The importance of multi-homing : merger implications in the digital newspaper market

Abstract

In this paper we analyse the choice of consumer prices and qualities and welfare implications from a merger in the digital newspaper market. In this market, the digital newspapers sell access to consumers and the attention of these consumers to advertisers. This media market has been extensively researched, mostly due to this two-sided nature, but most papers assume that the consumers buy one and only one variant of a good. However, a large share of the Norwegian population read two or more digital newspapers on an average day, a behavior referred to as multi-homing. We contribute to the existing literature by relaxing the assumption and allow for multi-homing. To assess the merger implications, we present two version of a theoretical model and compare across the two versions. Our main contribution is that we find greatly differing implications of a merger when consumers multi-home compared to when they buy access to only one digital newspaper. We find that a merger leads to increased average consumer price and quality provided when consumers buy access to only one digital newspaper. Moreover, even though consumers are strictly worse off, a merger can actually be welfare enhancing. Howbeit, when allowing for multi-homing consumers, we find that the competing digital newspapers are strategically independent on the consumer side of the market, while the merged digital newspapers will charge higher prices to the advertisers for the consumers they share. The competition flips to the other side of the market, leaving the consumers unaffected by a merger and letting the advertisers bear the burden. Still, as the digital newspapers extract the lost surplus of the advertisers, the total welfare is in fact left unaffected by a merger under multi-homing.