Pricing And Welfare Analysis Of Horizontal Mergers In Two-Sided Markets

Two-sided market theory is a newly emerging academic subject. It has been proved that there are structural differences between two-sided and one-sided market, and applying all the theories gained from the latter to the former will cause serious problems. This paper, witch proceeds with horizontal mergers in two-sided market and builds a mathematical model based on Linear City, gains some universal rules. It then takes Chinese net media as an example, using historical data and Difference-in-Differences method and time series regression to systematically analyze the pricing and welfare problem of horizontal mergers in Two-sided market. By theoretical and empirical study, the analysis of pricing and welfare of platform and social welfare before and after mergers, not only supplies an academic gap, but also gains some interesting results. The universal results say: (1)the platform needs bigger network externality sensitivity coefficient to achieve big profit after mergers; (2)the platform's profit is affected by both network externality sensitivity coefficient and inside transaction success ratio before mergers, and when after mergers, it is only determined by the former;(3)no matter mergers occur or not, network externality sensitivity coefficient goes negatively with the price level of the platform and positively affects the two-sided customers'net effect and the social welfare; (4)inside transaction success ratio affects the platform's profit and social welfare positively before mergers and negatively after mergers. The empirical results say: (1)the pricing strategies adopted by the sponsor of mergers are not remarkable influenced by mergers;(2)the horizontal mergers have little affect to the sponsor of mergers in the short run, but have positive and remarkable affect in the long run; (3)the participators of mergers in the year 2006 and around were mostly relatively small medias, so these mergers does not increase the industry concentration ratio; (4)the relatively high concentration ratio of Chinese net media industry does no good to the development of the industry and the social welfare, and the decreasing of the ratio leads to the development of the industry and optimization the social welfare, and we believe there is Long Tail Effect in Chinese net media industry. It is concluded that it is necessary, pressing and feasible to carry out the horizontal mergers inside Chinese net media industry.