Price Discrimination and Competition in Two-Sided Markets: Evidence from the Spanish Local TV Industry

In this paper, we empirically test the relation between price discrimination and product market competition in a two-sided market environment using a new data set of Spanish local TV stations that provides information on subscription and advertising prices per station for 1996, 1999 and 2002. Due to changes in regulation during this period affecting the degree of local market competition, we use differences in concentration across cities and years to investigate the relation between competition and price discrimination practices in this setting. Consistent with our predictions, our findings suggest that a U-shaped relation between competition and price discrimination exists, where stations in less competitive markets are more likely to price discriminate. Finally, cable subscription fees and advertising prices are higher in more competitive markets which suggests that tougher competition may increase market segmentation through station differentiation, driving stations to charge higher uniform prices to more loyal customers. This may indicate that less price discrimination may be associated with lower consumer surplus in all markets. ∗Ricard Gil is an Assistant Professor at the Johns Hopkins Carey Business School. Email: [email protected]. Research Affiliate, SP-SP Center IESE, Barcelona (Spain). Daniel Riera-Crichton is an Assistant Professor at the Economics Department in Bates College.