adequate
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| in scope and quality as a dissertation for the degree of Doctor of Philosophy.
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text | Ali Yurukoglu
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text | I certify that I have read this dissertation and that, in my opinion, it is fully adequate
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| in scope and quality as a dissertation for the degree of Doctor of Philosophy.
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text | C. Lanier Benkard
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text | Approved for the Stanford University Committee on Graduate Studies.
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| Patricia J. Gumport, Vice Provost Graduate Education
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text | This signature page was generated electronically upon submission of this dissertation in
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| electronic format. An original signed hard copy of the signature page is on file in
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| University Archives.
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title | Abstract
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text | This thesis contributes to understanding the economics of mergers and acquisitions.
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| It provides new empirical techniques to study these processes, based on structural,
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| game theoretical models. In particular, it makes two main contributions. In Chapter
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| 2, I study the issues arising when mergers take place in a two-sided market. In such
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| markets, firms face two interrelated demand curves, which complicates the decision
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| making process and makes standard merger models inapplicable. In Chapter 3, I
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| provide a general framework to identify cost synergies from mergers without using
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| cost data. The estimator is based on a dynamic model with endogenous mergers and
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| product repositioning. Both chapters contain an abstract model that can be tailored
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| to many markets, as well as a specific application to the merger wave in the U.S.
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| radio industry.
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title | Acknowledgments
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text | I would like to thank my advisers Lanier Benkard and Peter Reiss for their guidance
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| over the years, their patience and their constant feedback that helped me to consider-
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| ably improve my work. Moreover, I would like to express my gratitude to numerous
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| people I encountered who believed in me and supported me along my path to this
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| degree. In particular, this thesis would have been impossible without my adviser
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| Tomasz Szapiro at the Warsaw School of Economics. He motivated me and directly
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| helped me to make my adventure in the United States possible. My interest in game
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| theory and dynamic models was triggered by great conversations with my adviser
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| Rabah Amir at the University of Arizona. I would like to thank him for his support
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| and help while applying to Stanford GSB. Last but not least, I am grateful to all the
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| community at Stanford University – professors, fellow students and casual friends –
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| for creating a unique environment for my intellectual and personal development.
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meta | v
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title | Contents
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text | Abstract iv
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text | Acknowledgments v
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text | 1 Introduction 1
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text | 2 Mergers in two-sided markets: Case of U.S. radio industry 5
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| 2.1 Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
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| 2.2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
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| 2.3 Radio as a two-sided market . . . . . . . . . . . . . . . . . . . . . . . 9
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| 2.3.1 Industry setup . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
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| 2.3.2 Listeners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
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| 2.3.3 Advertisers . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
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| 2.3.4 Radio station owners . . . . . . . . . . . . . . . . . . . . . . . 16
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| 2.4 Data description . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
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| 2.5 Estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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| 2.5.1 First stage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
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| 2.5.2 Second stage . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
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| 2.6 Results . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
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| 2.6.1 Listeners’ demand . . . . . . . . . . . . . . . . . . . . . . . . . 23
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| 2.6.2 Advertisers’ demand . . . . . . . . . . . . . . . . . . . . . . . 23
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| 2.6.3 Supply . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
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| 2.7 Counterfactual experiments . . . . . . . . . . . . . . . . . . . . . . . 29
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| 2.7.1 Impact of mergers on consumer surplus . . . . . . . . . . . . . 29
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text | 2.7.2 Effects of product variety and market power . . . . . . . . . . 31
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| 2.8 Robustness analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
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| 2.9 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
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text | 3 Estimation of cost synergies from mergers without cost data: Ap-
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| plication to U.S. radio 35
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| 3.1 Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
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| 3.2 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
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| 3.3 Merger and repositioning framework . . . . . . . . . . . . . . . . . . 38
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| 3.3.1 Industry basics . . . . . . . . . . . . . . . . . . . . . . . . . . 38
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| 3.3.2 Players’ actions . . . . . . . . . . . . . . . . . . . . . . . . . . 39
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| 3.3.3 Payoffs and equilibrium . . . . . . . . . . . . . . . . . . . . . 41
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| 3.4 Estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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| 3.4.1 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
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| 3.4.2 Policy estimation . . . . . . . . . . . . . . . . . . . . . . . . . 43
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| 3.4.3 Minimum distance estimator . . . . . . . . . . . . . . . . . . . 46
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| 3.5 Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
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| 3.5.1 Industry and data description . . . . . . . . . . . . . . . . . . 48
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| 3.5.2 Static profits . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
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text | A Additional material to Chapter 2 57
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text | B Additional material to Chapter 3 61
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| B.2 Radio acquisition and format switching algorithms . . . . . . . . . . . 62
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text | 2.1 Simple example of advertising weights . . . . . . . . . . . . . . . . . . 15
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| 2.2 Panel data descriptive statistics . . . . . . . . . . . . . . . . . . . . . 18
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| 2.3 Estimates of mean and random effects of demand for radio program-
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| ming. Stars indicate parameter significance when testing with 0.1, 0.05
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| and 0.01 test sizes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
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| 2.6 Slope of the inverse demand for ads θ2A , by market size . . . . . . . . 27
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| 2.7 Estimated marginal cost (in dollars per minute of broadcasted advertis-
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| ing) and profit margins (before subtracting the fixed cost) for a chosen
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| set of markets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
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| 2.8 Counterfactuals for all markets . . . . . . . . . . . . . . . . . . . . . 29
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| 2.9 Counterfactuals for small markets (less than 500k people) . . . . . . . 30
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| 2.10 Counterfactuals for large markets (more than 2,000k people) . . . . . 30
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| 2.11 Slope of the inverse demand for ads θ2A , by market size . . . . . . . . 33
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| 2.12 Robustness of counterfactuals . . . . . . . . . . . . . . . . . . . . . . 33
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| 3.2 Savings when two stations are owned by the same firm vs. operating
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| separately . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
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| 3.3 Total cost savings created by mergers after 1996, compared to demand
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| effects from Jeziorski (2010) . . . . . . . . . . . . . . . . . . . . . . . 55
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text | B.1 Covariates for the format switching strategy multinomial logic regression. 63
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| B.2 Covariates for the purchase strategy logic regression. . . . . . . . . . 64
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| B.3 Station purchase policy estimates - buyer/seller dummies . . . . . . . 65
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| B.4 Station purchase policy estimates - other variables . . . . . . . . . . . 65
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| Chapter 1
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title | Introduction
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text | A horizontal merger occurs when two or more competing companies combine to jointly
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| operate. Both the European Commission (2004) and the U.S. Department of Justice
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| radio reveals that the 1996-2006 merger wave provided $2.5b per year of cost syn-
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| ergies, which constitutes about 10% of total industry revenue. The scale of those
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| are two main contributions from this chapter. First, I identify the conflicting incentives of
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| merged firms to exercise market power on both sides of the market (listeners and advertisers
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| in the case of radio). Second, I disaggregate the effect of mergers on consumers into changes
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| in product variety and changes in supplied ad quantity.
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| The model is estimated using data on 13,000 radio stations from 1996 to 2006. I find that
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| firms have moderate market power over listeners in all markets, extensive market power over
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| advertisers in small markets and no market power over advertisers in large markets. Coun-
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| terfactuals reveal that extra product variety created by post-merger repositioning increased
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| listeners’ welfare by 1.3% and decreased advertisers’ welfare by about $160m per-year. How-
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| ever, subsequent changes in supplied ad quantity decreased listener welfare by 0.4% (for a
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| total impact of +0.9%) and advertiser welfare by an additional $140m (for a total impact
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text | Between 1996 and 2006, the U.S. radio industry experienced an unprecedented merger
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| wave due to the 1996 Telecommucation Act, which raised ownership caps in local
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| markets and abolished cross-market ownership restrictions. At the height of merger
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| activity, about 30% of stations changed ownership each year and about 20% changed
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| the format of broadcasted programming. In this paper, I use this merger wave to
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| study the consequences of consolidation in two-sided markets. I make two main
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| contributions. First, I identify conflicting incentives for stations to exercise market
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| power on both sides of the market (in the case of radio, the two sides are advertisers
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| and listeners). In particular, I separate the impact of consolidation on listener and
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| advertiser surplus. Second, I decompose this impact into effects of changes on product
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| variety and market power. As a result, I ask whether extra variety can mitigate the
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| negative effects of a decrease in competition. Similar issues arise in other two-sided
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| markets such as credit cards, newspapers or computer hardware. The framework
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| proposed in this paper can be easily adjusted to analyze any of these industries.
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| In two-sided markets, firms face two interrelated demand curves from two distinct
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| types of consumers. These demands give merging firms conflicting incentives because
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| exercising market power in one market lowers profits in the other market. In the case
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| of radio, a company provides free programming to listeners but draws revenue from
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| selling advertising that is priced on a per-listener basis. In the listener market, a
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| merged firm would like to increase post-merger advertising because it captures some
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| switching listeners. This advertising decreases the welfare of listeners and increases
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| the welfare of advertisers. However, from the perspective of the advertising market,
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| the merged firm would like to supply less advertising, which has the exact opposite
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| impact on listener and advertiser welfare. The firm’s ultimate decision, which deter-
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| mines the impact of consolidation on the welfare of both consumer groups, depends
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| on the relative demand elasticities in both markets.
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| In this paper, I separately estimate elasticities for both consumer groups using a
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| Using those estimates, I perform counterfactual policy experiments that quantify the
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| on the listener side is similar across geographical markets. In contrast, the amount
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| firms have a considerable control over advertising price in smaller markets; however,
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| they are price takers in larger markets. Consequently, mergers result in firms lowering
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| advertising quantity in small markets (less than 500 thousand people) by about 13%,
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| which leads to a 6% per-listener increase in ad prices. Mergers increase listener
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| surplus by 2.5% but at the same time decrease advertiser surplus by $235m per
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| year. Conversely, in large markets (more than 2 million people) mergers lead to
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| a 5.5% increase in total advertising minutes while per-listener price stays constant.
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| This results in a 0.3% decrease in listener welfare as well as a slight decrease in
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| advertiser welfare ($0.1m per year). The aggregate national impact of the merger
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| wave amounted to a listener welfare gain of 1% and a $300m per year advertiser
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| welfare loss. I conclude that listeners benefited and advertisers were disadvantaged
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| by the 1996 Telecom Act.
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| My work is related to several theoretical papers studying complexity of pricing
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| strategies in two-sided markets. The closest studies related to this paper are: Arm-
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| strong (2006), Rochet and Tirole (2006), Evans (2002) and Dukes (2004). The general
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| conclusion in this literature is that using a standard supply and demand framework
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| of single-sided markets might be not sufficient to capture the economics of two-sided
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| markets. Additionally, there have been several empirical studies on this topic. For
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| example Kaiser and Wright (2006), Argentesi and Filistrucchi (2007) and Chandra
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| and Collard-Wexler (2009) develop empirical models that recognize the possibility of
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| market power in both sides of the market. They use a form of the Hotelling model pro-
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| posed by Armstrong (2006) to deal with product heterogeneity. I build on their work,
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| incorporating recent advances in the literature on demand with differentiated prod-
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| ucts. This allows me to incorporate richer consumer heterogeneity and substitution
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| patterns (e.g. Berry, Levinsohn, and Pakes (1995), and Nevo (2000)) that are neces-
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| sary to capture complicated consumer preferences for radio programing. Moreover, I
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| supplement reduced form results on market power with out-of-sample counterfactuals
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| that explicitly predict changes in supplied ad quantity and consumer welfare.
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| mergers on consumer surplus into changes in product variety and effects of exercising
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| extra market power from joint ownership. This exercise is motivated by the fact
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| that in most cases consumers have preference for variety, so it is possible that extra
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| variety created by mergers might mitigate the negative effects of extra market power.
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| In order to verify the above claim, I quantify consumers’ value for extra variety and
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| compare it to the loss in surplus coming from the extra market power. This approach
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| relates to Kim, Allenby, and Rossi (2002), who compute the compensating variation
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| for the changes of variety in tastes of yogurt and Brynjolfsson, Hu, and Smith (2003)
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| who do the same for the variety of books offered in on-line bookstores. These papers
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| assume away the fact that changes in variety will be followed by readjustments in
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| equilibrium prices. In this paper, taking their analysis one step forward, I incorporate
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| such strategic responses by performing counterfactual experiments.
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| Berry and Waldfogel (2001) and Sweeting (2008) document that the post-1996
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| merger wave resulted in an increase in product variety. I investigate their claim using
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| a structural utility model and conclude that extra variety alone leads to a $1.3%
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| increase in listener welfare. However, because product repositioning softened com-
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| petition in the advertising market and caused some stations to switch to a “Dark“
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| format 1 , advertiser welfare decreased by $147m per year. Additionally, I find that
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| product ownership consolidation and repositioning are followed by advertising quan-
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| tity readjustments. I estimate, that effect alone leads to a 0.3% decrease in listener
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| welfare (with the variety effect it totals to the 1% increase) and an additional $153m
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| decrease in advertiser welfare (with the variety effect it totals $300m). While ex-
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| tra variety mitigates the negative effects of mergers on listeners, it strengthens the
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| negative impact on advertisers.
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| This paper is organized as follows. Section 2 outlines the questions investigated
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| in the paper in a formal way and describes the structural model of the industry.
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| Section 3 contains the description of the data. Estimation techniques used to identify
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| the parameters of the model are described in Section 4. Results of the structural
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text | When in “dark” format, the station holds the frequency so that other stations cannot use it.
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text | estimation are presented in Section 5. Section 6 describes the results of counterfactual
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| experiments. Robustness checks of different modeling assumptions are contained in
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| Section 7. Section 8 provides the conclusion.
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title | 2.3 Radio as a two-sided market
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text | The radio industry is an example of a two-sided market (other examples include
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| advertising platforms, credit cards or video games). Such markets are usually char-
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| acterized by the existence of three types of agents: two types of consumers and
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| a platform provider. What distinguishes this setup from a standard differentiated
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| product oligopoly is that the platform provider is unable to set prices for each type of
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| consumer separately. Instead, the demand curves are interrelated through a feedback
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| loop in such a way that quantity sold to one consumer determines the market clearing
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| price for the other consumer. In this subsection I argue that this feedback makes it
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| complicated to determine whether the supplied quantities are strategic substitutes
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| or complements (as defined in Bulow, Geanakoplos, and Klemperer (1985)). This
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| creates important trade-offs in the case of a merger and affects the division of surplus
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| between both types of consumers. The remainder of this subsection discusses this
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| mechanism in detail using the example of radio; however, the discussion applies to
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| the majority of other two-sided markets.
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| In the case of radio there are three types of agents: radio stations, listeners,
|
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| and advertisers. Radio stations provide free programming for listeners and draw
|
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| revenue from selling advertising slots. First, consider the demand curve for radio
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| programming. The listener market share of the radio station j is given by
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| characteristics of all active stations, d are market covariates and θL are parameters
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| of the listener demand. Since radio programming is free, there is no explicit price in
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| this equation. However, because listeners have disutility for advertising, its effect is
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| similar to price, i.e. ∂qj
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| < 0.
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| The market clearing price of an advertising slot in station j depends on the amount
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| of advertising supplied and the number of listeners to station j. Therefore, the inverse
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| demand curve for advertising slots is
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text | where θA are parameters. Note that the advertising quantity affects the advertising
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| price in two ways: directly through the first argument and indirectly through the
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| listener demand feedback loop (the second argument).
|
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| Suppose for now that each owner owns a single station and there is no marginal
|
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| cost (I relax these assumptions later). In equilibrium, each radio station chooses their
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| optimal ad quantity, keeping the quantities of the other stations fixed, i.e.
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| quantity) that determines the equilibrium point on both demand curves simultane-
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| ously. The first order conditions for profit maximization are given by
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text | ∂pj ∂pj ∂rj
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| qj + qj + pj = 0
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| ∂qj ∂rj ∂qj
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text | The important fact is that this condition shares features with both the Cournot and
|
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| Bertrand models. On the one hand, the first term represents the direct effect of
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| quantity on price, and it is reminiscent of the standard quantity setting equilibrium
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| (Cournot). On the other hard, the second component represents the listener feedback
|
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| loop and is reminiscent of the price setting model (Bertrand), because ad quantities
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| function like prices in the demand for programming.
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| In order to determine the impact of a merger on the equilibrium ad quantities
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| supplied we need to know if they are strategic complements or substitutes. The
|
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| duality described in the previous paragraph make it ambiguous. This is because
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| in the Cournot model quantities are strategic substitutes and in the differentiated
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meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 11
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blank |
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text | product Bertrand model prices are strategic complements. Without knowing the
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| relative strengths of the direct effects and the feedback loop, we cannot conclude
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| whether a merger leads to an increase or decrease in ad quantity on the margin.
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| Moreover, in the borderline case in which the effects cancel each other, a merger does
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| not effect quantity at all; in this case, even though companies have market power
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| over both consumers, they are unable to exercise it. Measuring these effects is critical
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| for predicting the split of surplus between advertisers and listeners. When the direct
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| effect is stronger, mergers lead to contraction in the ad quantity supplied and higher
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| prices. This will benefit listeners but hurt advertisers. However, if the feedback loop
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| is stronger than the direct effect then merger leads to more advertising and lower
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| prices, benefiting advertisers and hurting listeners.
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| Because the theory does not give a clear prediction about the split of surplus, I
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| investigate this question empirically using a structural model. In the remainder of
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| this section I put more structure on equations (2.1), (2.2) and (2.3), enabling separate
|
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| identification of both sets of demand elasticities. I discover the relative strength of
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| the direct and feedback effects and perform counterfactuals that quantify the extent
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| of surplus reallocation.
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title | 2.3.1 Industry setup
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text | During each period t, the industry consists of M geographical markets that are char-
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| acterized by a set of demographic covariates d ∈ Dm . Each market m can have up to
|
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| Jm active radio stations and Km active owners. Each radio station is characterized by
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| one of F possible programming formats. Station formats include the so-called “dark”
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| format when a station is not operational The set of all station/format configurations
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| m
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| is given by FJ . Ownership structure is defined as a Km -element partition of sta-
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| m
|
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| tion/format configuration smt ∈ FJ . In an abuse of notation, I will consider smt
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| to be a station/format configuration for market m at time t, as well as an owner-
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| ship partition. Each member of the ownership partition (denoted as sk ) specifies the
|
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| portfolio of stations owned by firm k.
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meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 12
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blank |
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text | The quality of the programming of radio station j is fully characterized by a one-
|
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| dimensional quality measure ξj ∈ Ξ ⊂ R. The state of the industry at time time t
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| in market m is therefore fully characterized by: a station/format configuration and
|
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| ownership structure stm , vector of station quality measures ξ tm and market covariates
|
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| dtm . In the next subsections I present a detailed model of listener demand, advertiser
|
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| demand, and supply side. Throughout the description I take the triple (stm , ξ tm , dtm )
|
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| as given and frequently omit market or time subscripts to simplify the notation.
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blank |
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title | 2.3.2 Listeners
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text | This subsection describes the details of the demand for listenership introduced in
|
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| equation (2.1). The model will be a variation on the random coefficient discrete
|
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| choice setup proposed by Berry, Levinsohn, and Pakes (1995).
|
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| I assume that each listener chooses only one radio station to listen to at a particular
|
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| moment. Suppose that s is a set of active stations in the current market at a particular
|
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+
| time. For any radio station j ∈ s, I define a vector ιj = (0, . . . , 1, . . . , 0) where 1 is
|
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| placed in a position that indicates the format of station j.
|
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| The utility of listener i listening to station j ∈ s is given by
|
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+
blank |
|
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text | L L
|
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+
| uij = θ1i ιj − θ2i qj + θ3L FMj + ξj + ji (2.4)
|
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|
+
blank |
|
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|
+
text | L
|
601
|
+
| where θ2i is the individual listener’s demand sensitivity to adverting, qj the amount
|
602
|
+
| of advertising, ξj the unobserved station quality, ji an unobserved preference shock
|
603
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+
| L
|
604
|
+
| (distributed type-1 extreme value), and finally θ1i is a vector of the individual listener’s
|
605
|
+
| random effects representing preferences for formats.
|
606
|
+
| I assume that the random coefficients can be decomposed as
|
607
|
+
blank |
|
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|
+
text | L
|
609
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+
| θ1i = θ1L + ΠDi + ν1i , Di ∼ Fm (Di |d), ν1i ∼ N (0, Σ1 )
|
610
|
+
blank |
|
611
|
+
text | and
|
612
|
+
| L
|
613
|
+
| θ2i = θ2L + ν2i , ν2i ∼ N (0, Σ2 )
|
614
|
+
blank |
|
615
|
+
text | where Σ1 is a diagonal matrix, Fm (Di |d) is an empirical distribution of demographic
|
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+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 13
|
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blank |
|
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+
|
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619
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|
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|
+
text | characteristics, νi is unobserved taste shock, and Π is the matrix representing the
|
621
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+
| correlation between demographic characteristics and format preferences. I assume
|
622
|
+
| that draws for νi are uncorrelated across time and markets.
|
623
|
+
| The random effects model allows for fairly flexible substitution patterns. For
|
624
|
+
| example, if a particular rock station increases its level of advertising, the model
|
625
|
+
| allows for consumers to switch proportionally to other rock stations depending on
|
626
|
+
| demographics.
|
627
|
+
| Following Berry, Levinsohn, and Pakes (1995), I can decompose the utility into a
|
628
|
+
| part that does not vary with consumer characteristics
|
629
|
+
blank |
|
630
|
+
text | δj = δ(qj |ιj , ξj , θL ) = θ1L ιi − θ2L qj + θ3L FMj + ξj
|
631
|
+
blank |
|
632
|
+
text | an interaction part
|
633
|
+
blank |
|
634
|
+
text | µji = µ(ιj , qj , ΠDi , νi ) = (ΠDi + ν1i )ιj + ν2i qj
|
635
|
+
blank |
|
636
|
+
text | and error term ji .
|
637
|
+
| Given this specification, and the fact that ji is distributed as an extreme value,
|
638
|
+
| one can derive the expected station rating conditional on a vector of advertising levels
|
639
|
+
| q, market structure s, a vector of unobserved station characteristics ξ, and market
|
640
|
+
| demographic characteristics d,
|
641
|
+
| Z Z
|
642
|
+
| L exp[δj + µji ]
|
643
|
+
| rj (q|s, ξ, d, θ ) = P dF (νi )dFm (Di |d)
|
644
|
+
| j 0 ∈s exp[δj 0 + µj 0 i ]
|
645
|
+
blank |
|
646
|
+
|
|
647
|
+
title | 2.3.3 Advertisers
|
648
|
+
text | In this subsection I present the details of the demand for advertising introduced in
|
649
|
+
| equation (2.2). The model captures several important features specific to the radio
|
650
|
+
| industry. In particular, the pricing is done on a per-listener basis, so that the price
|
651
|
+
| for a 60sec slot of advertising is a product of cost-per-point (CPP) and station rating
|
652
|
+
| (market share in percents). Moreover, radio stations have a direct market power over
|
653
|
+
| advertisers, so that CPP is a decreasing function of the ad quantities offered by a
|
654
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 14
|
655
|
+
blank |
|
656
|
+
|
|
657
|
+
|
|
658
|
+
text | station and its competitors. The simplest model that captures these features and is
|
659
|
+
| a good approximation of the industry is a linear inverse demand for advertising, such
|
660
|
+
| as !
|
661
|
+
| X
|
662
|
+
| pj = θ1A rj 1 − θ2A ωfmf 0 qf 0 (2.5)
|
663
|
+
| f 0 ∈F
|
664
|
+
blank |
|
665
|
+
text | where f is a format of station j, θ1A is a scaling factor for value of advertising, θ2A is
|
666
|
+
| a market power indicator and ωf f 0 ∈ Ω are weights indicating competition closeness,
|
667
|
+
| between formats f and f 0 .
|
668
|
+
| The weights ω are a key factor determining competition between formats and thus
|
669
|
+
| market power. They reflect the fact that some formats are further and others are closer
|
670
|
+
| substitutes for advertisers because of differences in the demographic composition of
|
671
|
+
| their listeners. In principle, one could proceed by estimating these weights from
|
672
|
+
| the data. However, here it is not feasible to do that because the available data
|
673
|
+
| do not contain radio station level advertising prices. Instead, I make additional
|
674
|
+
| assumptions that will enable me to compute the weights using publicly available data.
|
675
|
+
| The reminder of this subsection discusses the formula for the weights and provides
|
676
|
+
| an example supporting this intuition. The formal micro-model is given in Appendix
|
677
|
+
| A.1.
|
678
|
+
| Let there be A types of advertisers. Each type a ∈ A targets a certain demographic
|
679
|
+
| group(s) a. I.e. advertiser of type a gets positive utility only if a listener of type a
|
680
|
+
| hears an ad. Denote rf |a to be the probability that a listener of type a chooses format
|
681
|
+
| f and ra|f to be the probability that a random listener of format f is of type a.
|
682
|
+
| Advertisers take these numbers, along with station ratings rj , as given and decide on
|
683
|
+
| which station to advertise. This assumption is is motivated by the fact that about
|
684
|
+
| 75% is purchased by small local firms. Such firms’ advertising decisions are unlikely
|
685
|
+
| to influence prices and station ratings in the short run.
|
686
|
+
| This decision problem results in an inverse demand for advertising with weights
|
687
|
+
| ωjj 0 , that are given by
|
688
|
+
blank |
|
689
|
+
text | 1 X
|
690
|
+
| ωf f 0 = P 2
|
691
|
+
| ra|f ra|f rf 0 |a (2.6)
|
692
|
+
| a∈A ra|f a∈A
|
693
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 15
|
694
|
+
blank |
|
695
|
+
|
|
696
|
+
|
|
697
|
+
text | The formal justification and derivation of this equation is given in Appendix A.1. The
|
698
|
+
| intuition behind it is that the total impact on the per-listener price of an ad in format
|
699
|
+
| f is a weighted average of impacts on the per-listener value of an ad for different types
|
700
|
+
| of advertisers. The weighting is done by the advertisers’ arrival rates, which are equal
|
701
|
+
| to the listeners’ arrival rates ra|f . For each advertiser of type a the change of value
|
702
|
+
| of an ad in format f , in response to a change of total quantity supplied in format f 0 ,
|
703
|
+
| is affected by two things: it is proportional to the probability of correct targeting in
|
704
|
+
| format f , given by ra|f , because advertisers are expected utility maximizers; and it
|
705
|
+
| is proportional to the share of advertising purchased by this advertiser in format f 0 ,
|
706
|
+
| given by rf 0 |a . Assembling these pieces together and normalizing the weights to sum
|
707
|
+
| to 1 gives equation (2.6).
|
708
|
+
| To illustrate how these weights work in practice, consider the following example.
|
709
|
+
| Suppose that there are only two possible formats of programming: Talk and Hits, and
|
710
|
+
| two types of consumers: Teens and Adults. Teens like mostly Hits format and Adults
|
711
|
+
| like Talk format. However, Adults like Hits more than Teens like Talk. Hypothetical
|
712
|
+
| numerical values of rf |a and ra|f are given in Table 2.1.
|
713
|
+
blank |
|
714
|
+
text | rf |a ra|f Ω
|
715
|
+
| Talk Hits Teens Adults Talk Hits
|
716
|
+
| Teens 1/5 4/5 Talk 1/4 3/4 Talk 0.56 0.44
|
717
|
+
| Adults 3/5 2/5 Hits 2/3 1/3 Hits 0.28 0.72
|
718
|
+
| Table 2.1: Simple example of advertising weights
|
719
|
+
blank |
|
720
|
+
text | In Table 2.1, the impact of Hits on the price of Talk is greater than the impact of
|
721
|
+
| Talk on the price of Hits. This is due to the fact that the quantity supplied in the Hits
|
722
|
+
| format affects Adult-targeting advertisers (who drive the price of the Talk format)
|
723
|
+
| to a much greater extent than ad quantity in Talk affects Teen-targeting advertisers
|
724
|
+
| (who drive the price of the Hits format). Moreover, because the weights sum up to
|
725
|
+
| 1, it must be that the own effect of Talk is weaker than that of Hits. This is exactly
|
726
|
+
| the essence of the mechanism behind Equation (2.6). More examples from the data
|
727
|
+
| with an extensive discussion are given in Section 2.6.
|
728
|
+
| In the next section I will combine demand for programming and advertising to
|
729
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 16
|
730
|
+
blank |
|
731
|
+
|
|
732
|
+
|
|
733
|
+
text | compose the profits of the radio station owners.
|
734
|
+
blank |
|
735
|
+
|
|
736
|
+
title | 2.3.4 Radio station owners
|
737
|
+
text | In this subsection I will describe a profit maximizing problem for the radio station
|
738
|
+
| owners. It will be a version of equation (2.3) that allows for non-zero cost in selling
|
739
|
+
| advertising and common radio station ownership. Given the advertising quantity
|
740
|
+
| choices of competing owners q−k , the profit of radio station owner k is given by
|
741
|
+
| X
|
742
|
+
| π̄k (qk |q−k , ξ, θ) = max rj (q|ξ, θL )pj qj − MCj (qj ) =
|
743
|
+
| {qj ;j∈sk }
|
744
|
+
| j∈sk
|
745
|
+
blank |
|
746
|
+
text | X X
|
747
|
+
| ! (2.7)
|
748
|
+
| = θ1A max L
|
749
|
+
| qj rj (q|ξ, θ ) 1 − θ2A ωfmf 0 qf 0 A C
|
750
|
+
| + Cj (qj |θ , θ )
|
751
|
+
| {qj ;j∈sk }
|
752
|
+
| j∈sk f 0 ∈F
|
753
|
+
blank |
|
754
|
+
|
|
755
|
+
text | where Cj (qj ) is the total cost of selling advertising. I assume constant marginal cost
|
756
|
+
| and allow for a firm level of unobserved cost heterogeneity ηj , i.e. Cj (qj |θA , θC ) =
|
757
|
+
| θ1A [θC + ηj ]qj .
|
758
|
+
| I assume that the markets are in a Cournot Nash Equilibrium. The first order
|
759
|
+
| conditions for profit optimization become
|
760
|
+
blank |
|
761
|
+
text | X ∂rj 0
|
762
|
+
| rj pj + qj 0 A m
|
763
|
+
| pj 0 − rj 0 θ2 ωjj 0 − θC − ηj = 0 ∀k and j ∈ sk (2.8)
|
764
|
+
| j 0 ∈s
|
765
|
+
| ∂qj
|
766
|
+
| k
|
767
|
+
blank |
|
768
|
+
|
|
769
|
+
|
|
770
|
+
text | Additionally, I assume that station unobserved quality is exogenous but serially cor-
|
771
|
+
| related. It evolves according an AR(1) process such that
|
772
|
+
blank |
|
773
|
+
text | ξjt = ρξjt−1 + ζjt (2.9)
|
774
|
+
blank |
|
775
|
+
text | where ζjt is an exogenous innovation to station quality.
|
776
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 17
|
777
|
+
blank |
|
778
|
+
|
|
779
|
+
|
|
780
|
+
title | 2.4 Data description
|
781
|
+
text | I have constructed a panel of data on radio stations and radio station ownership
|
782
|
+
| merging data from two sources: BIA Financial Network Inc. and the SQAD Media
|
783
|
+
| Market Guide.
|
784
|
+
| BIAfn provided me data on: radio station ownership, revenues, market shares and
|
785
|
+
| formats. The data are a 1996-2006 panel covering each radio station in the market
|
786
|
+
| in 2006. The data are incomplete in the sense that I do not observe all the stations
|
787
|
+
| that exited the market between 1996 and 2006. According to Sweeting (2007) there
|
788
|
+
| were only 50 stations that exited during this period, mostly due to violations of FCC
|
789
|
+
| regulations. Because this number is small relative to the 11,000 stations in the sample,
|
790
|
+
| this omission is unlikely to significantly influence the results.
|
791
|
+
| The BIAfn data are supplemented with data on aggregate advertising prices. Un-
|
792
|
+
| fortunately, price data at the station level are not available. SQAD instead provides
|
793
|
+
| estimates of market prices that are obtained using proprietary formulas. According
|
794
|
+
| to anecdotal evidence, those estimates are widely recognized as the industry standard
|
795
|
+
| and are the best available data on market prices. Radio market prices are reported
|
796
|
+
| as a Cost per Rating Point (CPP). CPP is the cost of advertising per 1 percent of
|
797
|
+
| listenership. SQAD provides CPP broken down into daytime and demographic cat-
|
798
|
+
| egories. We will estimate station level prices from SQAD CPPs using radio station
|
799
|
+
| ratings that are broken down by time of day and demographics.
|
800
|
+
| An observation in my data is a radio station operating in a specific half-year and
|
801
|
+
| in a specific market. BIAfn and SQAD use Arbitron market definitions. An Arbitron
|
802
|
+
| market is in most cases a county or a metropolitan area. According to the surveys
|
803
|
+
| conducted by CRA International (2007) for the Canadian market (which is similar to
|
804
|
+
| the US market): “The majority of radio advertisers are local. They are only interested
|
805
|
+
| in advertising in their local area since most of their customers and potential buyers
|
806
|
+
| live in or very near their city.” In our analysis, I assume no interdependence between
|
807
|
+
| markets. To further assure that there is no overlap between markets, I use only the
|
808
|
+
| 88 market sub-selection that was developed in Sweeting (2007). Table 2.7 presents a
|
809
|
+
| list of the 88 markets, along with their populations.
|
810
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 18
|
811
|
+
blank |
|
812
|
+
|
|
813
|
+
text | 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
|
814
|
+
| Number of
|
815
|
+
| 26.75 26.92 27.25 27.53 27.66 27.89 28.48 28.61 28.72 28.78 28.86
|
816
|
+
| stations
|
817
|
+
| Number of
|
818
|
+
| 16.58 15.55 14.94 14.21 13.29 13.03 13.16 12.96 12.73 12.52 12.48
|
819
|
+
| owners
|
820
|
+
| C3 0.77 0.83 0.88 0.91 0.97 0.95 0.93 0.93 0.93 0.93 0.90
|
821
|
+
| Number of
|
822
|
+
| 4.43 5.10 5.66 5.94 6.58 6.32 6.31 6.34 6.42 6.38 6.28
|
823
|
+
| stations owned
|
824
|
+
| Fraction of
|
825
|
+
| stations that 0.12 0.12 0.10 0.11 0.12 0.03 0.04 0.03 0.03 0.03 NaN
|
826
|
+
| changed ownership
|
827
|
+
| Fraction of
|
828
|
+
| stations that 0.11 0.11 0.13 0.12 0.12 0.13 0.10 0.11 0.11 0.11 NaN
|
829
|
+
| changed format
|
830
|
+
| Ad quantity 23.19 25.85 26.12 28.45 30.31 24.71 28.37 24.54 28.16 28.30 26.95
|
831
|
+
| Price divided by
|
832
|
+
| 1.00 0.96 1.08 1.10 1.26 1.51 1.42 1.51 1.39 1.37 1.43
|
833
|
+
| price in 1996
|
834
|
+
blank |
|
835
|
+
text | Table 2.2: Panel data descriptive statistics
|
836
|
+
blank |
|
837
|
+
text | To achieve a sharper identification of the random effects covariance matrix, I use
|
838
|
+
| listenership shares of different demographic groups in each of the formats that has
|
839
|
+
| been aggregated from the 100 biggest markets 2 . I observe listenership shares of
|
840
|
+
| different age/gender groups within each station format between 1998 and 2006, and
|
841
|
+
| shares for income, race and education groups between 2003 and 2006. Unfortunately,
|
842
|
+
| I do not observe a full matrix of market shares for all the combinations of demographic
|
843
|
+
| variables. For example, I do not see what the share of rock stations is among black,
|
844
|
+
| educated males. Instead I have shares for blacks, educated people, and males.
|
845
|
+
| Table 2.2 contains some basic aggregate statistics about the industry. The top
|
846
|
+
| part of the table documents changes in concentration of radio station ownership.
|
847
|
+
| The average number of stations owned in our dataset grew from 4.43 in 1996 to
|
848
|
+
| 6.28 in 2006. This ownership consolidation resulted in growth of the market share
|
849
|
+
| of the 3 biggest owners (C3) from 77% in 1996 to 90% in 2006, peaking at 97% in
|
850
|
+
| 2000. The middle part of the table contains the average percentages of stations that
|
851
|
+
| switched owners and that switched formats. Between 1996 and 2000 more than 10%
|
852
|
+
| of stations switched owners yearly. After 2000 the number dropped to below 4%.
|
853
|
+
| Greater concentration activity in the 1996-2000 period was also associated with more
|
854
|
+
| format switching. The percentage of stations that switched format peaked in 1998
|
855
|
+
| and 2001 at 13%.
|
856
|
+
meta | 2
|
857
|
+
text | Source: Arbitron Format Trends Report
|
858
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 19
|
859
|
+
blank |
|
860
|
+
|
|
861
|
+
|
|
862
|
+
title | 2.5 Estimation
|
863
|
+
text | The estimation of the model is done in two steps. In the first step, I estimate the
|
864
|
+
| demand model that includes parameters of the consumer utility θL (see equation
|
865
|
+
| (2.4)) and the unobserved station quality lag parameter ρ (see equation (3.1)). In
|
866
|
+
| the second step, we recover parameters of the inverse demand for advertising θA , wjj 0
|
867
|
+
| (see equation (2.5)) and cost parameters θC (see equation (2.7)).
|
868
|
+
blank |
|
869
|
+
|
|
870
|
+
title | 2.5.1 First stage
|
871
|
+
text | This stage provides the estimates of demand for radio programming θL . Estimation is
|
872
|
+
| done using the generalized method of simulated moments. I use two sets of moment
|
873
|
+
| conditions. The first set is based on the fact that innovation to station unobserved
|
874
|
+
| quality ξj has a mean of zero conditional on the instruments:
|
875
|
+
blank |
|
876
|
+
text | E[ξjt − ρξjt−1 |Z1 , θL ] = 0 (2.10)
|
877
|
+
blank |
|
878
|
+
text | This moment condition follows Berry, Levinsohn, and Pakes (1995) and extends it by
|
879
|
+
| explicitly introducing auto-correlation of ξ. I use instruments for advertising quantity
|
880
|
+
| since it is likely to be correlated with unobserved station quality. My instruments
|
881
|
+
| include: lagged mean and second central moment of competitors’ advertising quantity,
|
882
|
+
| lagged market HHIs and lagged number and cumulative market share of other stations
|
883
|
+
| in the same format. These are valid instruments under the assumption that ξt follows
|
884
|
+
| an AR(1) process and the fact that decisions about portfolio selection are made before
|
885
|
+
| decisions about advertising.
|
886
|
+
| A second set of moment conditions is based on demographic listenership data.
|
887
|
+
| Let Rf c be the national market share of format f among listeners possessing certain
|
888
|
+
| demographic characteristics c. The population moment conditions are
|
889
|
+
blank |
|
890
|
+
text | exp[δjmt + µmt ji ]
|
891
|
+
| Z Z Z
|
892
|
+
| P mt mt
|
893
|
+
| t
|
894
|
+
| dF (νi )dFct (Dic , m)dt = Rf c (2.11)
|
895
|
+
| t t ,m)
|
896
|
+
| (Dic νi 0
|
897
|
+
| j ∈s mt exp[δ j 0 + µ ij 0 ]
|
898
|
+
blank |
|
899
|
+
text | where Fct (Di , m) is a national distribution of people who possess characteristic c at
|
900
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 20
|
901
|
+
blank |
|
902
|
+
|
|
903
|
+
|
|
904
|
+
text | time t. Each person is characterized by the demographic characteristics Di and the
|
905
|
+
| market m they belong to.
|
906
|
+
| For each time t and demographic characteristic c, I draw I observation pairs
|
907
|
+
| t
|
908
|
+
| (Dic , m) from the nationally aggregated CPS. Let g = (g1 , g2 ) represent the empirical
|
909
|
+
| moments and W be a weighting matrix. I estimate the model by using the constrained
|
910
|
+
| optimization procedure:
|
911
|
+
blank |
|
912
|
+
text | min g 0 W g
|
913
|
+
| θL ,ξ,g
|
914
|
+
blank |
|
915
|
+
text | Subject to:
|
916
|
+
| r̂jmt (qmt |smt , ξmt , dmt , θL ) = rjmt ∀t, m
|
917
|
+
| (2.12)
|
918
|
+
| exp[δjmt + µmt ji ]
|
919
|
+
| Z
|
920
|
+
| 1 X X
|
921
|
+
| P mt mt
|
922
|
+
| dF (νi ) − Rf c = g1 ∀c
|
923
|
+
| TI t t ν i j 0 ∈smt exp[δ j 0 + µ ij 0 ]
|
924
|
+
| (Dic ,m)
|
925
|
+
| 1
|
926
|
+
| Z1 (ξ − ρLξ) = g2
|
927
|
+
| size of ξ
|
928
|
+
blank |
|
929
|
+
text | where L is a lag operator that converts the vector ξ into one-period lagged values. If
|
930
|
+
| the radio station did not exist in the previous period, the lag operator has a value of
|
931
|
+
| zero. Integration with respect to demographics when calculating the first constraint is
|
932
|
+
| obtained by drawing from the CPS in the particular market and period. This way of
|
933
|
+
| integrating allows us to maintain proper correlations between possessed demographic
|
934
|
+
| characteristics. The same is true when obtaining the data set Dict . When computing
|
935
|
+
| the interaction terms µ in the second constraint, I draw one vector νi from the normal
|
936
|
+
| distribution for each Dict .
|
937
|
+
blank |
|
938
|
+
|
|
939
|
+
title | 2.5.2 Second stage
|
940
|
+
text | The second stage of the estimation obtains the competition matrix Ω and the pa-
|
941
|
+
| rameters of demand for advertising θA . The estimation is done separately for every
|
942
|
+
| market, thereby allowing for different Ω and θA .
|
943
|
+
| To compute the matrices Ωm for each market I use the specification layed out in
|
944
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 21
|
945
|
+
blank |
|
946
|
+
|
|
947
|
+
|
|
948
|
+
text | section 2.3.3. The elements of the matrix Ω are specified as
|
949
|
+
blank |
|
950
|
+
text | 1 X
|
951
|
+
| ωf f 0 = P 2
|
952
|
+
| ra|f ra|f rf 0 |a
|
953
|
+
| a∈A ra|f a∈A
|
954
|
+
blank |
|
955
|
+
|
|
956
|
+
text | following equation (2.6). The rf |a are advertisers’ beliefs about listeners’ preferences
|
957
|
+
| for formats. These are constant across markets. To recognize that advertisers know
|
958
|
+
| the demographic composition of each market I allow for market specific listener arrival
|
959
|
+
| rates for each format rfm|a . However, I assume that the advertisers compute those
|
960
|
+
| values by using Radio Today reports and the Current Population Survey. After
|
961
|
+
| computing weights, I treat Ωm as exogenous and fixed in all of the following steps 3 .
|
962
|
+
| After computing matrices Ω, I estimate θA . Using estimates of demand for radio
|
963
|
+
| programming θL from the first stage, I compute ratings for each station conditioned
|
964
|
+
| on the counterfactual advertising quantities. I use the set of 3M moment conditions
|
965
|
+
blank |
|
966
|
+
text | Em [η m |Z2 , θA , θC ] = 0 ∀m ∈ M (2.13)
|
967
|
+
blank |
|
968
|
+
text | where the integral is taken with respect to time and stations in each market. ηjtm is
|
969
|
+
| an unobserved shock to marginal cost defined in equation (2.5). The Z2 are three
|
970
|
+
| instruments: a column of ones, the AM/FM dummy and number of competitors in
|
971
|
+
| the same format. They are uncorrelated with η m under the IID assumption, but
|
972
|
+
| are correlated with the current choice of quantity because they describe the market
|
973
|
+
| structure.
|
974
|
+
| We back out ηjtm using FOCs for owner’s profit maximization (see equation (2.7))
|
975
|
+
blank |
|
976
|
+
text | ∂rjt 0 t
|
977
|
+
| X
|
978
|
+
| ηjt = rjt ptj + qjt 0 A t m C
|
979
|
+
| p 0 − θ2m rj 0 ωf f 0 − θm ∀t ∈ T, k ∈ Ktm , j ∈ stm (2.14)
|
980
|
+
| ∂qjt j k
|
981
|
+
| j 0 ∈stm
|
982
|
+
| k
|
983
|
+
blank |
|
984
|
+
|
|
985
|
+
text | A A C
|
986
|
+
| Since the equation does not depend on θ1m , I can use it to estimate θ2m and θm . During
|
987
|
+
| the estimation, I allow for a different value of marginal cost for each market. I allow
|
988
|
+
meta | 3
|
989
|
+
text | Such an approach potentially ignores possible variance of the Ωm estimator. The source of
|
990
|
+
| this variance might come from the finiteness of the CPS dataset and the distribution of Arbitron
|
991
|
+
| estimates.
|
992
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 22
|
993
|
+
blank |
|
994
|
+
|
|
995
|
+
|
|
996
|
+
text | for 3 different values for the slope of inverse demand depending on the population of
|
997
|
+
| the market (up to 500 people, between 500 and 1500, and 1500 or more). Ratings
|
998
|
+
| and derivatives of ratings in the equation (2.14) are calculated using the estimates of
|
999
|
+
| θL and ξ from the first stage. Demographic draws are taken from the CPS and are
|
1000
|
+
| A
|
1001
|
+
| independent of those used in the first stage. Given the estimates of θ2m and θC , I
|
1002
|
+
| A
|
1003
|
+
| can back out θ1m by equating the observed average revenue in each market with its
|
1004
|
+
| predicted counterpart.
|
1005
|
+
| Next I discuss a variation in the data that identifies parameters θA and θC . The
|
1006
|
+
| intuition for such identification is that estimating Equation 2.14 can be regarded as a
|
1007
|
+
| C
|
1008
|
+
| linear regression in which θm is an intercept and θ2A is a coefficient of a variable that
|
1009
|
+
| is a function of supplied quantity. In this case, the mean deviation of FOCs from zero
|
1010
|
+
| C
|
1011
|
+
| in each market identifies the intercept θm . The slope parameter θ2A is identified by the
|
1012
|
+
| size of the response of the firm to changes in quantity supplied by its competitors due
|
1013
|
+
| to change in the market structure or demographics. Such a response, as mentioned
|
1014
|
+
| in Section 2.3, is composed of listeners’ demand feedback and the direct effect of
|
1015
|
+
| quantity on CPP. Elasticity of listeners’ demand, that determines the strength of the
|
1016
|
+
| feedback, is consistently estimated in the first step. Therefore, one can subtract the
|
1017
|
+
| difference out the feedback effect from the total response observed in the data. This
|
1018
|
+
| allows to obtain the strength of the direct effect that directly identifies the slope of
|
1019
|
+
| the CPP, θ2A . For example, if we look at the response of ad quantity reacting to the
|
1020
|
+
| merger, the slope of listeners’ demand alone predicts large increases in ad quantity.
|
1021
|
+
| However in the data, we observe smaller increases or even decrease in the quantity
|
1022
|
+
| supplied, depending on the market. Those differences are rationalized by a negative
|
1023
|
+
| value of CPP slope, θ2A .
|
1024
|
+
blank |
|
1025
|
+
|
|
1026
|
+
title | 2.6 Results
|
1027
|
+
text | This section presents estimates of the structural parameters. The next subsection
|
1028
|
+
| discusses listeners’ demand parameters. This is followed by results concerning adver-
|
1029
|
+
| tisers’ demand and marker power. The last subsection contains estimates of marginal
|
1030
|
+
| cost and profit margin (before subtracting fixed cost).
|
1031
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 23
|
1032
|
+
blank |
|
1033
|
+
|
|
1034
|
+
|
|
1035
|
+
title | 2.6.1 Listeners’ demand
|
1036
|
+
text | Table 2.3 contains estimates of demand parameters for radio programming. The esti-
|
1037
|
+
| mate of the mean effect of advertising on listeners’ utility is negative and statistically
|
1038
|
+
| significant. This is consistent with the belief that radio listeners have a disutility for
|
1039
|
+
| advertising. When it comes to the mean effects of programming formats, Contempo-
|
1040
|
+
| rary Hit Radio format gives the most utility, while the News/Talk format gives the
|
1041
|
+
| least.
|
1042
|
+
| The second column of Table 2.3 contains variances of random effects for station
|
1043
|
+
| formats. The higher a format’s variance, the more persistent are the tastes of listeners
|
1044
|
+
| for that format. For example, in response to an increased amount of advertising, if
|
1045
|
+
| the variance of the random effect for that format is high, listeners tend to switch
|
1046
|
+
| to a station of the same format. The estimates also suggest that tastes for the
|
1047
|
+
| Alternative/Urban format are the most persistent.
|
1048
|
+
| Table 2.4 contains estimates of interactions between listener characteristics and
|
1049
|
+
| format dummies. The majority of the parameters are consistent with intuition. For
|
1050
|
+
| example, younger people are more willing to choose a CHR format while older people
|
1051
|
+
| go for News/Talk. The negative coefficients on the interaction of Hispanic format
|
1052
|
+
| with education and income suggests that less educated Hispanic people with lower
|
1053
|
+
| income are more willing to listen to Hispanic stations. For blacks, I find a disutility
|
1054
|
+
| for Country, Rock and Hispanic, and a high utility for Urban. This is consistent
|
1055
|
+
| with the the fact that Urban radio stations play mostly rap, hip-hop and soul music
|
1056
|
+
| performed by black artists.
|
1057
|
+
blank |
|
1058
|
+
|
|
1059
|
+
title | 2.6.2 Advertisers’ demand
|
1060
|
+
text | Tables 2.5 presents the weights for selected markets representing large, medium and
|
1061
|
+
| small listener populations. They were computed using the 1999 edition of Radio
|
1062
|
+
| Today publication and Common Population Survey aggregated from 1996 to 2006.
|
1063
|
+
| It is interesting to compute a total impact coefficient that is the sum of all the
|
1064
|
+
| columns of the table for each format. Not surprisingly, general interest formats like
|
1065
|
+
| AC and News/Talk have the biggest impact on the price of advertising, while Spanish
|
1066
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 24
|
1067
|
+
blank |
|
1068
|
+
|
|
1069
|
+
|
|
1070
|
+
|
|
1071
|
+
text | Mean Effects (θ1L ) Random Effects (Σ1 )
|
1072
|
+
| −1.106∗∗∗ 0.030∗∗∗
|
1073
|
+
| Advertising (0.002) (0.009)
|
1074
|
+
| 0.861∗∗∗
|
1075
|
+
| AM/FM (0.000)
|
1076
|
+
| -
|
1077
|
+
| AC,
|
1078
|
+
| SmoothJazz, −2.431∗∗∗ 0.043∗∗∗
|
1079
|
+
| (0.008) (0.004)
|
1080
|
+
| and New AC
|
1081
|
+
| ∗∗∗
|
1082
|
+
| Rock −1.559 0.004
|
1083
|
+
| (0.140) (0.020)
|
1084
|
+
blank |
|
1085
|
+
text | −0.179∗∗∗ 0.009∗
|
1086
|
+
| CHR (0.025) (0.006)
|
1087
|
+
| ∗∗∗
|
1088
|
+
| Alternative −2.339 0.348∗∗∗
|
1089
|
+
| Urban (0.026) (0.008)
|
1090
|
+
| ∗∗∗
|
1091
|
+
| −4.678 0.024∗∗∗
|
1092
|
+
| News/Talk (0.010) (0.002)
|
1093
|
+
blank |
|
1094
|
+
text | Country −2.301∗∗∗ 0.011∗∗∗
|
1095
|
+
| (0.006) (0.003)
|
1096
|
+
blank |
|
1097
|
+
text | Spanish −1.619∗∗∗ 0.011∗∗∗
|
1098
|
+
| (0.004) (0.001)
|
1099
|
+
blank |
|
1100
|
+
text | −4.657∗∗∗ 0.005∗∗∗
|
1101
|
+
| Other (0.004) (0.002)
|
1102
|
+
blank |
|
1103
|
+
text | 0.568∗∗∗
|
1104
|
+
| ρ (0.091)
|
1105
|
+
| -
|
1106
|
+
blank |
|
1107
|
+
|
|
1108
|
+
|
|
1109
|
+
text | Table 2.3: Estimates of mean and random effects of demand for radio programming.
|
1110
|
+
| Stars indicate parameter significance when testing with 0.1, 0.05 and 0.01 test sizes.
|
1111
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 25
|
1112
|
+
blank |
|
1113
|
+
|
|
1114
|
+
text | Demographics characteristics (Π)
|
1115
|
+
| Age Sex Education Income Black Spanish
|
1116
|
+
| AC,
|
1117
|
+
| SmoothJazz, −0.171∗∗∗ −0.341∗∗∗ 0.602∗∗∗ −0.024∗∗∗ 0.121∗∗∗ −1.014∗∗∗
|
1118
|
+
| (0.001) (0.064) (0.013) (0.003) (0.012) (0.008)
|
1119
|
+
| and New AC
|
1120
|
+
| Rock −0.645∗∗∗ 0.399∗∗∗ 0.861∗∗∗ −0.147∗∗∗ −1.359∗∗∗ −1.643∗∗∗
|
1121
|
+
| (0.072) (0.031) (0.006) (0.045) (0.007) (0.003)
|
1122
|
+
blank |
|
1123
|
+
text | −2.541∗∗∗ 0.477∗∗∗ 1.772∗∗∗ −0.291∗∗∗ 1.946∗∗∗ 0.463∗∗∗
|
1124
|
+
| CHR (0.015) (0.080) (0.006) (0.005) (0.015) (0.001)
|
1125
|
+
| ∗∗∗ ∗∗∗ ∗∗∗ ∗∗∗ ∗∗∗
|
1126
|
+
| Alternative −0.817 1.350 0.583 −0.141 3.152 0.267∗∗∗
|
1127
|
+
| Urban (0.008) (0.018) (0.025) (0.002) (0.005) (0.027)
|
1128
|
+
blank |
|
1129
|
+
|
|
1130
|
+
text | News/Talk 0.329∗∗∗ 1.228∗∗∗ 0.237∗∗∗ 0.093∗∗∗ −0.321∗∗∗ −1.649∗∗∗
|
1131
|
+
| (0.002) (0.012) (0.009) (0.005) (0.001) (0.005)
|
1132
|
+
blank |
|
1133
|
+
text | Country 0.062∗∗∗ −0.149∗∗∗ 0.133∗∗∗ −0.125∗∗∗ −1.548∗∗∗ −1.717∗∗∗
|
1134
|
+
| (0.004) (0.022) (0.004) (0.003) (0.009) (0.002)
|
1135
|
+
blank |
|
1136
|
+
text | −0.024∗ −0.908∗∗∗ −0.328∗∗∗ −1.140∗∗∗ −2.560∗∗∗ 0.797∗∗∗
|
1137
|
+
| Spanish (0.013) (0.012) (0.018) (0.002) (0.004) (0.003)
|
1138
|
+
blank |
|
1139
|
+
text | 0.263 0.624∗∗∗ 0.338∗∗∗ −0.031 0.498∗∗∗ 0.238∗∗∗
|
1140
|
+
| Other (0.373) (0.003) (0.006) (0.063) (0.001) (0.002)
|
1141
|
+
blank |
|
1142
|
+
|
|
1143
|
+
|
|
1144
|
+
|
|
1145
|
+
text | Table 2.4: Interaction terms between listeners’ demographics and taste for radio
|
1146
|
+
| programming.
|
1147
|
+
blank |
|
1148
|
+
text | format has the smallest. The values on the diagonals of the matrices represent the
|
1149
|
+
| formats’ own effect of the quantity of advertising supplied on per-listener price. They
|
1150
|
+
| are usually bigger than the off-diagonal values, that suggests that it is mostly the
|
1151
|
+
| ad quantity in the same format that influences a per-listener price. In accord with
|
1152
|
+
| an intuition, the formats with the most demographically homogenous listener pools,
|
1153
|
+
| Urban/Alternative and Spanish, have the highest values of the own effects. On the
|
1154
|
+
| other hand, general interest formats like CHR and Rock are charaterized by the
|
1155
|
+
| smallest values of the own effect, measuring the fact that their target population of
|
1156
|
+
| listeners is more dispersed across other formats. For cross effects, one notices that
|
1157
|
+
| News/Talk is close to AC and Urban is close to CHR. This can be explained by, for
|
1158
|
+
| example, the age of the listeners. In the former case the formats appeal to an older
|
1159
|
+
| population while in the latter case to a younger one.
|
1160
|
+
| Estimates of the slope of inverse demand are presented in Table 2.6. In mar-
|
1161
|
+
| kets with less than 0.5m people radio stations have considerable control over the
|
1162
|
+
| per-listener price. However, such control significantly drops in markets from 0.5m
|
1163
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 26
|
1164
|
+
blank |
|
1165
|
+
|
|
1166
|
+
text | Los Angeles, CA
|
1167
|
+
| AC
|
1168
|
+
| Alternative
|
1169
|
+
| SmoothJazz Rock CHR News/Talk Country Spanish Other
|
1170
|
+
| Urban
|
1171
|
+
| New AC
|
1172
|
+
| AC
|
1173
|
+
| SmoothJazz 0.22 0.10 0.11 0.09 0.17 0.14 0.00 0.17
|
1174
|
+
| New AC
|
1175
|
+
| Rock 0.15 0.21 0.12 0.09 0.16 0.13 0.01 0.12
|
1176
|
+
| CHR 0.18 0.12 0.16 0.16 0.10 0.13 0.03 0.13
|
1177
|
+
| Alternative
|
1178
|
+
| 0.11 0.05 0.17 0.44 0.06 0.05 0.00 0.12
|
1179
|
+
| Urban
|
1180
|
+
| News/Talk 0.17 0.10 0.05 0.05 0.30 0.13 0.00 0.21
|
1181
|
+
| Country 0.16 0.10 0.09 0.07 0.15 0.22 0.01 0.21
|
1182
|
+
| Spanish 0.03 0.04 0.11 0.02 0.01 0.03 0.72 0.04
|
1183
|
+
| Other 0.18 0.07 0.06 0.08 0.20 0.17 0.00 0.23
|
1184
|
+
| Total impact 1.20 0.79 0.87 0.99 1.15 1.00 0.77 1.23
|
1185
|
+
blank |
|
1186
|
+
|
|
1187
|
+
text | Atlanta, GA
|
1188
|
+
| AC
|
1189
|
+
| Alternative
|
1190
|
+
| SmoothJazz Rock CHR News/Talk Country Spanish Other
|
1191
|
+
| Urban
|
1192
|
+
| New AC
|
1193
|
+
| AC
|
1194
|
+
| SmoothJazz 0.20 0.10 0.12 0.09 0.14 0.18 0.00 0.18
|
1195
|
+
| New AC
|
1196
|
+
| Rock 0.14 0.21 0.13 0.10 0.12 0.17 0.01 0.13
|
1197
|
+
| CHR 0.17 0.13 0.17 0.14 0.09 0.17 0.01 0.13
|
1198
|
+
| Alternative
|
1199
|
+
| 0.11 0.06 0.16 0.40 0.06 0.08 0.00 0.13
|
1200
|
+
| Urban
|
1201
|
+
| News/Talk 0.16 0.10 0.05 0.05 0.25 0.17 0.00 0.22
|
1202
|
+
| Country 0.15 0.09 0.08 0.06 0.13 0.26 0.01 0.22
|
1203
|
+
| Spanish 0.04 0.04 0.12 0.02 0.01 0.03 0.71 0.03
|
1204
|
+
| Other 0.16 0.07 0.06 0.07 0.16 0.23 0.01 0.25
|
1205
|
+
| Total impact 1.11 0.78 0.88 0.94 0.95 1.31 0.75 1.29
|
1206
|
+
blank |
|
1207
|
+
|
|
1208
|
+
text | Knoxville, TN
|
1209
|
+
| AC
|
1210
|
+
| Alternative
|
1211
|
+
| SmoothJazz Rock CHR News/Talk Country Spanish Other
|
1212
|
+
| Urban
|
1213
|
+
| New AC
|
1214
|
+
| AC
|
1215
|
+
| SmoothJazz 0.20 0.11 0.16 0.11 0.10 0.16 0.01 0.16
|
1216
|
+
| New AC
|
1217
|
+
| Rock 0.13 0.21 0.14 0.11 0.10 0.18 0.01 0.12
|
1218
|
+
| CHR 0.16 0.12 0.18 0.14 0.08 0.17 0.02 0.13
|
1219
|
+
| Alternative
|
1220
|
+
| 0.12 0.06 0.16 0.38 0.06 0.08 0.00 0.13
|
1221
|
+
| Urban
|
1222
|
+
| News/Talk 0.16 0.13 0.10 0.09 0.17 0.16 0.01 0.18
|
1223
|
+
| Country 0.15 0.13 0.14 0.10 0.09 0.22 0.01 0.16
|
1224
|
+
| Spanish 0.05 0.05 0.11 0.02 0.02 0.04 0.66 0.05
|
1225
|
+
| Other 0.17 0.09 0.11 0.12 0.12 0.18 0.01 0.21
|
1226
|
+
| Total impact 1.12 0.90 1.11 1.05 0.74 1.21 0.72 1.14
|
1227
|
+
blank |
|
1228
|
+
|
|
1229
|
+
|
|
1230
|
+
|
|
1231
|
+
text | Table 2.5: Product closeness matrices for chosen markets
|
1232
|
+
blank |
|
1233
|
+
text | to 2m people, and it disappears completely in markets with more than 2m people,
|
1234
|
+
| making radio stations essentially price takers. I suspect that this phenomenon can be
|
1235
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 27
|
1236
|
+
blank |
|
1237
|
+
|
|
1238
|
+
text | Market population less than .5m between .5m and 1.5m more than 1.5m
|
1239
|
+
| 1.34 (0.046) 0.35 (0.026) 0.00 (0.008)
|
1240
|
+
blank |
|
1241
|
+
text | Table 2.6: Slope of the inverse demand for ads θ2A , by market size
|
1242
|
+
blank |
|
1243
|
+
text | explained by the fact that in larger markets there are more outside options for radio
|
1244
|
+
| advertising. This can lead to tougher competition between media outlets, and make
|
1245
|
+
| the inverse demand for advertising flatter. However, in small markets radio might be
|
1246
|
+
| a primary advertising channel, because other media like the Internet or billboards are
|
1247
|
+
| not as widespread. This gives radio stations more control over price.
|
1248
|
+
blank |
|
1249
|
+
|
|
1250
|
+
title | 2.6.3 Supply
|
1251
|
+
text | The marginal costs of selling advertising minutes are presented in Table 2.7. The
|
1252
|
+
| values of this cost range from $356 per minute of advertising sold in Los Angeles,
|
1253
|
+
| CA to $11 in Ft. Myers, FL. 66% of the variation in marginal cost can be explained
|
1254
|
+
| by variation in market population. A population increase of one thousand translates
|
1255
|
+
| to about a 2 cent increase in marginal cost (with t-stat equal to 12). The high cor-
|
1256
|
+
| relation between population and marginal costs can be explained by the fact that
|
1257
|
+
| revenues per-minute of advertising are an increasing function of total market popula-
|
1258
|
+
| tion. Suppose this surplus is split between radio station owners and advertisers’ sales
|
1259
|
+
| people according to the Nash Bargaining solution. In this case, the high correlation
|
1260
|
+
| of revenue with population will translate into a high correlation of marginal cost with
|
1261
|
+
| population.
|
1262
|
+
| From the revenues and marginal cost estimates, I can calculate variable profit
|
1263
|
+
| margins. These are presented in the last last column of Table 2.7. The range is
|
1264
|
+
| from 92% in Shreveport, LA to 15% in Honolulu, HI and Reno, NV. It is interesting
|
1265
|
+
| that 38% of the profit margin variation can be explained by the variance in total ad
|
1266
|
+
| quantity supplied and markets with high profit margins firms supply more advertising.
|
1267
|
+
| The marginal effect of extra minute per day of broadcasted advertising translates into
|
1268
|
+
| 0.6% of extra profit margin.
|
1269
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS
|
1270
|
+
text | Marginal Profit Marginal Profit
|
1271
|
+
| Market Population (mil) Market Population
|
1272
|
+
| cost ($ per-miute) margin cost margin
|
1273
|
+
| Los Angeles, CA 13,155 356.4 (5.15) 30% Tulsa, OK 856 72.8 (2.13) 21%
|
1274
|
+
| Chicago, IL 9,341 180.0 (2.70) 34% Knoxville, TN 785 54.3 (1.99) 27%
|
1275
|
+
| Dallas-Ft. Worth, TX 5,847 198.6 (5.60) 28% Albuquerque, NM 740 27.4 (1.04) 36%
|
1276
|
+
| Houston-Galveston, TX 5,279 199.7 (4.20) 28% Ft. Myers-Naples-Marco Island, FL 737 11.3 (0.94) 57%
|
1277
|
+
| Atlanta, GA 4,710 95.4 (3.37) 43% Omaha-Council Bluffs, NE-IA 728 48.0 (0.91) 28%
|
1278
|
+
| Boston, MA 4,532 172.2 (3.68) 33% Harrisburg-Lebanon-Carlisle, PA 649 29.7 (1.44) 42%
|
1279
|
+
| Miami-Ft, FL 4,174 134.3 (3.70) 28% El Paso, TX 619 41.8 (4.12) 20%
|
1280
|
+
| Seattle-Tacoma, WA 3,776 128.7 (2.21) 29% Quad Cities, IA-IL 618 51.3 (1.30) 23%
|
1281
|
+
| Phoenix, AZ 3,638 63.7 (1.84) 39% Wichita, KS 598 38.9 (0.85) 25%
|
1282
|
+
| Minneapolis-St. Paul, MN 3,155 160.8 (4.66) 26% Little Rock, AR 577 45.2 (1.64) 26%
|
1283
|
+
| St. Louis, MO 2,689 190.6 (5.38) 18% Columbia, SC 577 60.0 (2.10) 23%
|
1284
|
+
| Tampa-St, FL 2,649 102.7 (2.09) 26% Charleston, SC 569 59.6 (1.74) 19%
|
1285
|
+
| Denver-Boulder, CO 2,604 99.9 (1.40) 32% Des Moines, IA 564 21.3 (0.92) 40%
|
1286
|
+
| Portland, OR 2,352 48.6 (1.35) 41% Spokane, WA 540 24.5 (0.63) 28%
|
1287
|
+
| Cleveland, OH 2,134 170.6 (3.34) 24% Madison, WI 520 93.6 (3.02) 22%
|
1288
|
+
| Charlotte, NC-SC 2,127 67.1 (1.96) 38% Augusta, GA 510 30.9 (0.60) 24%
|
1289
|
+
| Sacramento, CA 2,100 47.6 (1.30) 42% Ft. Wayne, IN 509 37.8 (1.35) 27%
|
1290
|
+
| Salt Lake City, UT 1,924 58.1 (1.19) 26% Lexington-Fayette, KY 495 36.8 (1.59) 35%
|
1291
|
+
| San Antonio, TX 1,900 75.0 (2.27) 24% Chattanooga, TN 471 41.5 (2.53) 29%
|
1292
|
+
| Kansas City, MO-KS 1,871 152.5 (2.87) 19% Boise, ID 469 46.2 (3.73) 30%
|
1293
|
+
| Las Vegas, NV 1,752 47.7 (1.49) 32% Jackson, MS 453 18.6 (2.03) 59%
|
1294
|
+
| Milwaukee-Racine, WI 1,713 74.6 (1.27) 25% Eugene-Springfield, OR 439 27.4 (1.29) 31%
|
1295
|
+
| Orlando, FL 1,686 42.4 (1.77) 41% Reno, NV 400 99.7 (1.64) 15%
|
1296
|
+
| Columbus, OH 1,685 70.2 (1.53) 30% Shreveport, LA 359 19.8 (4.25) 92%
|
1297
|
+
| Indianapolis, IN 1,602 86.8 (2.32) 26% Fayetteville, NC 337 38.1 (2.48) 46%
|
1298
|
+
| Norfolk, VA 1,583 196.8 (4.64) 17% Springfield, MA 336 20.8 (0.87) 55%
|
1299
|
+
| Nashville, TN 1,342 40.5 (1.84) 38% Macon, GA 276 34.4 (2.29) 26%
|
1300
|
+
| Greensboro-Winston, NC 1,329 53.5 (2.34) 32% Binghamton, NY 255 37.5 (1.51) 27%
|
1301
|
+
| New Orleans, LA 1,294 91.2 (2.44) 24% Lubbock, TX 248 57.7 (1.98) 18%
|
1302
|
+
| Memphis, TN 1,278 53.2 (1.82) 30% Odessa-Midland, TX 231 21.4 (0.99) 27%
|
1303
|
+
| Jacksonville, FL 1,271 66.1 (1.64) 29% Fargo-Moorhead, ND-MN 200 48.6 (2.42) 25%
|
1304
|
+
| Oklahoma City, OK 1,268 75.6 (1.35) 25% Medford-Ashland, OR 184 27.7 (0.90) 28%
|
1305
|
+
| Buffalo-Niagara Falls, NY 1,150 141.5 (3.63) 19% Duluth-Superior, MN-WI 159 43.3 (0.79) 20%
|
1306
|
+
| Louisville, KY 1,100 92.9 (2.36) 21% Parkersburg-Marietta, WV-OH 157 31.7 (1.41) 21%
|
1307
|
+
| Richmond, VA 1,066 55.3 (1.47) 28% Abilene, TX 149 23.0 (1.14) 26%
|
1308
|
+
| Birmingham, AL 1,030 85.8 (2.50) 24% Eau Claire, WI 149 31.6 (2.77) 28%
|
1309
|
+
| Honolulu, HI 938 78.2 (2.39) 15% Williamsport, PA 130 31.0 (1.13) 23%
|
1310
|
+
| Albany, NY 909 113.9 (3.18) 16% Monroe, LA 124 14.2 (1.49) 64%
|
1311
|
+
| Grand Junction, CO 902 24.5 (0.67) 24% Sioux City, IA 118 26.1 (0.96) 24%
|
1312
|
+
| Tucson, AZ 870 41.1 (0.93) 27% San Angelo, TX 104 26.4 (1.36) 16%
|
1313
|
+
| Grand Rapids, MI 864 37.9 (0.79) 38% Bismarck, ND 99 32.8 (1.65) 22%
|
1314
|
+
blank |
|
1315
|
+
|
|
1316
|
+
text | Table 2.7: Estimated marginal cost (in dollars per minute of broadcasted advertising) and profit margins (before
|
1317
|
+
| subtracting the fixed cost) for a chosen set of markets
|
1318
|
+
blank |
|
1319
|
+
|
|
1320
|
+
|
|
1321
|
+
|
|
1322
|
+
meta | 28
|
1323
|
+
| CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 29
|
1324
|
+
blank |
|
1325
|
+
|
|
1326
|
+
text | Consumer Advertiser Mean price
|
1327
|
+
| Average ad load Advertising minutes
|
1328
|
+
| surplus surplus index
|
1329
|
+
| Impact of
|
1330
|
+
| ownership change and 6.6pdm -6.4pdm -158.3m -2,491min
|
1331
|
+
| +0.60%
|
1332
|
+
| format switching +1.3% -12.6% -16.3% -1.5%
|
1333
|
+
| No ad adjustment
|
1334
|
+
| Impact of -1.9pdm 1.6pdm -146.1m -9,838min
|
1335
|
+
| +2.09%
|
1336
|
+
| ad adjustment -0.4% +3.6% -18.0% -5.9%
|
1337
|
+
| Total impact of
|
1338
|
+
| ownership change 4.7pdm -4.8pdm -304.4m -12,329min
|
1339
|
+
| +2.67%
|
1340
|
+
| format switching and +0.9% -9.5% -31.4% -7.3%
|
1341
|
+
| ad adjustment
|
1342
|
+
blank |
|
1343
|
+
text | Table 2.8: Counterfactuals for all markets
|
1344
|
+
blank |
|
1345
|
+
title | 2.7 Counterfactual experiments
|
1346
|
+
text | In this section I investigate the impact of consolidation on listener and advertiser
|
1347
|
+
| welfare. First, I investigate the changes in the surplus of listeners and advertisers. In
|
1348
|
+
| particular, I calculate how much market power was exercised on both of those groups.
|
1349
|
+
| Second, I decompose market power into a variety component and extra market power
|
1350
|
+
| that is manifested in changes in quantity supplied.
|
1351
|
+
| Before performing counterfactual calculations, consider descriptive relationships
|
1352
|
+
| between concentration and prices. First, I regressed market Price Per Rating Point
|
1353
|
+
| on a market’s HHI, including market fixed effects. I find that higher concentration is
|
1354
|
+
| correlated with higher prices in the advertising market, suggesting that radio station
|
1355
|
+
| owners are exercising some amount of market power on advertisers. Second, I re-
|
1356
|
+
| gressed total advertising supplied on the market’s HHI with market dummies. Here I
|
1357
|
+
| get a coefficient of 1.65(0.3). This is evidence of market power in the listener market.
|
1358
|
+
| Because market power appears to be present in both market segments, I cannot defi-
|
1359
|
+
| nitely conclude who had more surplus extracted by radio station owners if I just use
|
1360
|
+
| quantities and prices. In the next subsection I present the structural counterfactuals
|
1361
|
+
| that answer this question.
|
1362
|
+
blank |
|
1363
|
+
|
|
1364
|
+
title | 2.7.1 Impact of mergers on consumer surplus
|
1365
|
+
text | To isolate the impact of the Telecom Act on a surplus division between advertisers
|
1366
|
+
| and listeners, I perform a counterfactual in which I recompute new equilibrium ad
|
1367
|
+
| quantities under the old 1996 ownership structure and 1996 formats. This calculation
|
1368
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 30
|
1369
|
+
blank |
|
1370
|
+
|
|
1371
|
+
text | Consumer Advertiser Mean price
|
1372
|
+
| Average ad load Advertising minutes
|
1373
|
+
| surplus surplus index
|
1374
|
+
| Impact of
|
1375
|
+
| ownership change and 11.7pdm -5.4pdm -118.1m -737min
|
1376
|
+
| +1.34%
|
1377
|
+
| format switching +2.5% -17.3% -15.8% -1.0%
|
1378
|
+
| No ad adjustment
|
1379
|
+
| Impact of 1.2pdm -2.2pdm -119.4m -8,216min
|
1380
|
+
| +5.66%
|
1381
|
+
| ad adjustment +0.3% -8.4% -19.0% -11.7%
|
1382
|
+
| Total impact of
|
1383
|
+
| ownership change 12.9pdm -7.5pdm -237.5m -8,953min
|
1384
|
+
| +6.99%
|
1385
|
+
| format switching and +2.8% -24.2% -31.8% -12.6%
|
1386
|
+
| ad adjustment
|
1387
|
+
blank |
|
1388
|
+
text | Table 2.9: Counterfactuals for small markets (less than 500k people)
|
1389
|
+
| Consumer Advertiser Mean price
|
1390
|
+
| Average ad load Advertising minutes
|
1391
|
+
| surplus surplus index
|
1392
|
+
| Impact of
|
1393
|
+
| ownership change and 2.6pdm -6.0pdm -1.0m -835min
|
1394
|
+
| +0.01%
|
1395
|
+
| format switching +0.5% -11.0% -12.8% -2.0%
|
1396
|
+
| No ad adjustment
|
1397
|
+
| Impact of -4.4pdm 4.6pdm 0.7m 3,081min
|
1398
|
+
| -0.02%
|
1399
|
+
| ad adjustment -0.8% +9.5% +9.9% +7.7%
|
1400
|
+
| Total impact of
|
1401
|
+
| ownership change -1.8pdm -1.4pdm -0.3m 2,245min
|
1402
|
+
| -0.01%
|
1403
|
+
| format switching and -0.3% -2.5% -4.2% +5.5%
|
1404
|
+
| ad adjustment
|
1405
|
+
blank |
|
1406
|
+
text | Table 2.10: Counterfactuals for large markets (more than 2,000k people)
|
1407
|
+
blank |
|
1408
|
+
text | is motivated by the fact that in 1996 many markets were at their ownership caps.
|
1409
|
+
| The total impact of consolidation on advertiser and listener welfare is presented
|
1410
|
+
| in the last row of Table 2.8. It turns out that mergers decrased total ad quantity
|
1411
|
+
| by roughtly 14 thousand minutes. That resulted in lowering average ad exposure
|
1412
|
+
| by 4.8 persons-day-minutes (pdm), which is about 10% of the total ad load. The
|
1413
|
+
| changes translated to about a 4.7 pdm increase in consumer welfare. Because we
|
1414
|
+
| do not observe dollar prices in the listenership market we cannot compute the dollar
|
1415
|
+
| value of this compensating variation. However, we can compute a rough estimate
|
1416
|
+
| using the prices for the satellite radio. If we assume people buy satelite radio just
|
1417
|
+
| to avoid advertising, we get a rough estimate of 1.5 cents per minute, or 730million
|
1418
|
+
| dollars for each person-day-minute per year. The total effect would amount to $3.5b.
|
1419
|
+
| This is of course a very loose upper bound on the overall welfare gain, however if
|
1420
|
+
| make a conservative assumption that only 10% of the value of satellite radio is lack
|
1421
|
+
| of advertising, we get $350m.
|
1422
|
+
| For advertisers, a decrease in quantity supplied leads to about 2.57% increase in
|
1423
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 31
|
1424
|
+
blank |
|
1425
|
+
|
|
1426
|
+
|
|
1427
|
+
text | per-listener prices, or a $300m decrease in advertiser surplus. I therefore conclude
|
1428
|
+
| that the Telecom Act lead to a reallocation of surplus from advertisers to listenerss.
|
1429
|
+
| Moreover, because the gain by listeners ($350m) is larger than the surplus lost by
|
1430
|
+
| advertisers, I find that the Act created new surplus. This increase can be explained
|
1431
|
+
| by the fact that listeners are more annoyed by ads than the value of an ad to the
|
1432
|
+
| advertisers.
|
1433
|
+
| A deeper story can be told by looking seperately at small versus large markets.
|
1434
|
+
| As mentioned in the previous section, radio stations have considerable control over
|
1435
|
+
| prices in small markets, and no control in the large markets. Motivated by this fact,
|
1436
|
+
| I present counterfactuals for markets with less than 0.5 population and more than
|
1437
|
+
| 2m population. In smaller markets (see Table 2.9), stations contract advertising to
|
1438
|
+
| exercise market power on advertisers. They supply more than 10,000 minutes less of
|
1439
|
+
| advertising. That translates into a 7.3pdm decrease in ad exposure, which increases
|
1440
|
+
| consumer surplus by 11.6pdm. However, prices rise by 6.4%, and cause a $230m
|
1441
|
+
| loss in advertiser surplus. On the other hand in large markets (see Table 2.10) firms
|
1442
|
+
| supply more than 2,000 extra minutes of advertising, which lowers consumer surplus
|
1443
|
+
| by almost 2pdm. On balance, this does not affect advertiser surplus. I conclude that
|
1444
|
+
| listeners gained form the Telecom Act only in small markets.
|
1445
|
+
blank |
|
1446
|
+
|
|
1447
|
+
title | 2.7.2 Effects of product variety and market power
|
1448
|
+
text | Berry and Waldfogel (2001) suggest that the negative effects of ownership consolida-
|
1449
|
+
| tion on listeners might be mitigated by format switching. They find that post-merger
|
1450
|
+
| repositioning results in spatial competition leading to more variety, which they as-
|
1451
|
+
| sume is beneficial for the listeners 4 . To quantify this effect, I compare surpluses
|
1452
|
+
| computed imposing 1996 ownership and formats with surpluses computed imposing
|
1453
|
+
| actual ownership and formats without ad quantity adjustments. That is, I fix ad
|
1454
|
+
| quantities computed with 1996 ownership and formats. The results of this experi-
|
1455
|
+
| ment are presented in the first row of Table 2.8. It turns out that if I do not account
|
1456
|
+
| for quantity changes, the assertion of Berry and Waldfogel (2001) is true. In this
|
1457
|
+
meta | 4
|
1458
|
+
text | Similar results obtained using direct analysis of station playlists can be found in Sweeting (2008).
|
1459
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 32
|
1460
|
+
blank |
|
1461
|
+
|
|
1462
|
+
|
|
1463
|
+
text | case, listeners have a 1.3% larger surplus (about 6.6pdm) after consolidation and for-
|
1464
|
+
| mat switching. Listener surplus grows because of two factors: increased variety and
|
1465
|
+
| decreased advertising exposure. The latter decreased even though I keep number of
|
1466
|
+
| ad minutes fixed. However, in the real world, repositioning changes firms’ incentives
|
1467
|
+
| to set ad quantity, because it softens competition in the advertising market. The im-
|
1468
|
+
| pact of quantity readjustments is presented in the middle row of Table 2.8. It turns
|
1469
|
+
| out that both listeners and advertisers are worse off due to quantity adjustments.
|
1470
|
+
| Listeners lose 1.9pdm and advetisers lose additional $150m in surplus.
|
1471
|
+
blank |
|
1472
|
+
|
|
1473
|
+
title | 2.8 Robustness analysis
|
1474
|
+
text | This section examines the robustness of my advertising model to different assumptions
|
1475
|
+
| about competition among station formats. This step is motivated by the fact that
|
1476
|
+
| the data concerning advertiser deals is incomplete. I deal with the incompleteness by
|
1477
|
+
| proposing a stilyzed decision model for advertisers that uses publicly available data
|
1478
|
+
| to predict substitution patterns between formats. These patterns directly detemine
|
1479
|
+
| the market power of stations over advertsers, and can potentially alter the results of
|
1480
|
+
| counterfactual experiments.
|
1481
|
+
| To investigate the robustness of the results, I reestimated the model under two
|
1482
|
+
| alternative assumptions. The first scenario represents the extreme situation in which
|
1483
|
+
| formats compete only between themselves. In particular, suppose that advertiser
|
1484
|
+
| types get utility from only one particular format. In this case, equation (2.6) has
|
1485
|
+
| ωf f = 1 and ωf f 0 = 0 if f 6= f 0 . The second scenario represents another extreme in
|
1486
|
+
| which formats are perfect substitutes, i.e., there is only one type of advertiser who
|
1487
|
+
| values all formats in the same way. Formally this means that ωf f 0 = 1/8, because
|
1488
|
+
| there are 8 possible formats. The estimated model is in a sense in-between the these
|
1489
|
+
| extreme alternatives, because it assumes that formats are imperfect substitutes.
|
1490
|
+
| Estimates of the inverse demand advertising slopes are presented in Table 2.11.
|
1491
|
+
| The estimates show that the baseline model lies between the two extremes. When we
|
1492
|
+
| assume oligopoly within a format, the estimated slope parameter θ2L is smaller than
|
1493
|
+
| the one in the baseline model. On the other hand in the perfect substitutes model,
|
1494
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 33
|
1495
|
+
blank |
|
1496
|
+
|
|
1497
|
+
text | Market population less than .5m between .5m and 1.5m more than 1.5m
|
1498
|
+
| Baseline model 1.34 (0.046) 0.35 (0.026) 0.00 (0.008)
|
1499
|
+
| Oligopoly within format 1.07 (0.036) 0.28 (0.061) 0.02 (0.009)
|
1500
|
+
| Perfect substitutes 1.44 (0.035) 0.32 (0.030) 0.01 (0.009)
|
1501
|
+
blank |
|
1502
|
+
text | Table 2.11: Slope of the inverse demand for ads θ2A , by market size
|
1503
|
+
| Consumer Advertiser Mean price
|
1504
|
+
| Average ad load Advertising minutes
|
1505
|
+
| surplus surplus index
|
1506
|
+
| 4.7pdm -4.8pdm -304.4m -12,329min
|
1507
|
+
| Baseline model +2.67%
|
1508
|
+
| +0.9% -9.5% -31.4% -7.3%
|
1509
|
+
| 4.4pdm -4.5pdm -253.4m -9,056min
|
1510
|
+
| Oligopoly within format +1.12%
|
1511
|
+
| +0.8% -9.0% -31.3% -5.6%
|
1512
|
+
| 4.9pdm -5.3pdm -314.7m -16,648min
|
1513
|
+
| Perfect substitutes +2.57%
|
1514
|
+
| +0.9% -10.3% -32.7% -9.0%
|
1515
|
+
blank |
|
1516
|
+
text | Table 2.12: Robustness of counterfactuals
|
1517
|
+
blank |
|
1518
|
+
text | the estimated slope tends to be higher. Despite the fact that there are statistical
|
1519
|
+
| differences between the different models, the main qualitative assertion, that stations
|
1520
|
+
| have more power in smaller markets, still holds. In order to assess the economic impli-
|
1521
|
+
| cation of those differences, I recomputed the estimated profit margin under different
|
1522
|
+
| models. It turns out that the model with format oligopoly predicts on average a 2.4%
|
1523
|
+
| higher profit margins than the baseline model. Conversely the model with perfect
|
1524
|
+
| substitutes predicts 2.1% lower profit margin.
|
1525
|
+
| To draw final conclusions about the strength of the assumption about weights, I
|
1526
|
+
| recomputed the main counterfactual using the alternative models. The results are
|
1527
|
+
| presented in Table 2.12. The baseline again lies between the new counterfactuals.
|
1528
|
+
| There is no qualitative change in the results. Moreover the percentage changes in
|
1529
|
+
| consumer and advertiser surplus are almost the same. Consequently, I conclude that
|
1530
|
+
| the results of the paper are not sensitive to changes in the assumption about substi-
|
1531
|
+
| tution between formats.
|
1532
|
+
blank |
|
1533
|
+
|
|
1534
|
+
title | 2.9 Conclusion
|
1535
|
+
text | In this paper I analyze mergers in two-sided markets on the example of the 1996-2006
|
1536
|
+
| consolidation wave in U.S. radio industry. The goal of this study is to describe and
|
1537
|
+
| quantify how mergers in the two-sided market differ from a differentiated product
|
1538
|
+
meta | CHAPTER 2. MERGERS IN TWO-SIDED MARKETS 34
|
1539
|
+
blank |
|
1540
|
+
|
|
1541
|
+
|
|
1542
|
+
text | oligopoly setting. I make two main contributions. First, I recognize the fact two-
|
1543
|
+
| sided markets consist of two types of consumers, who may be affected by the merger in
|
1544
|
+
| different ways. For example, if extra market power causes the radio station to increase
|
1545
|
+
| advertising, it will benefit consumers but hurt advertisers. Second, I disaggregate the
|
1546
|
+
| impact of a merger on consumers into changes in the variety of available products
|
1547
|
+
| and changes in supplied quantity of ads.
|
1548
|
+
| Radio is an important medium in the U.S., reaching about 94% of Americans
|
1549
|
+
| twelve years old or older each week. Moreover, the average consumer listens to about
|
1550
|
+
| 20h of radio per week and between 6am and 6pm more people use radio than TV
|
1551
|
+
| or print media5 . In 1996 the Telecommunication Act deregulated the industry by
|
1552
|
+
| raising local ownership caps. This deregulation caused a massive merger wave, that
|
1553
|
+
| reshaped the ownership structure, by moving from family based ownership into more
|
1554
|
+
| corporate structures. I estimate that this consolidation raised consumer surplus by
|
1555
|
+
| 1%, but lowered advertiser surplus by $300m. I find that the mergers created extra
|
1556
|
+
| variety that increased listener welfare by $1.3%. On the other hand they softened
|
1557
|
+
| competition and decreased advertiser welfare by $147m per year. Subsequent ad
|
1558
|
+
| quantity adjustments led to a 0.3% decrease in listener welfare (with the variety
|
1559
|
+
| effect it totals to the 1% increase) and an additional $153m decrease in advertiser
|
1560
|
+
| welfare (with the variety effect it totals $300m).
|
1561
|
+
blank |
|
1562
|
+
|
|
1563
|
+
|
|
1564
|
+
|
|
1565
|
+
meta | 5
|
1566
|
+
text | Source: A.Richter (2006)
|
1567
|
+
meta | Chapter 3
|
1568
|
+
blank |
|
1569
|
+
title | Estimation of cost synergies from
|
1570
|
+
| mergers without cost data:
|
1571
|
+
| Application to U.S. radio
|
1572
|
+
blank |
|
1573
|
+
title | 3.1 Preface
|
1574
|
+
text | This chapter develops a new way to estimate cost synergies from mergers without
|
1575
|
+
| using actual data on cost. The estimator uses a structural model in which companies
|
1576
|
+
| play a dynamic game with endogenous mergers and product repositioning decisions.
|
1577
|
+
| Such a formulation has several benefits over the widespread static merger analysis.
|
1578
|
+
| In particular, it corrects for sample selection of more profitable mergers and captures
|
1579
|
+
| follow-up mergers and post-merger product repositioning.
|
1580
|
+
| The framework is applied to estimate cost efficiencies after the deregulation of
|
1581
|
+
| U.S. radio in 1996. The procedure uses the data on radio station characteristics
|
1582
|
+
| and numerous acquisitions, without explicit need for cost data. It turns out that
|
1583
|
+
| between 1996 and 2006 additional ownership concentration generated $2.5b per-year
|
1584
|
+
| cost savings, which is about 10% of total industry revenue.
|
1585
|
+
blank |
|
1586
|
+
|
|
1587
|
+
|
|
1588
|
+
|
|
1589
|
+
meta | 35
|
1590
|
+
| CHAPTER 3. COST SYNERGIES FROM MERGERS 36
|
1591
|
+
blank |
|
1592
|
+
|
|
1593
|
+
|
|
1594
|
+
title | 3.2 Introduction
|
1595
|
+
text | The extent to which a potential merger generates cost efficiencies is often mentioned
|
1596
|
+
| by managers as a major motivation to merge. Moreover, potential fixed cost savings
|
1597
|
+
| generated by a merger are recognized by the Horizontal Merger Guidelines as a fac-
|
1598
|
+
| tor that can provide consumers with direct price-related as well as non-price-related
|
1599
|
+
| benefits. Thus, for antitrust purposes one should evaluate cost savings in addition
|
1600
|
+
| to measuring the decrease in competition. However, this approach is rarely used in
|
1601
|
+
| practice, because in most cases reliable cost data are unavailable. This paper pro-
|
1602
|
+
| vides a solution to this problem, by proposing a method to estimate cost synergies
|
1603
|
+
| without using any data on cost. This method requires only panel data on the own-
|
1604
|
+
| ership structure, product characteristics, and prices and quantities, information that
|
1605
|
+
| in most cases is easily accessible.
|
1606
|
+
| Evaluating the underlying causes of ownership consolidation requires a dynamic
|
1607
|
+
| model in which mergers are endogenous. However, most past empirical work analyzed
|
1608
|
+
| mergers in a static framework and treats market structure as given. Papers by Nevo
|
1609
|
+
| (2000), Pinkse and Slade (2004), Ivaldi and Verboven (2005) exogenously impose
|
1610
|
+
| changes in market structure on a static equilibrium model and calculate counterfactual
|
1611
|
+
| changes in prices and welfare. These models are very useful in addressing the short
|
1612
|
+
| run impacts of mergers but do not account for changes in market structure that
|
1613
|
+
| might happen as a result of a merger. Benkard, Bodoh-Creed, and Lazarev (2008)
|
1614
|
+
| evaluate the longer run effects of a merger on market structure, but still treat it
|
1615
|
+
| as an exogenous one-time event. Neither of these approaches allows for estimating
|
1616
|
+
| the supply side determinants of mergers, such as cost synergies. Furthermore, the
|
1617
|
+
| assumption that mergers are exogenous may create a selection bias that results in
|
1618
|
+
| overestimating the cost synergies (we might pick up other unobserved components
|
1619
|
+
| correlated with the propensity to merge). Furthermore, recent models assume away
|
1620
|
+
| follow-up mergers and post-merger repositioning of products.
|
1621
|
+
| To address these issues, I propose a dynamic model in the spirit of Gowrisankaran
|
1622
|
+
| (1999) in which mergers and product positioning are endogenous and are assumed to
|
1623
|
+
| happen sequentially. Such an approach enables me to estimate the cost efficiencies
|
1624
|
+
meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 37
|
1625
|
+
blank |
|
1626
|
+
|
|
1627
|
+
|
|
1628
|
+
text | of consolidation without any data on cost. It also eliminates the shortcomings men-
|
1629
|
+
| tioned earlier, because it incorporates the dynamic processes directly into the model.
|
1630
|
+
| Moreover, endogenizing mergers allows for correction of sample selection by using a
|
1631
|
+
| procedure in the spirit of Heckman (1979), adjusted for a dynamic game environment.
|
1632
|
+
| The model is subsequently applied to analyze ownership consolidation in the U.S.
|
1633
|
+
| radio industry. The Telecommunications Act of 1996 increased local-market radio
|
1634
|
+
| station ownership caps, triggering an unprecedented merger wave that had the effect
|
1635
|
+
| of eliminating many small and independent radio owners. From 1996 to 2006, the
|
1636
|
+
| average Herfindahl-Hirschman Index (HHI) in local radio markets grew from 0.18
|
1637
|
+
| to 0.26, the average number of owners in the market dropped from 16.6 to 12.4,
|
1638
|
+
| and the average number of stations owned grew from 1.6 to 2.3. Such dramatic
|
1639
|
+
| changes to the market structure have raised concerns about anti-competitive aspects
|
1640
|
+
| of the deregulation (Leeper (1999), Drushel (1998), Klein (1997)). After estimating
|
1641
|
+
| the model using the method of Bajari, Benkard, and Levin (2004), I find that the
|
1642
|
+
| main incentives to merge in radio come from the cost side. Total cost side savings
|
1643
|
+
| amount to $2.5b per year, constituting about 10% of total industry revenue. Such
|
1644
|
+
| cost synergies are an order of magnitude higher than the anti-competetive effects of
|
1645
|
+
| these mergers identified by Jeziorski (2010). Moreover, the fact that consolidation
|
1646
|
+
| leads to substantial cost side synergies leads me to conclude that the Telecom Act
|
1647
|
+
| made radio advertising more competitive against other media, such as TV or the
|
1648
|
+
| Internet.
|
1649
|
+
| To my knowledge, Gowrisankaran (1999) is the only applied paper that uses a
|
1650
|
+
| dynamic framework to endogenize mergers. His analysis argued that merger dynamics
|
1651
|
+
| are very important. The main drawback of his analysis is that it was never fit to
|
1652
|
+
| real data. This was due in part to the complexity of his model and in part to
|
1653
|
+
| the lack of a good dataset. To solve the complexity problem, I utilize the latest
|
1654
|
+
| developments in the dynamic-games literature. These developments enable us to
|
1655
|
+
| estimate very complicated models without explicitly solving them (Bajari, Benkard,
|
1656
|
+
| and Levin (2004)). This paper also contributes to empirical literature on demand
|
1657
|
+
| and cost curve estimation (this started with Rosse (1970) and Rosse (1967)), by
|
1658
|
+
| accounting explicitly for the demand side incentives to merge. On the technical side,
|
1659
|
+
meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 38
|
1660
|
+
blank |
|
1661
|
+
|
|
1662
|
+
|
|
1663
|
+
text | my model shares some similarities with Sweeting (2007). I concentrate on questions
|
1664
|
+
| about incentives to merge and the impact of consolidation on welfare, while Sweeting
|
1665
|
+
| focuses mainly on estimates of the format switching cost. My analysis also extends
|
1666
|
+
| his model by adding a model of ad quantity choices and endogenous mergers. Another
|
1667
|
+
| paper on a similar topic is O’Gorman and Smith (2008). They use a static oligopoly
|
1668
|
+
| model to estimate the cost curve in radio. They find that the fixed cost savings when
|
1669
|
+
| owning two stations is bounded between between 20% and 50% of per-station costs
|
1670
|
+
| (I estimate this number to be 20%). I supplement their estimates by accounting for
|
1671
|
+
| selection bias, follow-up mergers and post-merger repositioning as outlined above.
|
1672
|
+
| This chapter is organized as follows. Section 2 contains a flexible, structural
|
1673
|
+
| merger model that can applied to many industries. The estimation procedure is
|
1674
|
+
| discussed in Section 3. Section 4 describes the application of the framework to analyze
|
1675
|
+
| the merger wave in the U.S. radio industry. Section 5 concludes the paper.
|
1676
|
+
blank |
|
1677
|
+
|
|
1678
|
+
title | 3.3 Merger and repositioning framework
|
1679
|
+
text | This section presents the dynamic oligopoly model of an industry with differentiated
|
1680
|
+
| products in the spirit of Ericson and Pakes (1995). The industry is modeled as a
|
1681
|
+
| dynamic game and the players are companies holding portfolios of different products
|
1682
|
+
| (brands). The modeling effort emphasizes the actions of companies changing the
|
1683
|
+
| profolio of owned products, specifically rebranding and acquisitions. The model is
|
1684
|
+
| general enough to encompass a number of different industries and types of competi-
|
1685
|
+
| tion, by allowing for a large range of different single-period profit functions and cost
|
1686
|
+
| structures.
|
1687
|
+
blank |
|
1688
|
+
|
|
1689
|
+
title | 3.3.1 Industry basics
|
1690
|
+
text | The industry is composed of M different markets that operate in discrete time over
|
1691
|
+
| an infinite horizon. The payoff relevant market characteristics at time t are fully
|
1692
|
+
| characterized by a set of covariates dmt ∈ D that include demand shifters. In each
|
1693
|
+
| market m, there are up to Km operating firms and up to Jm active products. Let oj ∈
|
1694
|
+
meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 39
|
1695
|
+
blank |
|
1696
|
+
|
|
1697
|
+
|
|
1698
|
+
text | Km be the owner of the product j. I assume that each product j ∈ Jm is characterized
|
1699
|
+
| by a triple stj = (fjt , ξjt , otj ). In particular, fjt ∈ F is a discrete characteristic, and
|
1700
|
+
| ξjt ∈ Ξ is a continuous characteristic of the product. The state of the industry at the
|
1701
|
+
| beginning of each period is therefore a duple (st , dt ) ∈ S × D.
|
1702
|
+
| To simplify the further exposition define Okt to be the number of products owned
|
1703
|
+
| t
|
1704
|
+
| by the firm k, and O−k to be the number of products owned by its competitors.
|
1705
|
+
blank |
|
1706
|
+
|
|
1707
|
+
title | 3.3.2 Players’ actions
|
1708
|
+
text | Firms can undertake two types of actions: product acquisitions and product repo-
|
1709
|
+
| sitioning. I assume that acquisitions take place first and the results are common
|
1710
|
+
| knowledge before the firms commence with repositioning.
|
1711
|
+
| In general, the product acquisition process can be very complicated. Firms can
|
1712
|
+
| acquire any subset of products owned by competitors, and multiple firms can bid to
|
1713
|
+
| acquire the same product. Therefore, the most general model of this process is likely to
|
1714
|
+
| be intractable both analytically and numerically. Additionally, the model of mergers
|
1715
|
+
| without additional structure is likely to generate multiple equilibria, which will sig-
|
1716
|
+
| nificantly complicate its estimation. To solve these problems, I follow Gowrisankaran
|
1717
|
+
| (1999) and I assume that the station acquisition process is sequential. Owners move
|
1718
|
+
| in a sequence specified by a function A : st 7→ i, where i is a permutation of the active
|
1719
|
+
| owners’ index {1, . . . , K}. In addition, for notational purposes, I set i(K +1) = K +1.
|
1720
|
+
| t
|
1721
|
+
| Let ωi(k) be the state of the industry observed by the k-th mover in the merger
|
1722
|
+
| t
|
1723
|
+
| process, before making acquisition decisions. ωi(1) is set to be equal to st . Addi-
|
1724
|
+
| tionally, every player observes a set of acquisition prices for all stations owned by
|
1725
|
+
| competitors
|
1726
|
+
| Pkt = {φtkj : otj 6= k}
|
1727
|
+
blank |
|
1728
|
+
text | These prices are the outcomes of a bargaining process that is only a function of the
|
1729
|
+
| t t
|
1730
|
+
| current observable state ωi(k) . This assumption holds if ωi(k) is the only payoff relevant
|
1731
|
+
| variable for both the acquirer and the acquiree and the prices are determined by a
|
1732
|
+
| Nash Bargaining Solution.
|
1733
|
+
| In addition to prices, the potential buyer observes a set of additive payoff/cost
|
1734
|
+
meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 40
|
1735
|
+
blank |
|
1736
|
+
|
|
1737
|
+
|
|
1738
|
+
text | shocks from acquiring any competitor owned product φtk = {φtkj : otj 6= k} that is his
|
1739
|
+
| private information. A player’s i(k) action involves specifying which subset of stations
|
1740
|
+
| are to be acquired. I restrict attention to Markov strategies, so the acquisition policy
|
1741
|
+
| is a mapping
|
1742
|
+
| t t
|
1743
|
+
| ak : (ωi(k) , φtk , Pkt , dt ) 7→ {0, 1}O−k
|
1744
|
+
| t
|
1745
|
+
| After the decisions are made, a new ownership ωi(k+1) is determined, and it becomes
|
1746
|
+
| common knowledge. Player a(k + 1) proceeds with acquisitions, or if there are no
|
1747
|
+
| move active players, the game moves to product repositioning.
|
1748
|
+
| A product repositioning involves decisions about changing discrete characteristics
|
1749
|
+
| fjt of owned products, in exchange for paying a switching cost C(fj , fjt+1 ). It is,
|
1750
|
+
| similarly to acquisitions, a sequential process, and it is assumed that firms proceed
|
1751
|
+
| according to the same sequence i(k)1 .
|
1752
|
+
| The first mover i(1) in the repositioning process conditions his decision on the
|
1753
|
+
| t
|
1754
|
+
| state of the industry after the acquisitions, i.e., the observable state ω̃i(1) is equal
|
1755
|
+
| t
|
1756
|
+
| to ωi(K+1) . In the same way the k-th mover i(k) observers the repositionings done
|
1757
|
+
| t
|
1758
|
+
| by all the previous movers. This information is summarized in ω̃i(k) . In addition
|
1759
|
+
| t
|
1760
|
+
| to observing the state ω̃i(k) , the k-th mover observes payoff/cost shocks for all the
|
1761
|
+
| products of any potential type ψkt = {ψkjf
|
1762
|
+
| t
|
1763
|
+
| : otj = k, 1 ≥ f ≥ F }. The product
|
1764
|
+
| repositioning policy is a Markov strategy given by the mapping
|
1765
|
+
blank |
|
1766
|
+
text | t t
|
1767
|
+
| bk : (ω̃i(k) , ψkt , dt ) 7→ F Ok
|
1768
|
+
blank |
|
1769
|
+
text | t
|
1770
|
+
| When the choices of player i(k) are made a new industry state ω̃i(k+1) becomes a
|
1771
|
+
| common knowledge.
|
1772
|
+
| After repositioning the new industry state (st+1 , dt+1 ) is determined. st+1 is con-
|
1773
|
+
| t
|
1774
|
+
| structed by combining ω̃i(K+1) with the values of a new continuous product charac-
|
1775
|
+
| teristic ξ t+1 The following assumptions restrict the dynamics of ξ.
|
1776
|
+
blank |
|
1777
|
+
text | Assumption 3.3.1. ξjt evolves as an exogenous Markov process, for example
|
1778
|
+
blank |
|
1779
|
+
text | ξjt = ρξjt−1 + ζt (3.1)
|
1780
|
+
meta | 1
|
1781
|
+
text | This assumption is made for the simplicity of exposition and might be easily relaxed.
|
1782
|
+
meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 41
|
1783
|
+
blank |
|
1784
|
+
|
|
1785
|
+
|
|
1786
|
+
text | where ζt is a mean zero IID random variable.
|
1787
|
+
blank |
|
1788
|
+
text | Moreover, market covariates are also assumed to be exogenous and Markov
|
1789
|
+
blank |
|
1790
|
+
text | Assumption 3.3.2. dt evolves as an exogenous Markov process.
|
1791
|
+
blank |
|
1792
|
+
text | These assumptions are made for simplicity of estimation. They could be poten-
|
1793
|
+
| tially relaxed if more data is available. For example, if ξ is a product quality, one
|
1794
|
+
| could assume that it is also a dynamic choice variable and estimate it directly from
|
1795
|
+
| the observed investment.
|
1796
|
+
| When the new industry state is (st+1 , dt+1 ) realized firms then play a static com-
|
1797
|
+
| petition game that yelds profits given by π̄k (st+1 , dt ).
|
1798
|
+
blank |
|
1799
|
+
|
|
1800
|
+
title | 3.3.3 Payoffs and equilibrium
|
1801
|
+
text | Given the realizations of (st , st+1 , P t , ψ t , φt , dt ) the per-period payoff for player k is
|
1802
|
+
| given by the equation
|
1803
|
+
| X
|
1804
|
+
| πk (st , st+1 ,P t , ψ t , φt , dt ) = π̄k (st+1 , dt ) − F (stk ) + (φtkj − Pkj
|
1805
|
+
| t
|
1806
|
+
| )+
|
1807
|
+
| j:otj 6=k,ot+1
|
1808
|
+
| j =k
|
1809
|
+
| X X h i (3.2)
|
1810
|
+
| t+1 t+1
|
1811
|
+
| + Pott+1 j + t t t
|
1812
|
+
| ψkjf t+1 − I(fj 6= fj )C(ff , fj )
|
1813
|
+
| j j
|
1814
|
+
| j:otj =k,ot+1
|
1815
|
+
| j 6=k j:ot+1
|
1816
|
+
| j =k
|
1817
|
+
blank |
|
1818
|
+
|
|
1819
|
+
text | where F (stk ) is the fixed cost of owning portfolio stk , and π̄k is a one-shot profit from
|
1820
|
+
| the portfolio.
|
1821
|
+
| Let g = (a1 , . . . , aK , b1 , . . . , bK ) be a Markov strategy profile. It can be shown that
|
1822
|
+
| this profile and an initial condition (s, d) determine the unique, controlled Markov
|
1823
|
+
| process over states, acquisition prices P , payoff shocks ψ and φ, and market covariates
|
1824
|
+
| d
|
1825
|
+
| P(g, s, d) ∈ ∆(S × P × Ψ × Φ × D × T )
|
1826
|
+
blank |
|
1827
|
+
text | where T is a time horizon, and ∆ is a set of probability measures. P is therefore a
|
1828
|
+
| discrete time stochastic process on S × P × Ψ × Φ × D. This process is also supplied
|
1829
|
+
| with a filtration, such that the strategy profile g is measurable.
|
1830
|
+
meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 42
|
1831
|
+
blank |
|
1832
|
+
|
|
1833
|
+
|
|
1834
|
+
text | Each owner is maximizing the expected discounted sum of profits taking the strate-
|
1835
|
+
| gies of opponents g−k as given. The value function for player k is defined as
|
1836
|
+
blank |
|
1837
|
+
text | ∞
|
1838
|
+
| X
|
1839
|
+
| Vk (s, d|gk , g−k ) = EP(g,s,d) β t πk (st , st+1 , P t , ψ t , φt , dt ) (3.3)
|
1840
|
+
| t=0
|
1841
|
+
blank |
|
1842
|
+
|
|
1843
|
+
text | It is assumed that the markets are in a Markov Perfect Equilibrium, i.e., firms choose
|
1844
|
+
| strategy profile g∗ , such that for all k
|
1845
|
+
blank |
|
1846
|
+
text | Vk (s, d|g∗k , g∗−k ) ≥ Vk (s, d|gk , g∗−k ) ∀gk . (3.4)
|
1847
|
+
blank |
|
1848
|
+
text | For simplicity, I restrict my attention to symmetric equilibria. The next section
|
1849
|
+
| describes the estimation procedure.
|
1850
|
+
blank |
|
1851
|
+
|
|
1852
|
+
title | 3.4 Estimation
|
1853
|
+
text | Consider parameterizations of the fixed cost F (stk |θF ) and the switching cost
|
1854
|
+
| C(fjt , fjt+1 |θC ). This section outlines a procedure, based on Bajari, Benkard, and
|
1855
|
+
| Levin (2004), to obtain consistent estimators of θF and θC without using direct data
|
1856
|
+
| on cost.
|
1857
|
+
| The procedure has two stages. The fist stage infers equilibrium behavior from the
|
1858
|
+
| data on one or a set of similar industries. The second stage estimates the cost param-
|
1859
|
+
| eters for a particular industry by imposing the dynamic game equilibrium inequalities
|
1860
|
+
| 3.4. The following subsection describes the data needed for this procedure to work.
|
1861
|
+
blank |
|
1862
|
+
|
|
1863
|
+
title | 3.4.1 Data
|
1864
|
+
text | Consider an industry, or a set of similar industries, operating in M markets over the
|
1865
|
+
| discrete time span T . Data is given by the set X = {xtm : 1 ≤ m ≤ M, 1 ≤ t ≤ T }.
|
1866
|
+
| Each point in the data xtm describes the state of the industry at the beginning of
|
1867
|
+
| the period stm = (f tm , ξ tm , otm ), market covariates/demand shifters dtm , and a set of
|
1868
|
+
| transaction prices P mt . The data does not have to contain any direct information on
|
1869
|
+
meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 43
|
1870
|
+
blank |
|
1871
|
+
|
|
1872
|
+
|
|
1873
|
+
text | the cost. This is convenient since most of the data on cost suffers from accounting
|
1874
|
+
| issues. Therefore direct cost estimates from the data might be unreliable.
|
1875
|
+
| To facilitate the inference process a standard assumption about the data gen-
|
1876
|
+
| erating process is made: that it is generated by a single MPE strategy profile g∗ .
|
1877
|
+
| Crucially, the dataset needs to contain a reasonable amount of within market acqui-
|
1878
|
+
| sitions and repositioning to allows it to identify equilibrium strategies. Sometimes it
|
1879
|
+
| is possible to obtain such datasets within one industry (see U.S. radio in the appli-
|
1880
|
+
| cation), however for most industries such datasets are unavailable. In this case, it is
|
1881
|
+
| possible to pool similar industries to construct one dataset. To make this work one
|
1882
|
+
| needs a slightly stronger assumption that equilibrium behavior is the same across the
|
1883
|
+
| pooled industries.
|
1884
|
+
| The transaction prices are helpful but not necessary to identify the cost parame-
|
1885
|
+
| ters. Estimation is possible without them but it requires more assumptions about the
|
1886
|
+
| bargaining process during the acquisition, as well as much more computing power.
|
1887
|
+
| The extra steps needed to proceed without the prices are mentioned in Appendix B.1.
|
1888
|
+
| In order to simplify the exposition all state variables are assumed to be observed.
|
1889
|
+
| However, the procedure also applies to problems in which some payoff relevant in-
|
1890
|
+
| formation is unobserved to the econometrician. In many cases one can infer the
|
1891
|
+
| unobserved state variable from a static estimation of the one-shot profit function π̄.
|
1892
|
+
| One example of such a case is Berry, Levinsohn, and Pakes (1995) estimator, which
|
1893
|
+
| uses differences of static market shares to identify unobserved product quality. More-
|
1894
|
+
| over, there are numerous ways to proceed in case one cannot directly infer all the
|
1895
|
+
| latent state variables. For example, one could supply the procedure from this chapter
|
1896
|
+
| with an EM algorithm proposed by Arcidiacono and Miller (2010).
|
1897
|
+
blank |
|
1898
|
+
|
|
1899
|
+
title | 3.4.2 Policy estimation
|
1900
|
+
text | For any strategy profile
|
1901
|
+
| g = (a1 , . . . , aK , b1 , . . . , bK )
|
1902
|
+
blank |
|
1903
|
+
text | let ProbM R
|
1904
|
+
| k (ak |ωk , dk ), and Probk (bk |ω̃k , dk ), be the probabilities of taking acquisition
|
1905
|
+
| and repositioning actions. The former is a probability measure on {0, 1}O−k , and the
|
1906
|
+
meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 44
|
1907
|
+
blank |
|
1908
|
+
|
|
1909
|
+
|
|
1910
|
+
text | latter on {1, . . . , F }Ok . They are constructed by integrating out unobservable payoff
|
1911
|
+
| shocks φ and ψ. The goal of this subsection is to provide a procedure that allows us
|
1912
|
+
| to obtain the estimates of these probability measures. This procedure leverages on
|
1913
|
+
| the sequentiality assumptions made in the previous section.
|
1914
|
+
| The first step of the procedure is constructing an auxiliary dataset using a sequen-
|
1915
|
+
| tial structure of the acquisition and repositioning process. For each t, the predefined
|
1916
|
+
| sequence of player moves i = I(st ) specifies a mapping
|
1917
|
+
blank |
|
1918
|
+
text | (st , st+1 ) 7→ (ωi(1) , . . . , ωi(K) , ω̃i(1) , . . . ω̃i(K) )
|
1919
|
+
blank |
|
1920
|
+
text | This mapping is used to construct 3 sets. The first set describes the acquisition
|
1921
|
+
| dynamics
|
1922
|
+
blank |
|
1923
|
+
text | Y1 = {(ωktm , dtm , atm
|
1924
|
+
| k ) : 1 ≤ k ≤ K, 1 ≤ m ≤ M, 1 ≤ t ≤ T }
|
1925
|
+
blank |
|
1926
|
+
|
|
1927
|
+
text | where atm
|
1928
|
+
| k is a vector of zeros and ones that indicates acquisition decisions for player
|
1929
|
+
| k. The second set describes acquisition prices
|
1930
|
+
blank |
|
1931
|
+
text | Y2 = {(ωktm , dtm , Pktm ) : 1 ≤ k ≤ K, 1 ≤ m ≤ M, 1 ≤ t ≤ T }
|
1932
|
+
blank |
|
1933
|
+
text | where Pktm is a vector of prices for all acquisitions of player k. The last set describes
|
1934
|
+
| the repositioning
|
1935
|
+
blank |
|
1936
|
+
text | Y3 = {(ω̃ktm , dtm , Fkmt ) : 1 ≤ k ≤ K, 1 ≤ m ≤ M, 1 ≤ t ≤ T }
|
1937
|
+
blank |
|
1938
|
+
text | where Fkmt is a vector of chosen characteristics for products owned by firm k.
|
1939
|
+
| Set Y1 is used to estimate the acquisition probability distribution ProbM
|
1940
|
+
| k as a
|
1941
|
+
| function of (ω, d). In a perfect world, one would like to employ a form of non-
|
1942
|
+
| parametric multi-dimensional discrete choice estimator. However, in practice, the
|
1943
|
+
| researcher is likely to face two problems: the large dimensionality of covariates (ω, d)
|
1944
|
+
| and the large dimensionality of the ProbM
|
1945
|
+
| k support (due to a big number of active
|
1946
|
+
| products/companies that can be acquired).
|
1947
|
+
meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 45
|
1948
|
+
blank |
|
1949
|
+
|
|
1950
|
+
|
|
1951
|
+
text | The solution to the first problem is to employ a flexible parametric form
|
1952
|
+
blank |
|
1953
|
+
text | M
|
1954
|
+
| [ k (ak |ωk , dk , θM )
|
1955
|
+
| Prob
|
1956
|
+
blank |
|
1957
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text | that exhausts most of the information in the data. The asymptotics of such an
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1958
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+
| estimator are similar to the non-parametric estimators in which the dimensionality
|
1959
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+
| of pseudo-parameters θM grow as the dataset becomes large.
|
1960
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+
| The second problem is more severe and in most cases cannot be solved without
|
1961
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+
| additional assumptions. The following examples suggest different possible approaches.
|
1962
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+
blank |
|
1963
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+
text | Example 3.4.1 (One acquisition per period). If the acquisitions in the data tend to
|
1964
|
+
| be rare, one could potentially assume that only one acquisition per owner is allowed
|
1965
|
+
| each period. This reduces the decision space to only one dimension and enables direct
|
1966
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+
| application of any discrete choice model (for example logit or probit) on the data set
|
1967
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+
| Y1 .
|
1968
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blank |
|
1969
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+
text | The second example suggests how to deal with multiple acquisitions
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1970
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+
blank |
|
1971
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+
text | Example 3.4.2 (Independent acqusitions). In the case where the acquisition deci-
|
1972
|
+
| sions are uncorrelated conditional on ωk and dk one could employ a discrete choice
|
1973
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+
| regression directly on Y1 , fixing ωktm for all decisions in ãtm
|
1974
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+
| k .
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1977
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text | The next solution makes more assumptions about the structure of the acquisition
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1978
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+
| decision making within the firm.
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|
1980
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+
text | Example 3.4.3 (Sequential acqusitions). Suppose that the acquisition decisions are
|
1981
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+
| made in a sequence, i.e., after observing ψj for a particular product, the firm decides
|
1982
|
+
| about its acquisition without looking at the payoff shocks ψ for other stations. In
|
1983
|
+
| this case one could further expand dataset Y1 to incorporate the sequence of decisions
|
1984
|
+
| within the firm. Because of the additive structure of payoffs and the fact that ψj are
|
1985
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+
| IID, one could consistently estimate ProbM
|
1986
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| k by using a discrete choice estimator on
|
1987
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| the extended dataset.
|
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blank |
|
1989
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+
text | If one were to observe the acquisition prices one could estimate the pricing function
|
1990
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+
| P (ωkst ) directly from the dataset Y2 . This could be achieved by employing the flexible
|
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meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 46
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1993
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1994
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1995
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text | parametric interpolation2 .
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1996
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| When estimating the repositioning probabilities ProbR
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1997
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+
| k one faces similar problems,
|
1998
|
+
| but additionally one has to deal with multinomial vs. binomial choice. The three
|
1999
|
+
| examples of solutions to that problem presented previously also apply here.
|
2000
|
+
| Additionally, one could endogenize the continuous characteristic ξ and estimate it
|
2001
|
+
| as a function of the state space using the methods presented in Bajari, Benkard, and
|
2002
|
+
| Levin (2004). Depending on the interpretation of ξ, this might involve an additional
|
2003
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+
| model. In this paper however, ξ t as well as dt are treated as exogenous and Markov.
|
2004
|
+
| The transition in this case can be estimated as a flexible parametric auto-regressive
|
2005
|
+
| process.
|
2006
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+
| In the next subsection I describe a second stage of the cost function estimator
|
2007
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+
| that uses the estimators of equilibrium policy and the transition of ξ and dt obtained
|
2008
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+
| in the first step above.
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|
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2011
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title | 3.4.3 Minimum distance estimator
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2012
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+
text | For the second stage the parameters of the fixed cost θF and repositioning cost θR are
|
2013
|
+
| estimated using a minimum distance estimator. The estimator is constructed using
|
2014
|
+
| the MPE inequalities (3.4). The remainder of this section describes how I obtain
|
2015
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+
| estimates of the value functions in those inequalities.
|
2016
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+
| The value function Vk (defined on the equation (3.3)) can be separated into four
|
2017
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+
| parts.
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2018
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+
| Vkt = Atk + θφ Bkt + θψ Ckt + Dkt
|
2019
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+
blank |
|
2020
|
+
text | where ∞
|
2021
|
+
| X X X
|
2022
|
+
| Atk =E β r−t π̄k (st , dt ) + Porr+1 j − r
|
2023
|
+
| Pkj
|
2024
|
+
| j
|
2025
|
+
| r=t j:orj =k,or+1 6=k j:orj 6=k,or+1 =k
|
2026
|
+
| j j
|
2027
|
+
blank |
|
2028
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+
meta | 2
|
2029
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+
text | Sometimes the dataset on prices is sparse, i.e., one does not observe prices for every deal. In
|
2030
|
+
| this case more simplifying assumptions about the pricing process are needed.
|
2031
|
+
meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 47
|
2032
|
+
blank |
|
2033
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+
|
|
2034
|
+
|
|
2035
|
+
text | is the expected stream of advertising revenues,
|
2036
|
+
| ∞
|
2037
|
+
| X X
|
2038
|
+
| Bkt =E β r−t φrkj
|
2039
|
+
| r=t j:orj 6=k,or+1 =k
|
2040
|
+
| j
|
2041
|
+
blank |
|
2042
|
+
|
|
2043
|
+
|
|
2044
|
+
text | is the expected stream of acquisition payoff/cost shocks,
|
2045
|
+
blank |
|
2046
|
+
text | ∞
|
2047
|
+
| X X
|
2048
|
+
| Ckt = E β r−t t
|
2049
|
+
| ψkjf r+1
|
2050
|
+
| j
|
2051
|
+
| r=t j:or+1 =k
|
2052
|
+
| j
|
2053
|
+
blank |
|
2054
|
+
|
|
2055
|
+
|
|
2056
|
+
text | is the expected stream of repositioning payoff/cost shocks, and
|
2057
|
+
|
|
2058
|
+
| ∞
|
2059
|
+
| X X
|
2060
|
+
| Dkt = E β r−t F (srk |θF ) + 1(fjr+1 6= fjr )C(fjr , fjr+1 |θC )
|
2061
|
+
|
|
2062
|
+
| r=t j:or+1 =k
|
2063
|
+
| j
|
2064
|
+
blank |
|
2065
|
+
|
|
2066
|
+
|
|
2067
|
+
text | is the expected stream of fixed costs and repositioning costs. The extra parameters
|
2068
|
+
| θφ and θψ are needed because the first stage estimation requires normalization of the
|
2069
|
+
| variances of φ and ψ.
|
2070
|
+
| Accounting for Bkt in the simulation of profits from a merger takes care of selec-
|
2071
|
+
| tion on unobservables, as apposed to the usual static approach to mergers. Given
|
2072
|
+
| the merger decision atm tm tm
|
2073
|
+
| jk , the contribution of unobserved profits is θφ E[φjk |ajk ]. Be-
|
2074
|
+
| cause a company observes the payoff shock before making an acquisition, the merg-
|
2075
|
+
| ers that occur are selected for high value of φtm
|
2076
|
+
| jk When φ has zero mean, it is the
|
2077
|
+
| case that E[φtm tm
|
2078
|
+
| jk |ajk = 1] > 0. Failing to account for that (i.e. assuming that
|
2079
|
+
| E[φtm tm tm
|
2080
|
+
| jk |ajk = 1] = E[φjk ] = 0) would cause underestimation of profits from mergers
|
2081
|
+
| and overestimation of fixed cost synergies 3 . The same point can be made about the
|
2082
|
+
| selection on unobservables when repositioning products and inclusion of Ckt .
|
2083
|
+
| Note that only the last part of Dkt depends on the parameters of interest θF and θC
|
2084
|
+
| and the value function is linear θφ and θψ . Therefore, to compute the value function
|
2085
|
+
meta | 3
|
2086
|
+
text | When using any of the dynamic likelihood estimators proposed in the previous subsection and
|
2087
|
+
| assuming that φ is a difference of two independent Type I extreme value random variables, E[φ|a = 1]
|
2088
|
+
| can be reduced to − log(p) − 1−p p log(1 − p), where p is a probability of acquisition.
|
2089
|
+
meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 48
|
2090
|
+
blank |
|
2091
|
+
|
|
2092
|
+
|
|
2093
|
+
text | for different parameter values one does not need to re-simulate the industry path
|
2094
|
+
| (st , dt ); moreover, one does not need to recompute any of Atk , Bkt , Ckt 4 . This saves
|
2095
|
+
| a large amount of processing power and makes the estimator feasible using today’s
|
2096
|
+
| computers.
|
2097
|
+
| Following the inequality (3.4), let Vkt be an equilibrium value function for player
|
2098
|
+
| k, Vk (·|g∗k , g∗−k ). Additionally, define a suboptimal value function Ṽkt to be Vk (·|gk , g∗k )
|
2099
|
+
| for some off-equilibrium strategy gk . In equilibrium, I know that max{Ṽtk −Vkt , 0} = 0
|
2100
|
+
| for the true values of θM and θR . Thus, I define a minimum distance estimator
|
2101
|
+
blank |
|
2102
|
+
text | 1 X 1
|
2103
|
+
| (θ̂M , θ̂R ) = argmin max{Ṽktm − Vktm , 0}
|
2104
|
+
| K × T × M k,t,m Atm
|
2105
|
+
| k
|
2106
|
+
blank |
|
2107
|
+
|
|
2108
|
+
text | According to the results in Bajari, Benkard, and Levin (2004) this estimator is con-
|
2109
|
+
| sistent and asymptotically normal. This finishes the description of the estimator. An
|
2110
|
+
| example of its application is contained in the next section.
|
2111
|
+
blank |
|
2112
|
+
|
|
2113
|
+
title | 3.5 Application
|
2114
|
+
text | In this section, I describe how to use above framework to estimate merger synergies
|
2115
|
+
| from ownership consolidation in the U.S. radio industry. In the next subsection I give
|
2116
|
+
| a brief review of the industry. The second subsection presents the tailored version of
|
2117
|
+
| the estimation algorithm. The last subsection presents and discusses the results.
|
2118
|
+
blank |
|
2119
|
+
|
|
2120
|
+
title | 3.5.1 Industry and data description
|
2121
|
+
text | Radio is an important medium in the U.S., reaching about 94% of Americans twelve
|
2122
|
+
| years old or older each week. Moreover, the average consumer listens to about 20
|
2123
|
+
| hours of radio per week and between 6am and 6pm more people use radio than TV
|
2124
|
+
| or print media5 . There are about 13,000 commercial radio stations that broadcast
|
2125
|
+
| in about 350 local markets nationwide. Before 1996, this industry had ownership
|
2126
|
+
meta | 4
|
2127
|
+
text | In most cases Atk is the hardest to compute because computing π̄ may involve solving a one-shot
|
2128
|
+
| Nash equilibrium price or a quantity setting game.
|
2129
|
+
meta | 5
|
2130
|
+
text | Source: A.Richter (2006)
|
2131
|
+
meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 49
|
2132
|
+
blank |
|
2133
|
+
|
|
2134
|
+
text | # of active stations Old ownership cap New cap
|
2135
|
+
| 45+ 4 8
|
2136
|
+
| 30-44 4 7
|
2137
|
+
| 15-29 4 6
|
2138
|
+
| 0-14 3 5
|
2139
|
+
| Table 3.1: Change in the local ownership caps introduced by the 1996 Telecom Act.
|
2140
|
+
blank |
|
2141
|
+
|
|
2142
|
+
text | limitations both nationally and locally, preventing big corporations from entering
|
2143
|
+
| the market and thereby sustaining a large degree of family based ownership. This
|
2144
|
+
| situation changed with the Telecom Act of 1996 which, among other things, raised
|
2145
|
+
| the ownership caps in the local markets (see Table 3.1).
|
2146
|
+
| This triggered an unprecedented merger and product repositioning wave that com-
|
2147
|
+
| pletely reshaped the industry. Figure 3.1 contains the average percentage of stations
|
2148
|
+
| that switched owners and that switched formats. Between 1996 and 2000 more than
|
2149
|
+
| 10% of stations switched owners annually. After 2000 the number dropped to less
|
2150
|
+
| than 4%. Greater ownership concentration in the 1996-2000 period was also associ-
|
2151
|
+
| ated with more format switching. The percentage of stations that switched formats
|
2152
|
+
| peaked in 1998 and 2001 at 13%. In effect, the Herfindahl-Hirschman Index (HHI) in
|
2153
|
+
| the listenership market grew from 0.18 in 1996 to about 0.3 in 2006.
|
2154
|
+
| The impact of this consolidation on consumer surplus has been studied before
|
2155
|
+
| using a static demand and supply approach. For example Jeziorski (2010) (Chapter
|
2156
|
+
| 2 of this thesis), finds that consolidation of ownership in this industry was harmful
|
2157
|
+
| to advertisers, causing $300m loss in advertiser surplus, but beneficial to listeners,
|
2158
|
+
| raising the welfare by 1%.
|
2159
|
+
| In order to analyze the supply side effects of this consolidation, I compiled a
|
2160
|
+
| dataset 6 . on stations in the 88 markets studied by Jeziorski (2010). The data
|
2161
|
+
| contains ownership for each station oj , and station format fj . It uses the estimates of
|
2162
|
+
| station quality ξj , contained in Jeziorski (2010). I also observe each acquisition made
|
2163
|
+
| in this market and the average acquisition price.
|
2164
|
+
meta | 6
|
2165
|
+
text | Data is constructed using the software provided by BIA Financial Network Inc. and Media
|
2166
|
+
| Market Guides by SQAD
|
2167
|
+
meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 50
|
2168
|
+
blank |
|
2169
|
+
|
|
2170
|
+
|
|
2171
|
+
|
|
2172
|
+
text | Figure 3.1: Dynamics of station acquisition and format switching
|
2173
|
+
blank |
|
2174
|
+
title | 3.5.2 Static profits
|
2175
|
+
text | The static profit function is taken directly from Jeziorski (2010). Radio station owners
|
2176
|
+
| draw their revenue from selling advertising and each advertising slot is priced on a
|
2177
|
+
| per listener basis. The total profit of the owner k is equal to
|
2178
|
+
| X
|
2179
|
+
| π̄k (s, d) = rj (q ∗ , s, d)pj (q ∗ , s, d)qj∗
|
2180
|
+
| j:oj =k
|
2181
|
+
blank |
|
2182
|
+
|
|
2183
|
+
text | where q ∗ are the equilibrium advertising quantities chosen in the static oligopoly
|
2184
|
+
| game, rj is the number of listeners and pj is the price per listener. In this paper, I
|
2185
|
+
| treat the estimates of this profit function as given; however, I do correct the standard
|
2186
|
+
| errors of the dynamic estimates by accounting for the noise introduced by estimating
|
2187
|
+
| profit function.
|
2188
|
+
| The only difference between the baseline model in Jeziorski (2010) and the profit
|
2189
|
+
| function used in this chapter is that the marginal cost of production is set to zero and
|
2190
|
+
| format substitution matrix Ω is assumed to be diagonal. I made these assumptions
|
2191
|
+
meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 51
|
2192
|
+
blank |
|
2193
|
+
|
|
2194
|
+
|
|
2195
|
+
text | for computational reasons.
|
2196
|
+
blank |
|
2197
|
+
|
|
2198
|
+
title | 3.5.3 Estimation details
|
2199
|
+
text | The estimation is a direct application of the framework desribed in subsection 3.4.
|
2200
|
+
| The model endogenizes acquisition decisions and format switching decisions. The
|
2201
|
+
| dynamics in an unobserved radio station quality ξ is assumed to be exogenous.
|
2202
|
+
| The first piece of the model that needs to be specified is the function I(st , dt ),
|
2203
|
+
| that prescribes the sequence of moves firms make in the merger and repositioning
|
2204
|
+
| process. Following Gowrisankaran (1999), I assume that firms with the biggest total
|
2205
|
+
| market shares move first. This is motivated by the fact that the bigger players in the
|
2206
|
+
| market might a have first-mover advantage over smaller players. The acquisition price
|
2207
|
+
| is assumed to be constant within market and equal to the observed mean acquisition
|
2208
|
+
| price.
|
2209
|
+
| To estimate the merger probability I use the method outlined in the Example
|
2210
|
+
| 3.4.3. Each owner considers, one at a time, stations to acquire, starting from the
|
2211
|
+
| one with the highest quality measure ξj , and moving down according to ξj 7 . A flow
|
2212
|
+
| chart of the merger process is presented in the Appendix B.2. Such structure enables
|
2213
|
+
| expanding the data structure on acquisitions within the firm
|
2214
|
+
blank |
|
2215
|
+
text | Ot
|
2216
|
+
| (ωkt , atk ) 7→ (ωjk
|
2217
|
+
| t
|
2218
|
+
| , atjk )j=1
|
2219
|
+
| −k
|
2220
|
+
blank |
|
2221
|
+
|
|
2222
|
+
|
|
2223
|
+
|
|
2224
|
+
text | t
|
2225
|
+
| where O−k is the number of stations owned by competitors. If we assume that ψ is a
|
2226
|
+
| difference of two extreme value distributions and is also revealed in a sequence, one
|
2227
|
+
| can consistently estimate a probability of merger ProbM
|
2228
|
+
| k , by running a regular logit
|
2229
|
+
| regression on this extended dataset.
|
2230
|
+
| The covariates in the logit regression should reflect the information about the state
|
2231
|
+
| space contained in the data. In a perfect world one would use a very flexible index
|
2232
|
+
| function of the state space variables. However, because of high dimensionality of
|
2233
|
+
| the state space, such an approach requires too many degrees of freedom, and quickly
|
2234
|
+
meta | 7
|
2235
|
+
text | Choice of ξj as an ordering characteristic is motivated by the fact that it is a vertical measure
|
2236
|
+
| of profitability.
|
2237
|
+
meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 52
|
2238
|
+
blank |
|
2239
|
+
|
|
2240
|
+
|
|
2241
|
+
text | exhausts all the information available in the data. To overcome this problem, I use
|
2242
|
+
| a linear index function of several statistics about the state space computed from the
|
2243
|
+
| data 8 . The full set of covariates can be found in Table B.1 in Appendix B.3.
|
2244
|
+
| A similar strategy can be employed to estimate the format switching process. The
|
2245
|
+
| flow chart describing this process is contained in Appendix B.2. Assuming that firms
|
2246
|
+
| switch formats sequentially dictates the following dataset expansion
|
2247
|
+
blank |
|
2248
|
+
text | Ot
|
2249
|
+
| t
|
2250
|
+
| (ωkt , atk ) 7→ (ωjk , atjk )j=1
|
2251
|
+
| −k
|
2252
|
+
blank |
|
2253
|
+
|
|
2254
|
+
|
|
2255
|
+
|
|
2256
|
+
text | Using this auxiliary dataset one can apply a multinomial logit model to estimate
|
2257
|
+
| the format switching probabilities ProbR
|
2258
|
+
| k . The restriction on the index function also
|
2259
|
+
| applies in this case, so I use only a limited set of covariates (given in Table B.2 in
|
2260
|
+
| Appendix B.3).
|
2261
|
+
| In the second stage of the estimation, I parametrize the fixed cost function
|
2262
|
+
blank |
|
2263
|
+
text | F (stm tm
|
2264
|
+
| k ) = θC1 × POPm × nk θC2 (3.5)
|
2265
|
+
blank |
|
2266
|
+
text | where POPm is a population of the market m and nkt is the number of stations
|
2267
|
+
| owned by player k at time t. Parameter θC2 dictates the amount of cost synergies
|
2268
|
+
| from owning multiple stations. I also assume a constant format switching cost that
|
2269
|
+
| is proportional to the population. Those assumptions are motivated by the fact that
|
2270
|
+
| Jeziorski (2010) finds that most of the variation in marginal cost of radio operations
|
2271
|
+
| between can be explained by the variation in total population.
|
2272
|
+
| In the second stage, I simulate the value function only for the owner with the
|
2273
|
+
| biggest market share at each data point (stm , dtm ). These simulations are done ac-
|
2274
|
+
| cording to the Algorithms 2 and 3. The suboptimal value function Ṽk is obtained
|
2275
|
+
| by multiplying the merger and format switching probability by a uniform [.95, 1.05]
|
2276
|
+
| random variable. When choosing the size of the perturbations one faces a bias and
|
2277
|
+
| variance trade-off. When the size is too small the estimator start picking up the
|
2278
|
+
| noise from the simulations instead of the sub-optimality of the strategy, decreasing
|
2279
|
+
meta | 8
|
2280
|
+
text | a similar approach can be found in Sweeting (2007), Ryan (2005), Ryan and Tucker (2006), and
|
2281
|
+
| Ellickson and Arie (2005).
|
2282
|
+
meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 53
|
2283
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+
blank |
|
2284
|
+
|
|
2285
|
+
|
|
2286
|
+
text | the efficiency of the estimator. When the size is chosen to be too big, the bounds of
|
2287
|
+
| the estimator become very large creating potential bias. The chosen perturbation is
|
2288
|
+
| a compromise between those two factors.
|
2289
|
+
blank |
|
2290
|
+
|
|
2291
|
+
title | 3.5.4 Results
|
2292
|
+
text | This subsection describes the results of the estimation. The exposition is divided into
|
2293
|
+
| two parts. First, I present the policy function estimates. Then, I report the main
|
2294
|
+
| results on fixed cost and switching cost synergies.
|
2295
|
+
blank |
|
2296
|
+
title | First stage: Policy function
|
2297
|
+
blank |
|
2298
|
+
text | Tables B.3 and B.4 report coefficients from a purchase strategy probit approxima-
|
2299
|
+
| tion. They reveal that owners with larger market shares are more likely to purchase
|
2300
|
+
| new stations and are less likely to sell. Also, there are synergies when purchasing
|
2301
|
+
| multiple stations. The coefficient on the first purchase dummy PUR0 is negative while
|
2302
|
+
| coefficients on dummies for multiple purchases are positive. This indicates that it
|
2303
|
+
| is easier to negotiate the purchase of many stations, or even an entire company at
|
2304
|
+
| once, than a single station. The number of owned stations in the format (the FORMAT
|
2305
|
+
| variable in the table) has a negative influence on purchase decisions. This is evidence
|
2306
|
+
| for diversification. The coefficient of station quality is positive which suggests that
|
2307
|
+
| stations with higher quality are purchased more often.
|
2308
|
+
| Table B.5 presents the influence on future format of the following covariates:
|
2309
|
+
| change of ownership dummy, AM/FM status, and previous format. The negative
|
2310
|
+
| coefficient of a Spanish format in the first row of the table suggests that when a
|
2311
|
+
| station is purchased it is less likely to switch to Spanish format. On the other hard,
|
2312
|
+
| the positive coefficient of AC tells us that change in ownership is correlated with
|
2313
|
+
| switching to the Adult Contemporary format. The second column of the table shows
|
2314
|
+
| that FM stations are likely be of Rock or CHR format, and not so likely to be of
|
2315
|
+
| News/Talk format. The remaining rows of the table describe the Markov dynamics
|
2316
|
+
| of formats. The diagonal cells have much higher numbers than the off-diagonal ones,
|
2317
|
+
| which reflects the fact that staying in the current format is much more probable than
|
2318
|
+
meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 54
|
2319
|
+
blank |
|
2320
|
+
|
|
2321
|
+
|
|
2322
|
+
text | switching.
|
2323
|
+
| Table B.6 presents the relationship between the current demographic composition
|
2324
|
+
| of the market format switching decisions. In addition, Table B.7 contains similar
|
2325
|
+
| information concerning the dynamics of the demographics (the difference between
|
2326
|
+
| two consecutive periods) and format switching. One can observe many patterns that
|
2327
|
+
| suggest firms respond to the current state of population demographics as well as to the
|
2328
|
+
| dynamics of population demographics. For example, a larger current population and
|
2329
|
+
| growth of the Hispanic population is ralated to the stations switching to a Hispanic
|
2330
|
+
| format. One can observe a similar pattern for Blacks and the Urban format, as well as
|
2331
|
+
| for older people and the News/Talk format. Those patters largely reflect correlations
|
2332
|
+
| between tastes for formats and demographics described in Jeziorski (2010).
|
2333
|
+
blank |
|
2334
|
+
title | Second stage: Fixed and switching cost
|
2335
|
+
blank |
|
2336
|
+
text | The estimated parameters of the fixed cost equation (3.5) are as follows: θ̂C1 = 0.69
|
2337
|
+
| and θ̂C2 = 0.59. Table 3.2 interprets the economic significance of these parameters in
|
2338
|
+
| terms the amount of saved fixed costs per year if two stations are commonly owned
|
2339
|
+
| compared to being separate companies. Since the amount of cost synergies depends on
|
2340
|
+
| the market population, only three representative markets are presented. Los Angeles
|
2341
|
+
| is the biggest market in the sample and the cost savings in that market amount to
|
2342
|
+
| about $4.4m per-year (roughly 10% of the revenue of a big station). Knoxville is
|
2343
|
+
| representative of medium markets and has about $0.23m of such cost savings, and
|
2344
|
+
| Bismark, a small market, has about $34k of savings. Table 3.3 presents total cost
|
2345
|
+
| savings from all mergers after the Telecom Act was passed. It turns out that the
|
2346
|
+
| merger activity lowered the fixed cost of providing radio programming by almost
|
2347
|
+
| $2.5b, amounting to almost 10% of the total revenue of the industry. Compared to
|
2348
|
+
| that, the impact on advertiser surplus identified in Jeziorski (2010) is very small. This
|
2349
|
+
| leads me to conclude that the deregulation of 1996 provided substantial operational
|
2350
|
+
| efficients that outweigh negative impacts on advertiser welfare.
|
2351
|
+
| The last set of estimates concern the product repositioning costs. The estimate of
|
2352
|
+
| the cost parameter θ̂C is 2.1. The repositioning cost for each market is the population
|
2353
|
+
| of that market multiplied θ̂C . Examples of this cost are given in Table 3.4. The
|
2354
|
+
meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 55
|
2355
|
+
blank |
|
2356
|
+
|
|
2357
|
+
text | Market Los Angeles Knoxville Bismarck
|
2358
|
+
| Population 13m .7m 100k
|
2359
|
+
| Savings per year $4.4m $.23m $34k
|
2360
|
+
blank |
|
2361
|
+
|
|
2362
|
+
text | Table 3.2: Savings when two stations are owned by the same firm vs. operating
|
2363
|
+
| separately
|
2364
|
+
blank |
|
2365
|
+
text | Consumer Advertiser Fixed
|
2366
|
+
| Surplus Surplus Cost
|
2367
|
+
| Impact of
|
2368
|
+
| +1% -$300m -$2.450m
|
2369
|
+
| Telecom Act
|
2370
|
+
blank |
|
2371
|
+
|
|
2372
|
+
text | Table 3.3: Total cost savings created by mergers after 1996, compared to demand
|
2373
|
+
| effects from Jeziorski (2010)
|
2374
|
+
blank |
|
2375
|
+
text | table suggests this cost is about the yearly revenue of a big station. Such a huge
|
2376
|
+
| repositioning cost can justify some of the behavior found when analyzing the merger
|
2377
|
+
| probabilities; namely, stations tend to stay away from purchasing the formats they
|
2378
|
+
| already have. If the format switching costs were low, the optimal thing to do would
|
2379
|
+
| be to purchase stations close to your portfolio to get rid of competition and rebrand
|
2380
|
+
| them to avoid cannibalization. However, if the switching costs are high, it might be
|
2381
|
+
| optimal to avoid paying them and purchase a station further away. The previous
|
2382
|
+
| subsection and Sweeting (2008) presest the evidence of the latter type of behavior,
|
2383
|
+
| reinforcing the finding of high switching cost estimates.
|
2384
|
+
blank |
|
2385
|
+
text | Market Los Angeles Knoxville Bismarck
|
2386
|
+
| Switching cost $27m $1.5m $0.2m
|
2387
|
+
blank |
|
2388
|
+
|
|
2389
|
+
text | Table 3.4: Format switching cost for chosen markets
|
2390
|
+
meta | CHAPTER 3. COST SYNERGIES FROM MERGERS 56
|
2391
|
+
blank |
|
2392
|
+
|
|
2393
|
+
|
|
2394
|
+
title | 3.6 Conclusions
|
2395
|
+
text | This paper proposed a new estimator of a production cost curve that enables the
|
2396
|
+
| identification of cost synergies from mergers. The estimation uses inequalities rep-
|
2397
|
+
| resenting an equilibrium of a dynamic game with endogenous mergers and product
|
2398
|
+
| repositioning decisions.
|
2399
|
+
| The biggest advantage of this estimator is that it enables the identification of
|
2400
|
+
| the cost curve just from merger decisions, without using cost data. Since reliable
|
2401
|
+
| cost data is very hard to obtain, the cost side analysis of mergers was very hard to
|
2402
|
+
| perform. This method is able to solve this problem, and provides a powerful tool for
|
2403
|
+
| policy makers to improve their merger assessments.
|
2404
|
+
| Since the proposed method is based on a fully dynamic framework, it additionally
|
2405
|
+
| solves many of the problems of static merger analysis. First of all, endogenizing the
|
2406
|
+
| merger decision allows for sample selection on unobservables in the estimation and
|
2407
|
+
| correcting for the fact that only the most profitable mergers are carried out. Moreover,
|
2408
|
+
| I allow for follow-up mergers and merger waves. Additionally, endogenizing product
|
2409
|
+
| characteristics enables correction for post-merger product repositioning.
|
2410
|
+
| The estimator belongs to a class of indirect estimators proposed by Hotz, Miller,
|
2411
|
+
| Sanders, and Smith (1994) and Bajari, Benkard, and Levin (2004). Therefore, it
|
2412
|
+
| shares all the benefits of those estimators, such as conceptual simplicity of imple-
|
2413
|
+
| mentation and computational feasibility, because it avoids the computation of an
|
2414
|
+
| equilibrium. However, it also shares their downsides, such as a loss in efficiency.
|
2415
|
+
| The estimator was applied to analyze the cost side benefits of a deregulation of the
|
2416
|
+
| U.S. radio industry. It turns out that the consolidation wave in that industry between
|
2417
|
+
| 1996 and 2006 provided substantial cost synergies. These amounted to about 2 billion
|
2418
|
+
| dollars per, year and constitute about 10% of industry revenue. Such benefits are an
|
2419
|
+
| order of magnitude larger than potential losses in advertiser welfare found by Jeziorski
|
2420
|
+
| (2010). This provides a significant argument for the supporters of a deregulation bill,
|
2421
|
+
| and serves as an example of how cost curve estimation can provide additional insights
|
2422
|
+
| supplementing traditional merger analysis.
|
2423
|
+
meta | Appendix A
|
2424
|
+
blank |
|
2425
|
+
title | Additional material to Chapter 2
|
2426
|
+
blank |
|
2427
|
+
title | A.1 Advertising demand: Micro foundations
|
2428
|
+
text | In this section I present a model that rationalizes inverse demand for advertising (2.5)
|
2429
|
+
| Assume that there are A types of advertisers. Each type a ∈ A targets a certain
|
2430
|
+
| demographic group(s) da . Let γ2 be a total mass of advertisers and ASa be a share of
|
2431
|
+
| advertisers of type a in market m. Advertisers are also heterogeneous in their value
|
2432
|
+
| of the ad slot in format f , and I assume that those values are distributed uniformly
|
2433
|
+
| on the interval [0, γ1f ]. An advertiser of type a gets utility only if a listener of type da
|
2434
|
+
| hears an ad. To compute the exact expected value of an advertising slot, advertisers
|
2435
|
+
| need to know the demographic composition of each station in the market. Because
|
2436
|
+
| advertisers are small, and such detailed data is not offered by Arbitron, it seems
|
2437
|
+
| unlikely that they would be able to do that. Instead, I assume that they approximate
|
2438
|
+
| those calculations using publicly available data contained in Arbitron’s Radio Today
|
2439
|
+
| publications. These publications provide nation-wide conditional probabilities rf |a
|
2440
|
+
| of a consumer of type da choosing format f conditional on listening to the radio.
|
2441
|
+
| Advertisers take these conditional probabilities as given and compute the market
|
2442
|
+
| specific probabilities of obtaining correct listeners when advertising in each format.
|
2443
|
+
| Such computations can be done by Bayes’ Rule, i.e.
|
2444
|
+
blank |
|
2445
|
+
text | rf |a LSa
|
2446
|
+
| ra|f =
|
2447
|
+
| rf
|
2448
|
+
blank |
|
2449
|
+
meta | 57
|
2450
|
+
| APPENDIX A. ADDITIONAL MATERIAL TO CHAPTER 2 58
|
2451
|
+
blank |
|
2452
|
+
|
|
2453
|
+
text | P
|
2454
|
+
| where rf = c rf |a LSa and LSa is the population share of demographic group da ,
|
2455
|
+
| which is assumed to be known to the advertiser. Having listeners’ distributions ra|f
|
2456
|
+
| and station ratings rj (available on Arbitron’s website) at hand, advertisers compute
|
2457
|
+
| the probability of successful targeting at station j to be rj ra|f , where f is a format of
|
2458
|
+
| station j.
|
2459
|
+
| Radio stations quote costs-per-point CPPaf individually for each advertiser type
|
2460
|
+
| and format. Advertisers decide if they want to purchase advertising after observing
|
2461
|
+
| the CPPs and station ratings. Because advertisers are small and likely do not have
|
2462
|
+
| much market power over radio station owners, I assume that they are price and rating
|
2463
|
+
| takers1 . Advertisers can purchase advertising from several stations at once; however,
|
2464
|
+
| I assume away any potential complementarities.
|
2465
|
+
| In equilibrium, advertisers purchase advertising as long as their expected value is
|
2466
|
+
| above price. Let qa be the amount of advertising purchased by advertisers of type a.
|
2467
|
+
| A marginal advertiser must be indifferent between purchasing advertising or not, so
|
2468
|
+
| the clearing per-listener prices are given by
|
2469
|
+
blank |
|
2470
|
+
text | 1
|
2471
|
+
| CPPaf = γ1f ra|f 1− qa
|
2472
|
+
| γ2 ASa
|
2473
|
+
blank |
|
2474
|
+
text | Given the clearing prices CPPaf , advertisers are indifferent when choosing between
|
2475
|
+
| formats, so I assume that advertising is purchased proportionally to the target lis-
|
2476
|
+
| P
|
2477
|
+
| teners’ tastes i.e. qa = ASa f rf |a qf . If I make the simplifying assumption that
|
2478
|
+
| ASa ≈ LSa , then the arrival probability of an advertiser of type a at a station of
|
2479
|
+
| format f would be equal to ra|f . Therefore, expected per-listener price in format f is
|
2480
|
+
| given by
|
2481
|
+
| !
|
2482
|
+
| X
|
2483
|
+
| 2 1 X
|
2484
|
+
| CPPf = (ra|f ) γ1f 1 − rf 0 |a qf 0 =
|
2485
|
+
| a
|
2486
|
+
| γ2 f 0
|
2487
|
+
| ! !−1
|
2488
|
+
| X 1 X X X
|
2489
|
+
| = γ1f (ra|f )2 1 − qf 0 (ra|f )2 (ra|f )2 rf 0 |a .
|
2490
|
+
| a
|
2491
|
+
| γ 2
|
2492
|
+
| f0 a a
|
2493
|
+
blank |
|
2494
|
+
meta | 1
|
2495
|
+
text | This assumption is is motivated by the fact that about 75% is purchased by small local firms.
|
2496
|
+
| Such firms’ advertising decisions are unlikely to influence prices and station ratings in the short run.
|
2497
|
+
meta | APPENDIX A. ADDITIONAL MATERIAL TO CHAPTER 2 59
|
2498
|
+
blank |
|
2499
|
+
|
|
2500
|
+
|
|
2501
|
+
text | Finally, I obtain Equation (2.5)
|
2502
|
+
| !
|
2503
|
+
| X
|
2504
|
+
| A
|
2505
|
+
| pj = θ1f rj 1 − θ2A ωfmf 0 qf 0
|
2506
|
+
| f 0 ∈F
|
2507
|
+
blank |
|
2508
|
+
|
|
2509
|
+
text | 2 −1 1
|
2510
|
+
| P P 2 A
|
2511
|
+
| by setting ωjj 0 = a (ra|f ) a (ra|f ) rf 0 |a , θ2 = γ2 and assuming that θ1 =
|
2512
|
+
| γ1f a (ra|f )2 for all f . The last assumption basically means that niche formats (with
|
2513
|
+
| P
|
2514
|
+
blank |
|
2515
|
+
text | listenership concentrated in one demographic bin) are less profitable for advertisers
|
2516
|
+
| than general interest formats.
|
2517
|
+
| The presented model is only one of a number of ways to rationalize the weighted
|
2518
|
+
| price equation (2.5) in which competition between formats is channeled though demo-
|
2519
|
+
| graphics. Other possibilities include: a local monopoly in which each advertiser type
|
2520
|
+
| draws utility only from advertising on one particular station, and a format-monopoly
|
2521
|
+
| in which each advertiser type targets only one format.
|
2522
|
+
blank |
|
2523
|
+
|
|
2524
|
+
title | A.2 Numerical considerations
|
2525
|
+
text | To solve the optimization problem (2.12), I used a version of the Gauss-Newton
|
2526
|
+
| method implemented in the commercial solver KNITRO. Using this state-of-the-art
|
2527
|
+
| solver avoids certain convergence problems that are common to many non-linear es-
|
2528
|
+
| timators.
|
2529
|
+
| The iteration step of the KNITRO solver requires computing constraints, a Jaco-
|
2530
|
+
| bian of the constraint, and an inverse of the inner product of this Jacobian (used to
|
2531
|
+
| compute the approximate Hessian of the Lagrangian). The objective function and its
|
2532
|
+
| Jacobian come essentially for free because of their simple nature.
|
2533
|
+
| To compute the constraints and their Jacobian, I employed a piece of highly opti-
|
2534
|
+
| mized parallel C code. This allows the use a fairly large dataset (about 42,000 obser-
|
2535
|
+
| vations) and many draws (500 draws from Normal and CPS per date/market) when
|
2536
|
+
| computing the constraints. When parallelizing the code, I was careful to maintain
|
2537
|
+
| independence of the draws within and between threads. To achieve this, I imple-
|
2538
|
+
| mented a version of a pseudo-random number generator (described in (L’Ecuyer and
|
2539
|
+
meta | APPENDIX A. ADDITIONAL MATERIAL TO CHAPTER 2 60
|
2540
|
+
blank |
|
2541
|
+
|
|
2542
|
+
|
|
2543
|
+
text | Andres 1997). This generator enables us to create a desired number of independent
|
2544
|
+
| pseudo-random feeds for each thread.
|
2545
|
+
| One iteration of the solver takes about two to three minutes on an 8-Core 3Ghz
|
2546
|
+
| Intel Xeon processor and uses about 4GB of memory. About 90% of this computation
|
2547
|
+
| is the inversion of a Hessian estimator within the KNITRO solver. This inversion
|
2548
|
+
| cannot be parallelized because it is done inside the solver, without the user’s control.
|
2549
|
+
meta | Appendix B
|
2550
|
+
blank |
|
2551
|
+
title | Additional material to Chapter 3
|
2552
|
+
blank |
|
2553
|
+
title | B.1 Estimation without acquisition prices
|
2554
|
+
text | r
|
2555
|
+
| In case the pricing function P̂jk cannot be estimated in the first state because of data
|
2556
|
+
| constraint, one could employ a bargaining model for infer it. Suppose one employs
|
2557
|
+
| a parametrization P̂ (ω|θP ). For an initial value of parameters θP0 one could compute
|
2558
|
+
| a surplus from acquisition of the product j by an owner k using simulated V̂kt and
|
2559
|
+
| V̂kt0 where k 0 is the current owner of product j. Then using a bargaining model
|
2560
|
+
| one could infer prices and fit a new parametrization θP1 . If repeating this procedure
|
2561
|
+
| leads to convergence, then obtain a parametrization θ̂P and value functions V̂kt that
|
2562
|
+
| are consistent with eachother. The detailed description of this procedure is given
|
2563
|
+
| in the Algorithm 1. The big dowside of this approch is that one needs resolve this
|
2564
|
+
| procedure for any set of cost parameters and cannot take advantage of linearing
|
2565
|
+
| of the value function. It makes the procedure infeasible to use for large datasets
|
2566
|
+
| because of computational burden. However, given the rapid hardware development
|
2567
|
+
| it is reasonable to think it it would be feasible in the near future.
|
2568
|
+
blank |
|
2569
|
+
|
|
2570
|
+
|
|
2571
|
+
|
|
2572
|
+
meta | 61
|
2573
|
+
| APPENDIX B. ADDITIONAL MATERIAL TO CHAPTER 3 62
|
2574
|
+
blank |
|
2575
|
+
|
|
2576
|
+
|
|
2577
|
+
text | Algorithm 1: Estimator without price data
|
2578
|
+
| Take any θP0 ;
|
2579
|
+
| Let r = 0;
|
2580
|
+
| repeat
|
2581
|
+
| Simulate the value functions V̂ r using pricing process P̂ (ω|θPr );
|
2582
|
+
| Compute surplus from any acquisition using the simulated value functions;
|
2583
|
+
| Compute acquisition prices P̂jm by applying any bargaining game;
|
2584
|
+
| Fit new parameters θPr+1 using P̂jm ;
|
2585
|
+
| until convergence of θPr ;
|
2586
|
+
blank |
|
2587
|
+
|
|
2588
|
+
title | B.2 Radio acquisition and format switching algo-
|
2589
|
+
| rithms
|
2590
|
+
text | This section of the appendix contains a detailed flows of the algorithms used to
|
2591
|
+
| simulate the value function from section 3.5.
|
2592
|
+
| Algorithm 2: Merger algorithm
|
2593
|
+
| Let ω1r = sr ;
|
2594
|
+
| foreach firm k in a sequence I(sr ) do
|
2595
|
+
| Let J−k be a set of stations not owned by k sorted by ξjr ;
|
2596
|
+
| foreach station j in J−k do
|
2597
|
+
| r
|
2598
|
+
| Set purchase price Pjk = P̄ m ;
|
2599
|
+
| M
|
2600
|
+
| Compute acquisition probability Prob[ (ω r , dt );
|
2601
|
+
| k
|
2602
|
+
| Draw a random number u from U [0, 1];
|
2603
|
+
| M
|
2604
|
+
| if u ≤ Prob
|
2605
|
+
| [ then
|
2606
|
+
| Increase Arold owner by β r−t Pjk
|
2607
|
+
| r
|
2608
|
+
| ;
|
2609
|
+
| r r−t r
|
2610
|
+
| Decrease Ak by β Pjk ;
|
2611
|
+
| Update ωkr for acqusition;
|
2612
|
+
| Increase Bkr by β r−t E[φ|acquisition];
|
2613
|
+
| end
|
2614
|
+
| end
|
2615
|
+
| r
|
2616
|
+
| Let ωk+1 = ωkr ;
|
2617
|
+
| end
|
2618
|
+
meta | APPENDIX B. ADDITIONAL MATERIAL TO CHAPTER 3 63
|
2619
|
+
blank |
|
2620
|
+
|
|
2621
|
+
|
|
2622
|
+
text | Algorithm 3: Format switching algorithm
|
2623
|
+
| Let ω̃1r = ωK+1
|
2624
|
+
| r
|
2625
|
+
| ;
|
2626
|
+
| foreach firm k in a sequence I(sr ) do
|
2627
|
+
| Let Jk be a set of stations owned by k sorted by ξjr ;
|
2628
|
+
| foreach station j in Jk do
|
2629
|
+
| R
|
2630
|
+
| [ k (ω̃ r , dr );
|
2631
|
+
| Compute repositioning probabilities Prob k
|
2632
|
+
| Simulate the future characteristic fjr+1 ;
|
2633
|
+
| Increase Ckr by β r−t E[ψ|fjr ];
|
2634
|
+
| if the fj changed then
|
2635
|
+
| Update ω̃kr ;
|
2636
|
+
| Remember the repositioning for a computation of Dkr ;
|
2637
|
+
| end
|
2638
|
+
| end
|
2639
|
+
| tm
|
2640
|
+
| Let ω̃k+1 = ω̃ktm ;
|
2641
|
+
| end
|
2642
|
+
blank |
|
2643
|
+
|
|
2644
|
+
|
|
2645
|
+
|
|
2646
|
+
title | B.3 Policy function covariates
|
2647
|
+
text | This section of the appendix contains tables of covariates used in the first stage in
|
2648
|
+
| the estimation in section 3.5.
|
2649
|
+
| Format switching strategy
|
2650
|
+
| PUR Dummy equal to 1 if station was recently purchased
|
2651
|
+
| FM AM/FM dummy, equals to 1 if considered station is FM
|
2652
|
+
| FORMAT Past format dummies
|
2653
|
+
| PORT F Number of stations owner in format F
|
2654
|
+
| PORT COMPJ F Number of stations competitor J owns in format F, competitors of
|
2655
|
+
| ranking 4 or higher are pooled
|
2656
|
+
| XI PORT F Average quality of stations owner in format F
|
2657
|
+
| XI PORT COMPJ F Average quality of stations competitor J owns in format F, competi-
|
2658
|
+
| tors of ranking 4 or higher are pooled
|
2659
|
+
| - Demographic characteristics of the market
|
2660
|
+
blank |
|
2661
|
+
text | Table B.1: Covariates for the format switching strategy multinomial logic regression.
|
2662
|
+
meta | APPENDIX B. ADDITIONAL MATERIAL TO CHAPTER 3
|
2663
|
+
text | Purchase strategy
|
2664
|
+
| OWNER1. . . OWNER4 Dummies that are equal to the ranking of the player in terms of total market share of
|
2665
|
+
| owned stations. If ranking is lower that 4 we activate the fourth dummy
|
2666
|
+
| PAST OWNER1. . . PAST OWNER4 Ranking of the previous owner of the station amongst the competitors.
|
2667
|
+
| TRIAL Describes how many stations did this player considered to purchase already this period.
|
2668
|
+
| For explanation of sequential purchase decision process look in Section 3.5.3
|
2669
|
+
| PUR0. . . PUR3 Dummies describing number of stations already purchased
|
2670
|
+
| FORMAT Number of stations owned in the format of considered station
|
2671
|
+
| FORMAT COMP1. . . FORMAT COMP4 Number of stations owned by competitors in the considered station, by ranking.
|
2672
|
+
| FORMAT COMP4 are pooled competitors with ranking of 4 or higher
|
2673
|
+
| FM AM/FM dummy, equals to 1 if considered station is FM
|
2674
|
+
| PORT F Number of stations owner in format F
|
2675
|
+
| PORT COMPJ F Number of stations competitor J owns in format F, competitors of ranking 4 or higher
|
2676
|
+
| are pooled
|
2677
|
+
| XI Average quality of stations owned in the format of considered station
|
2678
|
+
| XI COMP1. . . XI COMP4 Average quality of stations owned by competitors in the considered station, by ranking.
|
2679
|
+
| XI COMP4 are pooled competitors with ranking of 4 or higher
|
2680
|
+
| XI PORT F Average quality of stations owner in format F
|
2681
|
+
| XI PORT COMPJ F Average quality of stations competitor J owns in format F, competitors of ranking 4 or
|
2682
|
+
| higher are pooled
|
2683
|
+
| - Dummies of the format of considered station interacted with demographic characteris-
|
2684
|
+
| tics of the market
|
2685
|
+
blank |
|
2686
|
+
text | Table B.2: Covariates for the purchase strategy logic regression.
|
2687
|
+
blank |
|
2688
|
+
|
|
2689
|
+
|
|
2690
|
+
|
|
2691
|
+
meta | 64
|
2692
|
+
| APPENDIX B. ADDITIONAL MATERIAL TO CHAPTER 3 65
|
2693
|
+
blank |
|
2694
|
+
|
|
2695
|
+
|
|
2696
|
+
title | B.4 First stage estimates: Dynamic model
|
2697
|
+
blank |
|
2698
|
+
text | Top 1 Owner Top 2 Owner Top 3 Owner
|
2699
|
+
| Buyer 0.5127 0.3423 0.2608
|
2700
|
+
| Seller −0.3772 −0.2792 −0.0257
|
2701
|
+
blank |
|
2702
|
+
text | Table B.3: Station purchase policy estimates - buyer/seller dummies
|
2703
|
+
blank |
|
2704
|
+
|
|
2705
|
+
|
|
2706
|
+
text | Estimator
|
2707
|
+
| PUR0 −2.6082
|
2708
|
+
| PUR1 0.7548
|
2709
|
+
| PUR2 0.4279
|
2710
|
+
| PUR3 0.2463
|
2711
|
+
| FORMAT −0.0534
|
2712
|
+
| FORMAT COMP1 −0.0038
|
2713
|
+
| FORMAT COMP2 −0.0556
|
2714
|
+
| FORMAT COMP3 0.0728
|
2715
|
+
| FORMAT COMP4 −0.0428
|
2716
|
+
| FM 0.0151
|
2717
|
+
| STATION XI −0.1069
|
2718
|
+
| XI 0.0596
|
2719
|
+
| XI COMP1 0.0270
|
2720
|
+
| XI COMP2 0.0712
|
2721
|
+
| XI COMP3 0.0767
|
2722
|
+
| XI COMP4 −0.0117
|
2723
|
+
blank |
|
2724
|
+
text | Table B.4: Station purchase policy estimates - other variables
|
2725
|
+
meta | APPENDIX B. ADDITIONAL MATERIAL TO CHAPTER 3 66
|
2726
|
+
blank |
|
2727
|
+
|
|
2728
|
+
|
|
2729
|
+
|
|
2730
|
+
text | AC Rock CHR Urban News Country Spanish Other
|
2731
|
+
| Alt. Talk
|
2732
|
+
| PURCHASE 0.30 −0.14 0.04 −0.07 0.05 0.03 −0.23 −0.22
|
2733
|
+
| FM 1.26 1.54 1.35 1.06 −0.25 1.31 0.56 0.85
|
2734
|
+
| AC 3.70 −0.47 −0.34 −0.86 −0.43 0.37 −0.66 −0.44
|
2735
|
+
| Rock −0.27 4.41 −0.58 −0.18 −0.10 0.48 −0.32 −0.21
|
2736
|
+
| CHR −0.24 −0.42 4.38 −0.06 −0.19 0.00 −0.14 −0.35
|
2737
|
+
| Urban −0.49 0.05 −0.35 4.06 −0.17 0.48 −0.15 −0.22
|
2738
|
+
| Alt.
|
2739
|
+
| News −1.00 −0.84 −0.82 −1.29 3.89 0.25 −0.80 −0.93
|
2740
|
+
| Talk
|
2741
|
+
| Country −1.14 −1.01 −1.06 −1.35 −0.63 4.76 −0.73 −1.15
|
2742
|
+
| Spanish −1.61 −1.45 −1.30 −1.61 −1.20 −0.29 3.10 −1.42
|
2743
|
+
| Other −0.89 −1.07 −1.31 −1.27 −0.86 0.00 −1.22 3.02
|
2744
|
+
| Dark −2.18 −2.42 −2.50 −2.62 −1.61 −0.72 −1.60 −1.31
|
2745
|
+
blank |
|
2746
|
+
text | Table B.5: Format switching policy estimates - format dynamics
|
2747
|
+
blank |
|
2748
|
+
|
|
2749
|
+
|
|
2750
|
+
|
|
2751
|
+
text | AC Rock CHR Urban News Country Spanish Other
|
2752
|
+
| Alt. Talk
|
2753
|
+
| Age 12-17 0.00 −0.27 0.04 −0.50 −0.33 −0.67 −0.50 −0.32
|
2754
|
+
| Age 18-24 0.00 −0.31 −0.26 −0.69 0.31 0.00 −0.42 −0.36
|
2755
|
+
| Age 25-34 −0.54 0.00 0.02 −0.37 −0.14 −0.99 −0.06 −0.32
|
2756
|
+
| Age 35-44 −0.48 −0.00 −0.20 −0.32 −0.06 −1.17 −0.42 −0.08
|
2757
|
+
| Age 45-49 −0.46 0.00 −0.93 −0.61 0.23 −0.89 −0.81 −0.09
|
2758
|
+
| Age 50-54 −0.44 −0.41 −1.36 −0.67 0.42 −0.82 −0.62 −0.09
|
2759
|
+
| Age 55-64 0.00 −0.64 −1.49 −0.68 0.34 −0.77 −0.42 −0.16
|
2760
|
+
| Gender −0.41 −0.23 −0.43 −0.54 −0.00 −0.84 −0.34 −0.21
|
2761
|
+
| Some HS −0.38 −0.49 −0.41 −0.33 −0.27 −0.13 0.06 0.02
|
2762
|
+
| HS Grad. 0.19 0.00 −0.52 −0.32 −0.84 −0.29 −0.90 −0.19
|
2763
|
+
| Some College −0.12 −0.34 −0.72 −0.70 0.23 −0.45 −0.45 −0.03
|
2764
|
+
| Income 0-25k −0.16 −0.83 −0.32 −0.13 −0.35 −0.43 −0.52 −0.03
|
2765
|
+
| Income 25k-50k −0.06 −0.54 0.14 −0.39 −0.33 −0.34 −0.13 0.00
|
2766
|
+
| Income 50k-75k −0.07 −0.02 −0.54 −0.22 0.21 −0.39 −1.10 −0.17
|
2767
|
+
| Black −0.99 −0.58 0.00 1.25 −0.44 −1.11 −0.54 −0.26
|
2768
|
+
| Hispanic −0.55 0.19 −0.36 −0.06 −0.49 −0.20 2.42 −0.56
|
2769
|
+
blank |
|
2770
|
+
text | Table B.6: Format switching policy estimates - current demographics
|
2771
|
+
meta | APPENDIX B. ADDITIONAL MATERIAL TO CHAPTER 3 67
|
2772
|
+
blank |
|
2773
|
+
|
|
2774
|
+
|
|
2775
|
+
|
|
2776
|
+
text | AC Rock CHR Urban News Country Spanish Other
|
2777
|
+
| Alt. Talk
|
2778
|
+
| Age 12-17 0.00 0.00 0.00 6.69 −5.06 0.00 9.33 0.00
|
2779
|
+
| Age 18-24 −7.73 3.44 17.89 0.00 0.00 −12.76 0.00 6.06
|
2780
|
+
| Age 25-34 4.29 0.00 0.00 0.00 −1.35 5.23 4.32 −3.59
|
2781
|
+
| Age 35-44 2.65 0.00 5.23 1.83 −4.83 0.00 2.67 1.73
|
2782
|
+
| Age 45-49 −3.31 0.00 9.04 0.00 2.31 −3.45 −2.98 2.59
|
2783
|
+
| Age 50-54 −3.27 0.00 −2.60 −1.95 1.63 0.04 −3.37 0.00
|
2784
|
+
| Age 55-64 −4.57 −3.19 −7.50 0.00 7.73 0.00 −1.12 0.00
|
2785
|
+
| Gender 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
|
2786
|
+
| Some HS −0.03 −0.06 1.14 0.33 1.08 −0.06 −0.34 −1.09
|
2787
|
+
| HS Grad. −0.56 0.00 1.18 0.90 0.84 −0.16 −0.31 −0.47
|
2788
|
+
| Some College −0.40 −0.64 0.50 0.24 0.36 0.00 1.33 −0.89
|
2789
|
+
| Income 0-25k 0.43 0.37 0.05 0.20 0.32 0.33 −0.63 0.18
|
2790
|
+
| Income 25k-50k −0.01 0.61 −0.19 −0.49 0.18 −0.36 −1.11 −0.44
|
2791
|
+
| Income 50k-75k 0.32 0.64 0.51 −0.02 −0.01 −0.01 0.17 0.41
|
2792
|
+
| Black 4.09 −21.64 −49.49 3.51 0.00 8.71 0.00 5.16
|
2793
|
+
| Hispanic −2.86 −1.55 −3.64 0.77 −0.24 −1.65 4.84 0.00
|
2794
|
+
blank |
|
2795
|
+
text | Table B.7: Format switching policy estimates - demographic dynamics
|
2796
|
+
title | Bibliography
|
2797
|
+
blank |
|
2798
|
+
ref | Ackerberg, D. A., and M. Rysman (2005): “Unobserved Product Differentia-
|
2799
|
+
| tion in Discrete-Choice Models: Estimating Price Elasticities and Welfare Effects,”
|
2800
|
+
| RAND Journal of Economics, 36(4), 771–788.
|
2801
|
+
blank |
|
2802
|
+
ref | Arcidiacono, P., and R. Miller (2010): “CCP Estimation of Dynamic Discrete
|
2803
|
+
| Choice Models with Unobserved Heterogeneity,” Discussion paper, Duke Univer-
|
2804
|
+
| sity.
|
2805
|
+
blank |
|
2806
|
+
ref | Argentesi, E., and L. Filistrucchi (2007): “Estimating market power in a two-
|
2807
|
+
| sided market: The case of newspapers,” Journal of Applied Econometrics, 22(7),
|
2808
|
+
| 1247–1266.
|
2809
|
+
blank |
|
2810
|
+
ref | A.Richter, W. (2006): Radio: Complete Guide to the Industry. Peter Lang Pub-
|
2811
|
+
| lishing.
|
2812
|
+
blank |
|
2813
|
+
ref | Armstrong, M. (2006): “Competition in Two-Sided Markets,” The RAND Journal
|
2814
|
+
| of Economics, 37(3), 668–691.
|
2815
|
+
blank |
|
2816
|
+
ref | Bain, J. (1968): Industrial organization. John Wiley & Sons.
|
2817
|
+
blank |
|
2818
|
+
ref | Bajari, P., C. L. Benkard, and J. Levin (2004): “Estimating Dynamic Models
|
2819
|
+
| of Imperfect Competition,” NBER Working Papers 10450, National Bureau of
|
2820
|
+
| Economic Research, Inc.
|
2821
|
+
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|
2822
|
+
ref | Benkard, C. L., A. Bodoh-Creed, and J. Lazarev (2008): “Simulating the
|
2823
|
+
| Dynamic Effects of Horizontal Mergers: U.S. Airlines,” Discussion paper, Stanford
|
2824
|
+
| University.
|
2825
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+
blank |
|
2826
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+
meta | 68
|
2827
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+
| BIBLIOGRAPHY 69
|
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+
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|
2829
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+
|
|
2830
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+
|
|
2831
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+
ref | Berry, S., J. Levinsohn, and A. Pakes (1995): “Automobile Prices in Market
|
2832
|
+
| Equilibrium,” Econometrica, 63(4), 841–90.
|
2833
|
+
blank |
|
2834
|
+
ref | Berry, S. T. (1994): “Estimating Discrete-Choice Models of Product Differentia-
|
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+
| tion,” RAND Journal of Economics, 25(2), 242–262.
|
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|
+
blank |
|
2837
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+
ref | Berry, S. T., and J. Waldfogel (2001): “Do Mergers Increase Product Variety?
|
2838
|
+
| Evidence From Radio Broadcasting,” The Quarterly Journal of Economics, 116(3),
|
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|
+
| 1009–1025.
|
2840
|
+
blank |
|
2841
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+
ref | Brynjolfsson, E., Y. J. Hu, and M. D. Smith (2003): “Consumer Surplus in
|
2842
|
+
| the Digital Economy: Estimating the Value of Increased Product Variety at Online
|
2843
|
+
| Booksellers,” Manage. Sci., 49(11), 1580–1596.
|
2844
|
+
blank |
|
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+
ref | Bulow, J. I., J. D. Geanakoplos, and P. D. Klemperer (1985): “Multimar-
|
2846
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+
| ket Oligopoly: Strategic Substitutes and Complements,” The Journal of Political
|
2847
|
+
| Economy, 93(3), 488–511.
|
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+
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|
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+
ref | Chandra, A., and A. Collard-Wexler (2009): “Mergers in Two-Sided Markets:
|
2850
|
+
| An Application to the Canadian Newspaper Industry,” Journal of Economics &
|
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|
+
| Management Strategy, 18, 1045–1070.
|
2852
|
+
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|
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+
ref | CRA International (2007): “Expost Merger Review: An Evaluation of Three
|
2854
|
+
| Competition Bureau Merger Assessments,” Discussion paper, CRA International.
|
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+
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|
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+
ref | Deaton, A., and J. Muellbauer (1980): “An Almost Ideal Demand System,”
|
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