On the Profitability of Media Mergers

We examine the incentives for non-consolidating mergers in commercial media industries. In a model with differentiated media and products, it is shown that such a merger can be profitable since it gives merging media firms a bargaining advantage vis-àvis advertisers in the negotiations for advertising space. The extent to which this bargaining advantage yields profitable conditions for a merger depends on the extent of competition for audiences among media firms. In particular, higher levels of competition make media mergers more profitable. This result is in contrast to that implied by oligopoly models for traditional product markets, which suggest that mergers become less profitable for higher levels of competition.