Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/316882 
Year of Publication: 
2025
Series/Report no.: 
CESifo Working Paper No. 11768
Publisher: 
CESifo GmbH, Munich
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.
Subjects: 
Ad-funded platforms
two-sided markets
horizontal mergers
innovation
quality.
JEL: 
D42
D43
L12
L13
L22
L86
Document Type: 
Working Paper
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