2025/07/15 by Shiva Shekhar, Radostina Shopova
Business, Management and Accounting · Engineering · #Consumer Market Behavior and Pricing #Digital Platforms and Economics #ICT Impact and Policies
paper · doi:10.1016/j.econlet.2025.112465
openalex publication_date 2025/07/15 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/02
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.