Technology Shocks in Multi-Sided Markets: The Impact of Craigslist on Local Newspapers

Robert Seamans and Feng Zhu ()
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Feng Zhu: USC-Marshall School of Business

No 10-11, Working Papers from NET Institute

Abstract: Theories of multi-sided markets suggest that a platform’s pricing strategies on different sides of the market are closely linked, and in particular, an increase in competition on one side may lead to an increase in price on other sides. We empirically examine platforms’ pricing strategies by exploiting the gradual expansion of Craigslist, a website providing classified ads services, into local newspaper markets. We adopt a differences-in-differences approach by comparing the pricing strategies of local newspapers for which classified ads are likely to be a significant portion of their revenue to others before and after Craigslist’s entry. We find that these newspapers drop their classified ad rates significantly more after Craigslist’s entry. We also find that the impact of the entry of Craigslist propagates to other sides of the newspaper market. These newspapers increase their subscription rates relative to others, and consequently, their circulation also drops more. Finally, lower circulation also leads to lower display ad rates for these newspapers. Our study helps build an understanding of how incumbent media platforms respond to technologically disruptive entrants in multi-sided markets.

Keywords: two-sided markets; media markets; newspapers; platforms. (search for similar items in EconPapers)
JEL-codes: D43 K21 L13 L22 L82 L86 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2010-09
New Economics Papers: this item is included in nep-com and nep-cul
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (26)

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