Competition and Vertical/Agglomeration Effects in Media Mergers: Bagging Bundle Benefits

Posted by Social Science Research Network

Competition and Vertical/Agglomeration Effects in Media Mergers: Bagging Bundle Benefits

By Bronwyn E. Howell (Victoria University of Wellington) & Petrus H Potgieter (University of South Africa)

Abstract:     Existing frameworks (such as used by the New Zealand Commerce Commission in its recent evaluation of the proposed merger between Sky Television and Vodafone) require, as a first step, the definition of the relevant markets affected by the merger or vertical integration activity. Historic precedents in the telecommunications sector have tended towards finding that vertical agglomeration effects when network operators integrate downstream into the provision of applications and services to end-consumers are harmful to competition.

Such Structure-Conduct-Performance methods of evaluating mergers and other aspects of market performance are problematic when the firm(s) concerned supply many different products, both together in various different bundle forms and separately as individual components. Defining the markets for (merger) analysis on the basis of only one of the components in a possible bundle that the (merged) firm may supply risks overlooking the complex interactions that occur on the demand side when consumers make their purchase decisions.

This is especially likely to be an issue in the supply of internet applications and content bundled with
broadband internet access. Consumers have heterogeneous prefere…

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