The Limits of Media See-Saws: Ad-Funded Platform Mergers Can Harm Both Sides

Shiva Shekhar and Radostina Shopova

No 11768, CESifo Working Paper Series from CESifo

Abstract: We study the welfare effects of a merger between ad-funded platforms facing elastic consumer demand. We show that advertising fees as well as quality investment levels by the platforms fall post-merger. Interestingly, despite the lower advertising fees, advertisers may be worse off when their value of interacting with consumers is high enough. The intuition for this result is that the decrease in quality investments post-merger reduces overall consumer participation. Thus, studying innovation incentives is important in these ad-funded markets as the well-known surplus see-saw result may not hold making both sides of the markets worse while the merged entity emerges as the sole winner.

Keywords: Ad-funded platforms; two-sided markets; horizontal mergers; innovation; quality. (search for similar items in EconPapers)
JEL-codes: D42 D43 L12 L13 L22 L86 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11768

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