Resale Price Maintenance and Competition in a Media Market:
The Case of Magazines *Hiroshi Ohashi†and Mitsuru Sunada ‡Abstract

This study investigates whether the Japanese magazine market in which resale price maintenance is acommon marketing practice, is competitive or cooperative, explicitly incorporating thetwo-sidedness of the market into the analytical framework. First, the demand functions on the readerside and the advertiser side are estimated using the unique panel data of the Japanese magazines
from 1992 to 2007. Using the estimated parameters, the price-cost margins on both sides underalternative supply models are calculated. In addition, we perform non-nested statistical tests to selectthe supply model which has the best fit to the data. The results show that the model of cooperation
on reader side and competition on advertiser side has a better fit to the data than other alternative
supply models.

Keywords: indirect network effect; media industry; resale price maintenance; two-sided market.
JEL Classifications: L14; L42; L82.

*

The earlier versions of this paper were presented at CLEA, EARIE, the Japan Fair Trade

Commission, Japan Productivity Center, Keio University, Kwansei Gakuin, University of Toyama,
Yokohama National University, and Yonsei University. We would like to express sincere gratitude to
the participants for their valuable and useful comments. The financial supports from theGrant-in-Aid for Scientific Research (KAKENHI: 23730242) and the Okawa Foundation are
gratefully acknowledged. As always, all remaining errors are due of ours.
†

Department of Economics, University of Tokyo.

‡

Corresponding author: Graduate School of Economics, Osaka Prefecture University.
11. Introduction
Resale price maintenance (RPM) has been at the heart of the recent debates in competition policy. 1
According to theoretical studies, RPM has pro-competitive effects, such as eliminating double
marginalization and free-riding, as is the case of other vertical restraints. 2 On the other hand, RPM
may facilitate cooperation among firms. For example, Jullien and Rey (2007) theoretically show that,
increasing price transparency among firms, RPM can facilitate collusion and reduce total welfare
when firms adopt it. Rey and Vergé (2010) point out another effect of RPM facilitating cooperative
behavior among manufactures. They develop the model in which rival manufactures distribute theirproducts through the same competing retailers, and show that RPM limits the competition at bothlevels (that is, manufactures and retailers), and it can generate industry-wide monopoly pricing.
Therefore, competitive effects of RPM in actual cases must be empirically examined on case-by-casebasis. However, the number of empirical works is relatively small. 3
This study investigates whether the Japanese magazine market in which RPM is a common
marketing practice, is competitive or cooperative. The Japanese Antimonopoly Act (AMA) prohibits
RPM in principle except for very special cases therefore RPM is nearly per-se-illegal in Japan. 4
However, the exceptions are copyrighted products, such as, books, magazines, newspapers,
gramophone records, pre-recorded music cassette tapes, and pre-recorded music compact discs.
RPM of these cultural products are exempted from the provisions of the AMA. 5 According to JFTC

1

In Leegin Creative Leather Products, Inc. v. PSKS, Inc. (127 S. Ct. 2705 (2007)), the US

Supreme Court overturned the per-se-illegal rule in Dr. Mills Medical Co. v. John D. Park & Sons
Co. (220 U.S. 373 (1911)) against the (minimum) resale price maintenance (RPM), and the Court
declare that both of the pro- and anti-competitive effects of RPM must be evaluated under therule-of-reason basis. For more details, see Graglia (2008), Komenda (2008), Doty (2008), andWarren (2008).
2

See, for example, Motta (2004) and Rey and Vergé (2008).

3

For example, Bonnet and Dubois (2010), Fishwick (2008), Gilligan (1986), Hersch (1994),

Ippolito and Overstreet (1996), and Ornstein and Hanssens (1987).
4

After the amendment of the Antimonopoly Act (AMA) in 2009, a surcharge duty is imposed on acompany repeatedly engaged in RPM in Japan. For more detail discussions about the enforcementon RPM by the JFTC, please refer Inoume (2007).
5

The Article 23-(4) of the AMA provides that the provisions of the AMA shall not apply tolegitimate acts performed by an entrepreneur who publishes copyrighted works or an entrepreneur
who sells such published copyrighted works, in order to fix and maintain the resale price thereofwith another entrepreneur who purchases such works. The JFTC has publicly announced thatcopyrighted works of the Article 23-(4) are above six products (Inoue (2007)).
2

(2008), in practice, almost all publishers adopt RPM in transaction of magazines: the Japanesemagazine market is an interesting case example for empirically investigating the effects of PRM on
market competition.
This study also pays attention to the nature of the magazine market: two-sidedness. As
pointed out by Evans (2003), the business model of magazine publication is a typical example ofplatform businesses, such as internet search engine (e.g. Google) and social networking services (e.g.
Facebook), recently getting much attention from practitioners as well as scholars. As is the case ofother medium, magazines internalize the indirect network effects between readers and advertisers:
publishers sell readers’ eye balls to advertisers. That is, advertisers prefer a magazine with large
circulations. Kaiser and Wright (2006) and Kaiser and Song (2009), an empirical studies on theGerman magazine market, reveal that readers in many magazine segments appreciate advertising,that is, they tend to prefer magazines with large advertisement, and they suggests that indirect
network effects play important role in magazine markets. However, the vertical structure of theindustry may cause similar inefficiency to double-marginalization because wholesalers and bookstores do not internalize the indirect network effects in their optimization. Therefore, RPM may
resolve inefficiency inherent in the magazine market.
Ferrari and Verboven (2012) study the role of restricted licensing under the presence ofimperfect payment scheme in the Belgian magazine market utilizing an empirical model offree/restricted entry. Their main focus is the effects of vertical controls on the size of distribution
network and, in their favored model, it is assumed that publishers are constrained to charge auniform wholesale price across markets in which demand and cost conditions varies. Therefore,publishers can only achieve the second-best equilibrium number of retail outlets. On the other hand,
our framework relies on Rey and Vergé (2010) and our main interest is the effects of vertical controls
on prices and competition. Although we do not consider variations in retail demand and costcondition across markets, we explicitly incorporate the two-sidedness of magazines which are notmodeled in Ferrari and Verboven (2012).
The analytical framework of this study depends on the empirical literatures in two
different fields: empirical studies of two-sided market and empirical studies of vertical structure
between manufactures and retailers. First, because the magazine market is potentially two-sided,
following Argentesi and Filistrucchi (2007), Filistrucchi, et al. (2011), Song (2011), and Rysman(2004), the demand models on both sides of the market (reader and advertiser) are estimated with theunique panel data of the Japanese magazines from 1992 to 2007, explicitly incorporating the indirect
network effects. 6 Then, utilizing the empirical frameworks of Bonnet and Dubois (2010) and6

Argentesi and Ivaldi (2007) for the Italian magazine market; Argentesi and Filistrucchi (2007) andFilistrucchi, et al. (2011) for the Italian news paper market; Clements and Ohashi (2005), and Corts
3

Villas-Boas (2007), we test whether the Japanese magazine market is competitive or cooperative,
given the fact that most publishers apply RPM. 7 More concretely, using the estimated demandparameters, the sets of price-cost margins on both sides of the market under alternative supply
models, competition or cooperation, are computed. After that, we perform non-nested statistical tests
in order to select the supply model which has the best fit to the data.
The estimation results of reader demand reveals that the indirect network effects from theadvertiser side to the reader side and the effects from the reader side to the advertiser side arepositive and crucial in the magazine choice behavior of readers and advertisers. Moreover, theresults of statistical tests of selecting supply models show that the model of cooperation on readerside and competition on advertiser one has a better fit to the data than other supply models.
Therefore, in the Japanese magazine market, publishers were cooperative on reader side, that is,
jointly maximized the total industry profit from magazine sales, but, on the advertiser side, they
competed with each other. To the authors’ knowledge, this study is the first empirical work directly
testing the relationship between RPM and market competition in a media market by utilizing a
structural approach.
The paper is organized as follows: the second section briefly describes the Japanesemagazine market, paying special attentions to the distribution system. In the third and fourth sections,the models of demand and supply sides are explained, respectively. In the fifth section, the test of
selecting alternative supply models is described. The sixth section describes the data and variable
construction. The seventh section provides the empirical results. Finally, the concluding remarks arepresented in the eighth section.

2. The Japanese magazine market
2.1 Overview
According to RIP (2009), the Japanese magazine market started to shrink after successful growth
until the mid-90s (see Figure 1). The total circulation of magazines reached its peak in 1997. Afterthen, the total circulation of magazines constantly decreased at the yearly rate of −2.6% on averageand Lederman (2009) for the US video game market; Dubois, et al. (2007) for the French academic
journal market; Kaiser and Wright (2006), Kaiser and Song (2009), and Song (2011) for the Germanmagazine market; Ohashi (2003) for the US VCR market; Rysman (2004) for the US yellow page
market; Wilbur (2008) for the US television market. Armstrong (2006) and Rochet and Tirole (2008)
are theoretically studies the pricing behavior in the two-sided market.
7

Bonnet and Dubois (2010) for the French bottled water market; Brenkers and Verboven (2006) for

the European car market; Sudihir (2001) for in the yogurt and peanut butter market; and Villas-Boas(2007) for the US yogurt market.
4

(−1.9% for monthly magazines and −3.9% for weekly magazines, respectively). In the end, the total
circulation in 2008 decreased to 71.67% of the peak (76.90% for monthly magazines and 62.47% forweekly magazines, respectively).

= Figure 1 =RIP (2008) explains the decline of the market by several factors. The first one is theincreasing competition with other medium, especially, the development of the Internet. The second isa decrease of points of sales due to the shutdown of small and medium size bookstores. The third
factor is the aging of the Japanese society: older people tend to not purchase magazines. 8
Despite of the market contraction, the average price of magazines increased even after
1997. The average increasing rate is 1.1% annual basis (0.6% for monthly magazines and 1.8% formonthly magazines, respectively), and the average price of 2008 was 11.92% higher than the
average price of 1997 (8.01% for monthly magazines and 20.91% for weekly magazines,
respectively). RIP (2009) explains the price increase by the surge of material prices. In addition, theincrease of publishing magazines with Furoku, supplemental items, was likely to be a source of theprice increase.
Advertisement in magazines shared a very small part of advertisement in mass-medium,
which accounted for about 60% of total advertisement expenditure in 2005, including medium otherthan mass-medium, such as direct mails, outdoor displays, the Internet, and so on. Generally,
advertising agencies are said to charge about 10% to 20% commission of advertising prices. 9
Figure 2 presents the several series of price indices: the solid line is the hedonic coverprice index, and the dashed line is the hedonic advertising price index. As is the case of Figure 1,
prices have been increasing even in the market contraction phase, that is, after 1998. On the other
hand, interestingly, the input prices, such as papers or inks, decreased after the late 90s.

= Figure 2 =8For example, according to JMPA (2009), the ratios of people over 65 years old within readers of

top 3 weekly general magazines, Shukan Gendai, Shukan Shincho, and Shukan Bunshun, are 3.3%,
12.6%, and 6.9%, respectively.
9

The Japanese advertising industry consist of several large firms and many small firms. According

to KIFA (2008), the number of establishments engaged in advertisement business is 9,370 in 2006.
The ratio of the total revenue of the largest five advertising agencies to the total advertisingexpenditure of the Japanese companies in 2005 is 49%, and the ratio of the largest thirty firms is65%, respectively.
52.2 Production
The production and distribution system of books and magazines in Japan consists of three verticallyrelated different sectors, that is, publishing, wholesale, and retailing. 10 The number of new book title
and the number of magazine titles are 77.417 and 3,644, respectively, in 2007. However, more than
three quarters of firms published ten items or less. Table 1 reports the number of publishers. The
number of publishers increased from 4,309 in 1990 to 4,612 in 1997. After that, along with themarket evolution, the number gradually decreased and it was 4,055 in 2007. On the other hand, thenumber of magazine publishers was somewhat stable compared to the total number of publishers,
and the number of magazine titles increased during the period from 1997 to 2007.
Among them, 95 publishers were the members of the Japan Magazine Publishers
Association (JMPA) in 2012. According to its website, JMPA is the only organization for magazine
publishing companies in Japan and over 80% of magazines circulation and sales in Japan assumes
the member companies. 11= Table 1 =2.3 Distribution
There are various distribution channels of books and magazines to consumers, but publishers
distribute about 70% of books and 80% of magazines using wholesalers. The wholesale sector ishighly concentrated. The number of book and magazine wholesalers, who were the members of theJapan Publication Wholesalers Association (JPWA) in 2006, is about thirty. The market share of thelargest two firms accounted for about 60%, and that of the largest three firms was 84% in 2006,
respectively. The ratio shows an upward tendency. Especially, the large two wholesalers regularly
have transacted with very large numbers of publishers and retailers: more than 2,500 publishers andmore than 10,000 bookstores.
On the other hand, the retail sector was fragmented. The number of bookstores was 34,233
establishments in 2004, and the more than 80% of them had a selling floor space of 250m2 or less.
The large sixteen bookstore chains owned about 2,000 establishments in 2006, and their sales
accounted for about 30% of the total sales of books and magazines. The convenience stores also sell
books and magazines, and they shared about 22% of transactions through wholesalers. In addition,

10

This subsection depends on JFTC (2008), JSPS (2010), KIFA (2008), RIP (1998-2009).

11

The aim and role of JMPA are to progress and promote of culture through publishing enterprise,

to contribute societal development, to ensure a free press and expression, and to help a sounddevelopment of magazine publication.
6the shopping of books and magazines via the Internet had been increasing among the Japanese
consumers: the estimated market size of online bookstores was about 72 billion JPY in 2006.
About 30% of books and the most of magazines (about 90%) were sold on consignment,that is, publishers distributed products to retailers through a wholesaler under the contracts that theymust repurchase dead stocks after a specified period passes. Retailers generally sold books andmagazines on RPM contracts with publishers. That is, RPM is a common marketing practice of
publishers. The margin for distribution sector in cover price is said to be 30% to 34%: 8% to 10% forwholesalers and 22% to 24% for retailers, respectively.

3. Demand
3.1 Reader
Following Argentesi and Filstrucchi (2007), Argentesi and Ivaldi (2007), Dubois, et al. (2007), andRysman (2004), we utilize a nested logit framework in order to model the consumers’ choice
behavior of magazines.
Magazines are grouped into G + 1 exhaustive and exclusive magazine categories: categoryg (= 1, 2, …, G) consists of Jgt magazines in year t (= 1, 2, …, T), and category 0 only consists of
not-purchasing any magazine (that is, one chooses an outside alternative media). It is assumed that
consumer i (= 1, 2, …, Nt) in year t purchase one of magazines, or does not purchase any magazine:
there are Σg Jgt + 1 alternative options for a consumer. The utility attained by consumer i in market tfrom purchasing magazine j is as follows:(1)

vijtx = α ln( p jt ) + β ln(a jt ) + z xjt γ + ξ jtx + ς it|g (σ ) + (1 − σ )εijtx ,where pjt and ajt is the cover price of magazine j and the total amount of advertising in magazine j inyear t, respectively. zxjt and ξxjt are observable and unobservable magazine characteristics. We assume
that ξxjt is a random variable with zero mean.
On the other hand, the utility from not purchasing any magazine is as follows:(2)

vix0t = δ0xt + ς it|0 (σ ) + (1 − σ )εix0t ,where δx0t is normalized to zero. ζit|g is an unobservable variable representing i’s preference for all
magazines, while εxijt is an unobservable random variable representing i’s preference for specificmagazine j. εxijt is assumed to be distributed the Type I extreme value and ζit|g is distributed such thatthe sum of the last two terms is also distributed the Type I extreme value.
The difference between the ordinary nested logit model and that of this study is that the
total amount of advertising in each magazine may affects the reader demand of that magazine. If
advertising in magazines is informative and attractive for readers, β should be positive. However, if
not, β will be zero, or even negative.
Berry (1994) shows that under the nested logit assumption we can express the log of the7

odds ratio between the probability of purchasing magazine j and that of purchasing no magazine as alinear function of price, total advertising, observable and unobservable magazine characteristics andconditional market share of magazine j within consumers who purchase one of available magazines,
as follows:(3)ln(s xjt ) − ln(s0xt ) = α ln( p jt ) + β ln(a jt ) + z xjt γ + σ ln(s xjt|g ) + ξ jtx ,where sjt|g is the market share or choice probability of magazine j conditional on purchasing amagazine in group g. α, β, γ, and σ are parameters to be estimated. 12
3.2 Advertiser
We utilize a simple logit specification for advertising demand model. As Argentesi and Filistrucchi(2007) stated, this specification requires two somewhat restrictive assumptions. The first assumption
is that potential advertisers have only single unit of demand for advertising. This assumption does
not support multi-homing of advertisers. The second assumption is that there is no congestion among
advertisers for purchasing an advertising slot of the same magazine. These are practical assumptions
because we cannot observe advertisers’ multi-homing behavior, and capacity constraints ofrespective magazines’ advertising slot.
It is assumed that advertiser k chooses one of Jt (= Σg Jgt) magazines for an advertisingoutlet, or does not choose any magazine (that is, one chooses an outside alternative media): there are
Jt + 1 alternative options for an advertiser. The utility attained by advertiser k (= 1, 2, …, Kt) in year tfrom purchasing advertising slot in magazine j is as follows:(4)v ajkt = ρ ln(q jt ) + λ ln( x jt ) + z ajt θ + ξ ajt + ε ajkt ,where qjt and xjt is an price of advertising in magazine j and total circulation of magazine j in year t,
respectively. zajt and ξajt are observable and unobservable magazine characteristics. We assume that
ξajt is a random variable with zero mean.
On the other hand, the utility from not purchasing any magazine is as follows:(5)

via0t = δ0at + εia0t ,where δa0t is normalized to zero. εajkt is an unobservable random variable representing i’s preference
for specific magazine j, and it is assumed to be distributed the Type I extreme value.
As is the case of the reader side, the difference between the ordinary logit model and thatof this study is that the total circulation of each magazine may affects the advertising demand. If
circulation of magazines is attractive for advertisers, γ should be positive. However, if not, γ will be
zero, or even negative.
12

The formulae of cover price and advertising elasticities of reader demand are presented inAppendix A.
8The log of the odds ratio between the probability of purchasing an advertising slot ofmagazine j and that of purchasing no advertising slot as a linear function of advertising price,observable and unobservable magazine characteristics, as follows:ln(s ajt ) − ln(s0at ) = η ln(q jt ) + λ ln( x jt ) + z ajt θ + ξ ajt ,(6)where η, β, and θ are parameters to be estimated. 13
4. Publisher
4.1 Reader side
Based on the fact that RPM is a lawful and common marketing practice on the reader side of theJapanese magazine market, following Bonnet and Dubois (2010) and Rey and Vergé (2010), thisstudy considers the case of RPM with two-part tariff contract between publishers and retailers.
Publishers assumed to propose take-it-or-leave-it offers of two-part contracts to retailers.
These contracts are public information and consist of franchise fees, wholesale prices, and retailprices. It is assumed that if any of those offers is rejected, all contracts are refused, and the magazine
market breaks down. Otherwise, if all publishers’ offers are accepted, retailers simultaneously set
retail prices as imposed under RPM contracts for all the magazines, and payments made according to
the contracts.
Let Nt is the potential market size on reader side, and write the reader demand as xjt(pt, at)x= s jt(pt, at)Nt, where pt and qt are the vectors of cover price and advertising price. It is assumed that
there are R retailers (r =1, 2, …, R), and the profit function of retailer r is expressed as follows:(7)

π rt = ∑ [( p jt − w xjt ) x rjt ( pt , qt ) − F jtr ] ,j∈ J rtwhere wxjt is the wholesale price of magazine j, xrjt is the demand for magazine j at retailer r, and xjt= Σr xrjt. Frjt is the franchise fee paid by the retailer to the publisher for selling magazine j. Jrt is theset of magazines sold by r. In this study, the retailers’ marginal costs are assumed to be zero.
On the other hand, the profit of publisher f from the reader side is expressed as follows:(8)∑ [(w − c ) x ( p , q ) + F ] ,j∈J ft

x
jt

x
jt

jt

t

t

x
jt

where Fxjt is the total franchise fee received by the publisher for selling magazine j, and Fxjt = Σr Frjt.
cxjt represents the marginal cost of publishing magazine j on reader side.
Publishers maximize the (total) profits (from both sides of the market) subject to theretailers’ participation constraints:(9)13

π rt ≥ π rt = 0

The formulae of advertising price and circulation elasticities of advertiser demand are reported inAppendix A.
9that is, the retail profit must be greater than or equal to the value of outside option, which isnormalized to zero: πrt = 0. As Bonnet and Dubois (2010), and Rey and Vergé (2010) stated,participation constraints are clearly binding because otherwise publishers could increase thefranchise fees given those of other publishers. Then, the profit of publisher f from the reader side
becomes as follows:∑ π ( p , q | c ) + ∑ ( p − w )x ( p , q ) − ∑ F(10)j∈J ft

x
jt

t

t

x
jt

jt

j∉J ft

x
jt

jt

t

t

j∉J ft

x
jt

where
(11)

π xjt ( pt , qt | c xjt ) = ( p jt − c xjt ) x jt ( pt , qt ) ,that is, the total margin of the magazine j from the reader side. Thus, publisher f fully internalizes
entire margins of own magazines, and partially internalizes the retailer’s margins of rivals’
magazines on the reader side. In addition, the last term of the right hand side is a constant for
publisher f.
Bonnet and Dubois (2010), and Rey and Vergé (2010) shows that, if it is allowed,
imposing cover prices is always a dominant strategy for publishers. Because wholesale prices haveno direct effect on publishers’ own profit but only on rivals’ profits, wholesale prices a strategic rolefor each publisher. Therefore, this generates continuum of equilibria with one for each wholesale
price vector that affects the rivals’ strategic behaviors. In this study, we consider two polar cases:
publishers make their wholesale and retail prices to be equal (wxjt = pjt), that is, they squeeze retailers’
margins, or publishers set their wholesale prices to their marginal costs on the reader side (wxjt = cxjt).
In the first case, that is, wxjt = pjt, the second term of (10) equals zero, and the profit ofpublisher f from the reader side is the sum of the margins (on the reader side) of own magazines (Jft)as follows:(12)∑π (p ,q | c )j∈J ft

x
jt

t

t

x
jt

Because of the retailers’ participation constraints, Fxjt = Frjt = 0, for all j. Therefore, this is the case ofoligopolistic competition on the reader side.
On the other hand, in the second case, wxjt = cxjt, the profit from the reader side is the sumof the margins of all magazines in the market (Jt) as follows:(13)∑π (p ,q | c ) − ∑ F
j∈J t

x
jt

t

t

x
jt

j∉J ftx
jt

Because the last term is a constant for publisher f, this is the industry-profit maximization, or thecase of cooperation on the reader side. In this case, RPM eliminates the upstream and downstream
competition on the reader side of the market.

4.2 Advertiser side10The advertiser side is assumed to be vertically integrated. Let Kt are the potential market size on theadvertiser side, and write the advertising demand as ajt(qt, xt) = sajt(qt, xt)Kt. Then, the publisher’s
margin of magazine j on the advertiser side is a function of cover prices and advertising prices, as
follows:(14)

π ajt ( pt , qt | c ajt ) = (q jt − c ajt )a jt ( pt , qt ) .

where cajt represents the marginal cost of publishing j on the advertiser side.
We consider two different market configurations on the advertiser side. One in which themarket is oligopolistically competitive, that is, the profit of publisher f from the advertiser side is thesum of the margins (on the advertiser side) of own magazines (Jft):(15)∑π (p ,q | c )j∈J ft

a
jt

t

t

a
jt

and one in which the market is cooperative (joint profit maximization), and the profit of publisher ffrom the advertiser side is the sum of the margins of all magazines in the market (Jt):(16)∑π (p ,q | c )
j∈J t

a
jt

t

t

a
jt

4.3 Supply scenarios
As explained above, we consider two different market configurations on both sides of the market,
that is, competition and cooperation. In the end, we have the following four supply scenarios: (1)competition on both sides of the market, (2) competitive reader side and cooperative advertiser side,(3) cooperative reader side and competitive advertiser side, and (4) cooperation on both sides of themarket.

= Table 2 =Model 1: competition on both sides of the market
In this model, publishers oligopolistically compete on both sides of the market, and set their coverprices and advertising prices as solutions for the following optimization problem, as follows:(17)( p jt , q jt ) j∈J = arg max ∑ π xjt ( pt , qt | c xjt ) + ∑ π ajt ( pt , qt | c ajt ) ,ftj∈J ftj∈J ftModel 2: competitive reader side & cooperative advertiser side
In this model, publishers make their wholesale and retail prices to equal (wxjt = pjt), that is, the readerside is competitive, but the advertiser side is cooperative. Thus, the program for publisher f is asfollows:

11

(18)

( p jt , q jt ) j∈J = arg max ∑ π xjt ( pt , qt | c xjt ) + ∑ π ajt ( pt , qt | c ajt ) .
ft

j∈J t

j∈J ftTherefore, publishers set their cover prices and advertising prices so as to maximize the totalindustry-joint profits on the reader side, but the profit of their own magazines on the advertiser side.

Model 3: cooperative reader side & competitive advertiser side
In this model, publishers set their wholesale prices to their marginal costs (wxjt = cxjt), and theadvertiser side is oligopolistically competitive. Then, the program for publisher f is:(19)( p jt , q jt ) j∈J = arg max ∑ π xjt ( pt , qt | c xjt ) + ∑ π ajt ( pt , qt | c ajt ) .
ft

j∈J t

j∈J ftTherefore, publishers set their cover prices and advertising prices so as to maximize the totalindustry-joint profits on the reader side, but the profit of their own magazines from the advertiser
side.

Model 4: cooperation on both sides of the market
In this model, publishers jointly maximize the industry-joint profits, and set their cover prices andadvertising prices as solutions for the following program:(20)( p jt , q jt ) j∈J = arg max ∑ π xjt ( pt , qt | c xjt ) + ∑ π ajt ( pt , qt | c ajt ) ,
ft

j∈J t

j∈J t

4.4 Pricing equations
Following Filistrucchi, et al. (2011) and Song (2011), we derive the pricing equation under the
hypothesis that publishers are competing in a pricing game on both sides of the market. Under each
assumption on the market configuration on respective sides of the market, we can derive the pricing
equations and the corresponding formulae for the markups on each side of the market.
With given other publishers’ behavior, each publisher sets the cover prices and theadvertising prices which maximize its total profits. For each magazine j, there are two first-orderconditions, that is, the pricing equations on both sides of the market under Model h (= 1, 2, 3, and 4),
as follows:(21)

xp ( h )x jt + ∑ I jkt( pkt − cktx ( h ) )
k

∂xkt
∂a
(h)
+ ∑ I ap
(qkt − ckta ( h ) ) kt = 0
jkt
∂p jt
∂p jt
k

and,
(22)

∑I
k

xq ( h )jkt( pkt − cktx ( h ) )

∂xkt
∂a
(h)
+ a j + ∑ I aq
(qkt − ckta ( h ) ) kt = 0
jkt
∂q jt
∂q jt
k

where Ixp(h)jkt (Ixq(h)jkt, Iap(h)jkt, and Iaq(h)jkt) is an index which equals one if a publisher, under Model h,

12takes account the margin from the reader side (advertiser side, reader side, and advertiser side) of
magazine k in the search of optimal cover price (advertising price, cover price, and advertising price)of magazine j in year t, otherwise zero.
The system of equations can be solved for the sets of price-cost margins (pcmx(h)t = pt –cx(h)t and pcma(h)t = pt – ca(h)t), in matrix form as follows:(23) Dtxp
 pcmtx ( h )   pt − ctx ( h ) 





 pcm a ( h )  =  q − c a ( h )  = −  D xqt
  t t  tDtap   I txp ( h )Dtaq   I txq ( h )−1

I tap ( h )   xt   
I tqa ( h )   at 

where the operator ○ denotes the element-by-element multiplication of two matrices. xt and at are thevectors of magazine circulation and advertisement. The (j, k) element of Dxpt (Dxqt, Dapt, and Daqt) is
the marginal effect of cover price of j on the magazine sales of k, ∂xkt/∂pjt (the marginal effect ofadvertising price on the magazine sales, ∂xkt/∂qjt, the marginal effect of cover price on theadvertisement, ∂akt/∂pjt, and the effect of advertising price on advertisement, ∂akt/∂qjt).
Ixp(h)t (Ixq(h)t, Iap(h)t, and Iaq(h)t) is a market configuration matrix, which (j, k) element equals
Ixp(h)jkt (Ixq(h)jkt, Iap(h)jkt, and Iaq(h)jkt), respectively. As described above, we consider oligopolisticcompetition and cooperation on each side of the market. In the case of oligopolistic competition, themarket configuration matrix is identical to the ownership matrix: the (j, k) element is one if
magazines j and k are published by the same publisher, otherwise zero. One the other hand, in thecase of cooperation, all publishers jointly maximize their total profit, therefore all elements of theconfiguration matrix equal one.
Following Filistrucchi (2011) and Song (2011), we estimate the marginal effects of coverprices and advertising prices on reader and advertiser demand using the implicit function theorem, as
follows:(24)

 Dtxp
 xq
D t

Dtap 
 Δt


=
−
Ο
Dtaq 

−1

Ο  − E Βt  ,
Ω t  Γt − E 

where E is an identity matrix and O is a null matrix, Δjkt = ∂xkt/∂pjt, Ωjkt = ∂akt/∂qjt, Βjkt = ∂akt/∂xjt, andΓjkt = ∂xkt/∂ajt, therefore, these values depend only on the estimable demand parameters. 14
5. Test of alternative supply models
Following Bonnet and Dubois (2010) and Villas-Boas (2007), we test alternative models of theJapanese magazine market using the sets of our marginal cost estimates. For Model h, the marginal
costs can be estimated as the differences between observed prices and the estimated price-cost
margins. We specify the marginal cost functions as follows:14

For more detailed descriptions of these matrices under the demand model of this study, see

Appendix B.
13

(25)

ln( p jt − pcm xjt( h ) ) = ln(c xjt( h ) ) = V jtx κ x ( h ) + e xjt( h ) ,(26)ln(q jt − pcm ajt( h ) ) = ln(c ajt( h ) ) = V jta κ a ( h ) + e ajt( h ) ,where pcmx(h)jt and pcma(h)jt are the estimated price-cost margins for publishers on the reader side andthe advertiser side under Model h. Vxjt and Vajt are the matrices of exogenous cost shifters. In thisstudy, we assume that cost shifters are identical on both sides, that is, Vtjt = Vajt = Vjt, and, as costshifters, we use magazine fixed effects, year dummies, and interactions of the wholesale price index(WPI) of paper, the WPI of ink, and the wage of print industry with the number of page multiplied
by magazine size. ex(h)jt and ea(h)jt are the unobservable random shocks to the costs. With theassumption that they have zero means, the parameters, κx(h) and κa(h), are consistently identified andestimated. 15
The test is to infer which cost equations have the best statistical fit given the observed costshifters. For any two models h and h’, we test one model against the other. In order tosimultaneously deal with both sides of the magazine market, we stack the two marginal costequations. The OLS estimation of the stacked model is equivalent to the equation-by-equation OLS
estimation of two marginal cost equations. 16 Therefore, we implement the following criterion
function under Model h.

Qnh (κ x ( h ) , κ a ( h ) ) = min
min
h
x
κ

κ

(27)

= min
x
κ

1
[(e xjt( h ) ) 2 + (e ajt( h ) ) 2 ]
∑∑
n t j

1
∑∑{[ln(c xjt( h) ) − V jt κ x( h) ]2 + [ln(c ajt( h) ) − V jt κ a ( h) ]2 }n t j

where n (= 2 * Σt Jt) is the sample size of the regression. Following Bonnet and Dubois (2010), weapply non-nested tests (Vuong (1989) and Rivers and Voung (2002)) in order to test which supply
model statistically fits with observable cost shifters.
For any two competing models h and h’, the null hypothesis is that the two models are
asymptotically equivalent when(28)

H 0 : lim [Qnh (κ x ( h ) , κ a ( h ) ) − Qnh ' (κ x ( h ') , κ a ( h ') )] = 0n →∞where the criterion functions are evaluated at the estimated parameter values under each model. The
first alternative hypothesis is that h is asymptotically better than h’ when15

As Bonnet and Dubois (2010) pointed out, the estimation procedure, in which the demand model

are separately estimated from the supply model, is efficient because it does not require there-estimation of the demand model under different supply models.
16

With the assumption of identical cost shifters on both sides, the equation-by-equation OLS

estimation of two marginal cost equations is as efficient as the SUR estimation.
14

H 1 : lim [Qnh (κ x ( h ) , κ a ( h ) ) − Qnh ' (κ x ( h ') , κ a ( h ') )] < 0

(29)

n →∞

The second alternative hypothesis is that h’ is asymptotically better than h when

H 2 : lim [Qnh (κ x ( h ) , κ a ( h ) ) − Qnh ' (κ x ( h ') , κ a ( h ') ))] > 0

(30)

n →∞

The following test statistics proposed by Rivers and Vuong (2002) is defined as a difference of thesample lack-of-fit criteria (with normalization) between alternative models, h and h’.
(31)

Tn =

n
σ

hh '
n

[Qnh (κ x ( h ) , κ a ( h ) ) − Qnh ' (κ x ( h ') , κ a ( h ') )]Rivers and Vuong (2002) show that the asymptotic distribution of Tn statistic is a standard normal
distribution. 17 If α is the size of the test, and tα and t1−α denote the values of the inverse standard
normal distribution evaluated at α and 1−α, H0 is rejected in favor of H1 if Tn < tα and H0 is rejectedin favor of H2 if Tn > t1−α.
6. Data and variables
6.1 Sources
Using the following data sources, we construct a panel data of the Japanese magazines from 1992 to
2007. The data about sales (average per issue), cover price, total page per issue, the frequency of
publishing, and format (size) are obtained from JABC (1992−2007), which covers the period fromJanuary to December of each year. The data about advertising price and its advertisement size
(whole page of the flip side of a cover) are taken from JMAA (1992−2007) surveyed in January ofeach year. Finally, the data about advertising shares in total pages by 13 categories from 1992 to2007 are obtained from NARI (1993−2008).
The advantage of using JABC (1992−2007) is that its sales data does not include returned
items from bookstores to publishers, while circulation does. That is, we can obtain the information
about true sales volumes. On the other hand, the disadvantage is its small coverage. The total
observations of this study are 1,875 magazines listed in JABC (1992−2007), but, the information
about some of the magazines are not available in JMAA (1992−2007). In the end, the number of theobservations is 1,543. Although the number of included magazines in the dataset ranges from 64 to
134 per year, and the coverage is somewhat small, popular magazines, such as, Shukan Gendai,
Shukan Shincho, Shukan Bunshun (weekly general magazines), Shukan Daiyamondo, Shukan
Toyo-keizai (weekly business/economic magazines), shukan Josei, Josei Jishin, Josei sebun (weekly
women’s magazines), Can Cam, JJ, non no (women’s fashion magazines), are included in thesamples. 18
17

σhh’j is the estimated value of the square root of the variance of the difference in lack-of-fit.

18

For the details of the panel data structure, see Table A1 in Appendix C.
15

6.2 Variables
On the reader side, the potential market size of the reader side is set 100 million, and the dependent
variable is the log of sales divided by the number of consumers who do not purchase any magazine,that is, the difference between the potential market size and the total sales of all magazines in eachyear. The dependent variable is regressed on conditional market share (log), cover price (log),
advertising pages (log), contents pages (log), magazine fixed effects, and year dummies. The
conditional market share of magazine j within genre g in year t is computed by dividing the sales by
the total sales of genre g in year t.
The advertising pages of magazine j within genre g are estimated by multiplying the total
pages of j by the average advertising share in total pages of the genre g, obtained from NARI
(1993−2008), and the contents pages are the difference between the total pages and the advertising
pages.
On the advertiser side, the potential market size of the advertiser side is assumed to be 500
thousand pages. Because the total advertising pages of sample magazines is about 5,000 pages per
year, this specification assumes that total advertisement in magazines account for 0.1 percent of total
advertising market. The dependent variable is the log of the advertising pages divided by thedifference between the potential market size and the total advertising pages of sample magazines ineach year, which is an approximation to the size of advertisers who do not purchase any advertisingslot in magazines. The dependent variable is regressed on the advertising price (log), sales (log),
contents pages (log), the size of advertising, magazine fixed effects, and year dummies.
Finally, all price variables (cover price and price of advertising), the WPI of paper and ink
and the wage of printing industry, which are used as instruments (explained below), are deflated by
the general consumer price index (CPI: 2005 = 1.0).

6.3 Instruments
As is the case of previous related works, cover price and the conditional market share in the reader
demand and the advertising price in the advertiser demand are endogenous and will be correlatedwith unobserved magazine qualities of both sides (ξx and ξa). In addition, the terms representing theindirect network effects between both sides of the market, that is, the number of advertising pages in
the reader demand and sales in the advertiser demand, are also endogenous. Therefore, we needappropriate instruments. This study is in line with previous related works, and uses the function ofobservable characteristics of rivals and other cost sifters.
For the estimation of reader demand, the number of rival magazines, the average contents
pages of rivals, the average number of issues per year among rivals, the average magazine size ofrivals, the share of irregular size magazines in rivals within the same genre, are used as instruments.
16

In addition, interactions of the WPI of paper and the WPI of ink, with the number of pages
multiplied by magazine size, are also included. On the other hand, for the estimation of advertiser
demand, we use the number of rivals within the same genre, interactions of the WPI of paper, the
WPI of ink, and the wage of printing industry with the number of page multiplied by magazine size,
as instruments.
Table 3 reports the descriptive statistics of regression variables for the expansion phase,
1992 to 1997, and the contraction phase, 1998 to 2007, as well as for the full sample. According to
the table, although the advertising pages decreased from the expansion phase to contraction phase,the advertising price increased. Additionally, in the contraction phase, the magazines became smaller
and be published less frequently, than the expansion phase. On the other hand, the size of advertising
became larger.

= Table 3 =7. Results
7.1 Reader demand
As is the case of Argentesi and Filistrucchi (2007), and Filistrucchi, et al. (2011), the reader demand
and the advertiser demand are separately estimated. Table 4 reports the estimation results of reader
demand function. The Hansen J statistics is 5.047 with the degree of freedom 4 (p-value = 0.283),
and the null hypothesis of orthogonality is not rejected. Therefore, the endogeneity problem is not so
serious in the present specification. The first stage regression results are also presented in the table,
and the instruments work well.
The estimated coefficient of (log of) cover price is negative (−3.189) and the estimatedcoefficient of (log of) conditional market share is positive and less than unity (0.225), and both ofthem are statistically significant at 1% level, that is, these two parameters satisfy the conditions
required by the consumer theory. In addition, the estimated coefficient of (log of) contents pages ispositive (0.437) and statistically significant at 1% level too.
Finally, the estimated coefficient of (log of) advertising pages, that is, the indirect network
effects from advertiser side to reader side is positive (0.332) and statistically significant at 1% level.
This is same as the results of Kaiser and Song (2009) who show that, by analyzing the Germanmagazine market, readers in many magazine segments appreciate advertising. Based on these results,
the indirect network effects on the reader side from the advertiser side are important in the readers’choice of a magazine, and readers tend to prefer magazines with large advertisement. 19

19

In contrast to this result, Argentesi and Filistrucchi (2007) did not found any significant indirect

network effects from advertiser side to reader side in the Italian newspaper market.
17

= Table 4 =7.2 Advertiser demand
Table 5 reports the estimation results of advertiser demand function. The Hansen J statistics is 0.062
with the degree of freedom 1 (p-value = 0.805), and the null hypothesis of orthogonality is not
rejected. Therefore, the endogeneity problem is not severe in this specification. The first stage
regression results are also reported in the table, and the instruments work well.
The estimated coefficient of (log of) advertising price is negative (−5.319) and statisticallysignificant at 1% level, and it satisfies the theoretical requirement. In addition, the estimate for thesize of advertising is positive (0.492) and significant at 1% level too. On the other hand, thecoefficient of (log of) the contents pages is positive (0.159) but not significant. Therefore, contents
pages are not important for advertisers.
Finally, the estimated coefficient of (log of) magazine sales, that is, the indirect network
effects from reader side to advertiser side is positive (1.593) and statistically significant at 1% level.
This is same as the results of related previous works: advertisers tend to prefer magazines with large
sales volumes. Based on these results, the indirect network effects from the reader side to theadvertiser side are crucial in the advertisers’ choice of a magazine.

= Table 5 =7.3 Marginal costs
Table 6 reports the median of estimated price cost margin ratio, and marginal cost on the reader side
under different supply models by each year. Concerning the price cost margin ratio, the median pricecost margin ratios are negative for Model 1 after 2004 and Model 3 after 1995. This means that, in
those periods, more than half of the Japanese publishers run deficit on reader side by lowering coverprices, that is, the reader side was loss leader. For the marginal costs, the estimates are all positive inall models in whole sample period, and roughly speaking, the estimates under Model 3 are greaterthan other models: the estimated median values of 2007 are 768 JPY in Model 1, 614 JPY in Model2, 1,031 JPY in Model 3, 691 JPY in Model 4, respectively.

= Table 6 =Table 7 reports the median of estimated price cost margin ratio, and marginal cost on theadvertiser side. The estimates of marginal cost are reported in thousand JPY. In contrast to the readerside, the median price cost margin ratios are positive. Therefore, more than half of the Japanese18

publishers made a profit on advertiser side, that is, the advertiser side was profit center. For themarginal costs, the estimates are all positive in all models for every year. The estimated marginal
costs under Model 3 are greater than others: the estimated median values of 2007 are 2,322 thousand
JPY in Model 1, 2,313 thousand JPY in Model 2, 2,330 thousand JPY in Model 3, and 2,315
thousand JPY, respectively.

= Table 7 =7.4 Testing alternative supply models
The (log of) estimated marginal costs on both sides of the market under respective supply models areregressed on observable magazine cost shifters, that is, magazine fixed effects, year dummies, andinteractions of the WPI of paper, the WPI of ink, and the wage of print industry with the number ofpage multiplied by magazine size.
The first panel of Table 8 reports the regression results of marginal costs on reader side
under different supply models. The R squared of each estimated model is fairly high: about 0.945 inModel 1, 0.942 in Model 2, 0.943 in Model 3, and 0.946 in Model 4, respectively. The estimatedcoefficient of the WPI of paper is significant and positive, and the most of those of the WPI of ink
and the wage of printing industry are significant, but negative. The latter results are somewhat
difficult to understand: contrary to expected, the price of ink and wage were negatively correlatedwith marginal costs. The second panel of Table 8 is the results of marginal costs on advertiser side.
The R squared of each model is also high: about 0.944 for all models. The estimated coefficient of
the WPI of paper and the wage of printing industry is not statistically significant. On the other hand,that of the WPI of ink is statistically significant, but negative. The last result is also hard to interpret.

= Table 8 =The first panel of Table 8 presents the Rivers and Vuong (2002) test statistics for pair wisecomparisons of all alternative supply models. H0: h is asymptotically equivalent to h’, H1: h is
asymptotically better than h’, and H2: h’ is asymptotically better than h. Again, for 5% level, H0 is
rejected in favor of H1 if Tn is lower than −1.64 and that H0 is rejected in favor of H2 if Tn is greaterthan 1.64. To account for that each marginal cost estimates depend on the estimated demandparameters, the bootstrapped standard errors of test statistics with 500 replications are reported inparentheses. 20 The results show that, although the tests are not transitive, Model 3 of cooperation on

20

Following Bonnet and Dubois (2010), we bootstrapped the demand estimation step and computed

the price cost margins and test statistics over replications.
19

reader side and competition on advertiser side has a better fit to the data than other alternative supply
models: its column statistics are always positive and larger than 1.64, while the row statistics is
negative and smaller than −1.64.
We perform the same tests for two subsamples: the market expansion phase from 1992 to1997 and the contraction phase from 1998 and 2007. The test statistics are reported in the second andthird panels of Table 9. 21 The results of these tests are almost same as those of the full sample:
Model 3 has a better fit to the data than other alternative supply models.

= Table 9 =8. Concluding remarks
This study examines whether the Japanese magazine market in which resale price maintenance,suspected as a device facilitating collusion, is a common marketing practice, is competitive orcooperative, explicitly incorporating the two-sidedness of the market into the analytical framework.
First, the demand models on the reader side and the advertiser side are estimated using the unique
panel data of the Japanese magazines from 1992 to 2007. Using the estimated parameters, the sets ofprice-cost margins on both side of the market under alternative supply models, competition orcooperation, are computed. After that, we perform non-nested statistical tests in order to select the
supply model which has the best fit to the data. The empirical results show that the model ofcooperation on reader side and competition on advertiser side has a better fit to the data than otheralternative supply models.
Therefore, in the Japanese magazine market, publishers were cooperative on reader side,that is, jointly maximized the total industry profit from magazine sales, but, on the advertiser side,
they competed each other. Based on the fact that RPM is a common marketing practice in theJapanese magazine market, the empirical results may support the theoretical results of Rey and Vergé(2010), that is, RPM may facilitate cooperative behavior, that is, industry-joint profit maximization,
among firms through common agencies.

Appendix A: Elasticities
The cover price and advertising elasticities of reader demand are computed as follows.

(a-1)

21

 −α
x
x
if j ≠ k ∈ g ,1 − σ [σs jt|g + (1 − σ ) s jt ],
priceEx jkt
if j ∈ g , k ∈ g ' , g ≠ g ' ,= − αs xjt , α[1 − σs xjt|g − (1 − σ ) s xjt ], otherwise.
1 − σThe regression results of marginal costs for subsamples are presented at Table A2 in Appendix D.
20

(a-2)

−βxx
if j ≠ k ∈ g ,1 − σ [σs jt|g + (1 − σ ) s jt ],ad
Ex jkt = − βs jt ,if j ∈ g , k ∈ g ' , g ≠ g ' , β[1 − σs xjt|g − (1 − σ ) s xjt ], otherwise.
1 − σOn the other hand, the advertising price and circulation elasticities of advertiser demand arecomputed as follows.
(a-3)

(a-4)

− αs ajt ,if j ≠ kprice
Ea jkt=aα (1 − s jt ), otherwiseEa

circulationjkt− βs ajt ,if j ≠ k=a β (1 − s jt ), otherwise

Appendix B: Matrices in pricing equations
The (j, k) elements of matrices, Δ, Β, Ω, and Γ in the pricing equations are as follows:

(a-5)

(a-6)

(a-7)

 α
s xjt
x
x
Nt
[1 − σs jt | g − (1 − σ ) s jt ]p jt
1 − σ αsx
Δ jkt = −[σs xjt | g + (1 − σ ) s xjt ] kt N t
p jt
 1− σxx s ktNt− αs jt
p jt


s ajt
a
λ
s
Kt
(
1
−
)

jt
x jt

Β jkt = a
− λs a skt K
jt
t

x jt


s ajt
a
ρ
s
Kt
(
1
−
)

jt
q jt

Ω jkt = a− ρs a skt K
jt
t

q jt

if j = k ,otherwise

if j = k ,otherwise

and,

21

if j = k ,if j ≠ k , j & k ∈ gotherwise

(a-8)

 β
s xjt
x
x
[
1
−
σ
s
−
(
1
−
σ
)
s
]
Nt

jt | g
jt
1
−
σ
a
jt

 β
sx
Γ jkt = −[σs xjt | g + (1 − σ ) s xjt ] kt N ta jt
 1− σxx s ktNt
− βs jta jt
if j = k ,if j ≠ k , j & k ∈ gotherwise

Appendix C: Panel data structure= Table A1 =Appendix D: Estimation results of marginal cost function for subsamples= Table A2 =References
Argentesi, E., and M. Ivaldi (2007) “Market Definition in Printed Media Industries: Theory, Practiceand Lessons for Broadcasting,” in P. Seabright and J. von Hagen eds. The Economic Regulationof Broadcasting Markets, Cambridge University Press, Chapter 7, 225–251.
Argentesi, E., and L. Filistrucchi (2007) “Estimating Market Power in a Two-sided Market: the Caseof Newspapers,” Journal of Applied Econometrics, 22(7), 1247–1266.
Armstrong, M. (2006) “Competition in Two-sided Markets,” RAND Journal of Economics, 37(3),668–691.
Bernheim, B. D., and M. D. Whiston (1985) “Common Marketing Agency as a Device for
Facilitating Collusion,” RAND Journal of Economics, 16(2), 269–281.
Bonnet, C. and P. Dubois (2010) “Inference on Vertical Contracts between Manufacturers andRetailers Allowing for Non Linear Pricing and Resale Price Maintenance,” RAND Journal of
Economics, 41(1), 139–164.
Brenkers, R., and F. Verboven (2006) “Liberalizing a Distribution System: the European Car Market,”
Journal of European Economic Association, 4(1), 216-251.
Clements, M., and H. Ohashi (2005) “Indirect Network Effects and the Product Cycle: Video Gamesin the U.S., 1994–2002,” Journal of Industrial Economics, 53(4), .515–542.
Corts, K., and M. Lederman (2009) “Software Exclusivity and the Scope of Indirect Network Effects
in the U.S. Video Game Market,” International Journal of Industrial Organization, 27(2),121–136.
Doty, A. (2008) “Leegin v. PSKS: New Standard, New Challenges,” Berkeley Technology Law
22

Journal, 23(1), 655−684.
Dubois, P., A. Hernandez-Perez and M. Ivaldi (2007) “The Market of Academic Journals: Empirical
Evidence from Data on French Libraries,” Journal of the European Economic Association, 5(2),390–399.
Evans, D. S. (2003) “The Antitrust Economics of Multi–Sided Platform Market,” Yale Journal ofRegulation, 20(3), .325–382. Reprinted in Global Competition Policy: Economic Issues &Impacts, edited by D. S. Evans, and A. J. Padilla, LECG, Chapter 8, 235–294, 2004.
Ferrari, S., and F. Verboven (2012) “Vertical Control of a Distribution Network—an Empirical
Analysis of Magazines,” Rand Journal of Economics, 2(1), 26–50.
Filistrucchi, L., T. J. Klein, and T. Michielsen (2011) "Merger Simulation in a Two-Sided Market:
The Case of the Dutch Daily Newspapers," a paper presented at the 39th European Association
for Research in Industrial Economics Annual Conference (EARIE2011), Stockholm: Sweden.
Fishwick, F. (2008) “Book Prices in the UK Since the End of Resale Price Maintenance,”
International Journal of the Economics of Business, 15(3), 359–377.
Graglia, L. A. (2008) “Leegin Creative Leather Products, Inc. v. PSKS, Inc.: The Strange Career ofthe Law of Resale Price Maintenance,” Antitrust Bulletin, 53(3), 803–947.
Gilligan, T. W. (1986) “The Competitive Effects of Resale Price Maintenance,” RAND Journal of
Economics, 17(4), 544–566.
Hersch, P. L. (1994) “The Effects of Resale Price Maintenance on Shareholder Wealth: The
Consequences of Schwegmann,” Journal of Industrial Economics, 42(2), 205–216.
Ippolito, P. M., and T. R. Overstreet, Jr. (1996) “Resale Price Maintenance: An Economic
Assessment of the Federal Trade Commission's Case against the Corning Glass Works,”
Journal of Law & Economics, 39(1), 285–328
Innoue, A. (2007) Japanese Antitrust Law Manual: Law, Cases and Interpretation of the Japanese
Antimonopoly Act, Kluwer Law International: Netherland.
Japan Audit Bureau of Circulations (JABC) (1992–2007) Zasshi Kosa Repoto (Audit Report on the
Magazine Circulations, Tokyo (in Japanese).
Japan Fair Trade Commission (JFTC) (2008) “Shoseki Zasshi no Ryutsu Torihiki Kanko no Genjo,”(www.jftc.go.jp/pressrelease/08.july/080724tenpu01.pdf), July 19, 2008 (in Japanese).
Japan Magazine Advertising Association (JMAA) (1992–2007) Zasshi Kokoku Keisai Ryokin Hyo(Magazine Advertising Rates), Tokyo (in Japanese)Japan

Magazine

Publishers

Association(JMPA)(2009)JMPA

Dokusha

Kose

Deta,

(http://www.j-magazine.or.jp/data_002/index.html) , November 11, 2009 (in Japanese).
Japan Society of Publishing Studies (JSPS) (2010) Hakusyo Syuppan Sangyo (White Paper on
Publishing Industry), Bunka News, Tokyo (in Japanese).
Jullien, B., and P. Rey (2007) “Resale Price Maintenance and Collusion,” RAND Journal of23

Economics, 38(4), 983–1001.
Kaiser, U., and J. Wright (2006) “Price Structure in Two-sided Markets: Evidence from theMagazine Industry,” International Journal of Industrial Organization, 24(1), 1–28.
Kaiser, U., and M. Song (2009) “Do Media Consumers Really Dislike Advertising? An Empirical
Assessment of the Role of Advertising in Print Media Markets,” International Journal ofIndustrial Organization, 27(2), 292–301.
Kinzai Institute for Financial Affairs, Inc. (KIFA) (2008) Gyoshu Betsu Shinsa Jiten, Tokyo (inJapanese).
Komenda, M. (2008) “The Course Correction a Century in the Making: Leegin Creative Leather
Products, Inc. v. PSKS, Inc., 127 S. Ct. 2705 (2007),” Harvard Journal of Law & Public Policy,
31(2), 855–870.
Motta, M. (2004) Competition Policy: Theory and Practice, Cambridge Univ. Press, New York: NY.
Nikkei Advertising Research Institute (NAPI) (1993-2008) Kokoku Hakusho (Advertising White
Paper), Tokyo (in Japanese).
Ohashi, H. (2005) “The Role of Network Effects in the US VCR Market, 1978–1986,” Journal of
Economics & Management Strategy, 12(4), 447–494.
Ornstein, S. I., and D. M. Hanssens (1987) “Resale Price Maintenance: Output Increasing or
Restricting? The Case of Distilled Spirits in the United States,” Journal of Industrial Economics,
36(1), 1–18.
Research Institute for Publications (RIP) (1998-2009) Shuppan Shihyo Nenpo (Yearbook of
Publication Indicators), Tokyo (in Japanese).
Rey, P., and T. Vergé (2008) “Economics of Vertical Restraints,” in Handbook of Antitrust
Economics, edited by P. Buccirossi, Chapter 9, 353–390, MIT Press, Cambridge: MA.
Rey, P., and T. Vergé (2010) “Resale Price Maintenance and Interlocking Relationship,” Journal ofIndustrial Economics, 58(4), 928−961.
Rivers, D., and Q. Vuong (2002) “Model Selection Tests for Nonlinear Dynamic Models,”
Econometrics Journal, 5(1), 1–39.
Rochet, J.–C., and J. Tirole (2008) “Competition Policy in Two-sided Market, with a Special
Emphasis on Payment Cards,” in Handbook of Antitrust Economics, edited by P. Buccirossi,
Chapter 15, 543–582, MIT Press, Cambridge: MA.
Rysman, M. (2004) “Competition between Networks: A Study of the Market for Yellow Pages,”
Review of Economic Studies, 71(2), 483–512.
Song, M. (2011) “Estimating Platform Market Power in Two-sided Markets with an Application to
Magazine Advertising,” unpublished manuscript.
Sudhir, K. (2001) “Structural Analysis of Manufacturer Pricing in the Presence of a Strategic
Retailer,” Marketing Science, 20(3), 244–264.
24

Villas-Boas, S. B. (2007) “Vertical Relationship between Manufactures and Retailers: Inference with
Limited Data,” Review of Economic Studies, 40(1), 20–46.
Vuong, Q. (1989) “Likelihood Ratio Tests for Model Selection and Non-Nested Hypotheses,”
Econometrica, 57(2), 307–333.
Warren, G. S. (2008) “The Path Forward After Leegin: Seeking Consensus Reform of the Antitrust
Law of Vertical Restraints,” Antitrust Law Journal, 75(2), 467–504
Wilbur, K. C. (2009) “A Two-Sided, Empirical Model of Television Advertising and Viewing
Market,” Marketing Science, 27(3), 356–378.

25

Figure 1: The Japanese magazine market: 1954−2008

6,000
Circulation: weekly
Circulation: monthly
Avg. price: monthly
Avg. price: weekly

500

4,000

400

3,000

300

2,000

200

1,000

100

0
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008

0

Note: RIP (2009) is used as the original data source.
26

Pirce (JPY)

Circulation (million units)

5,000

600

Figure 2: The cover price and advertising price indices25,0001.200

20,0000.800
15,0000.600
10,000
0.400

0.200

Total sales
Cover price (hedonic)
Ad. price (hedonic)
WPI: paper
WPI: ink

5,000

0.000

0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Note: The series of total sales, cover price (hedonic) and advertising price (hedonic) indices are calculated from the panel data used in this study.

27

Total sales (1,000 issue)

Price index (1992 = 1.000)

1.000

Table 1: No. of publishers and magazines

Publisher
Total
No.

Magazineof magazine%changeNo.

%changeNo.

%change

1990

4,309

1991

4,320

0.26

1992

4,284

−0.83

1993

4,324

0.93

1994

4,487

3.77

1995

4,561

1.65

1996

4,602

0.90

1997

4,612

0.22

944

1998

4,454

−3.43

938

−0.64

3,359

1.24

1999

4,406

−1.08

947

0.96

3,394

1.04

2000

4,391

−0.34

954

0.74

3,433

1.15

2001

4,424

0.75

929

−2.62

3,461

0.82

2002

4,361

−1.42

937

0.86

3,486

0.72

2003

4,311

−1.15

933

−0.43

3,554

1.95

2004

4,260

−1.18

925

−0.86

3,624

1.97

2005

4,229

−0.73

919

−0.65

3,642

0.50

2006

4,107

-2.88

958

4.24

3,652

0.27

3,644

-0.22

3,318

2007
4,055
-1.27
950
-0.84
Note: JSPS (2010) and RIP (1998-2009) are used as the original data source.

28

Table 2: Four Alterative supply models
Reader side

Market configuration matrix in pricing equations

Advertiser sidew

x

Cover price

Advertising price

xp

I

ap

I

xq

I

Iaq

Model 1Competitioncx

Competition

Ownership

Ownership

Ownership

Ownership

Model 2Competitioncx

Cooperation

Ownership

Ones

Ownership

Ones

Model 3CooperationpCompetition

Ones

Ownership

Ones

Ownership

Model 4
Cooperationp
Cooperation
Ones
Ones
Ones
Ones
Note: This table summarizes the four market configuration matrixes in the pricing equations for cover prices and advertising prices under each supply
scenario. The “Ownership” denotes the ownership matrix which (j, k) element equals one if magazines j and k are published by a same publisher, otherwise,
zero. The “ones” represents the matrix whose size is same as the ownership matrix, but all its elements are one.

29

Table 3: Descriptive statistics
Expansion:

Contraction:

1992-1997

1998-2007

No. = 433

No. = 1110

Full sample
No. = 1,543
Mean

S.D.

Min

Max

Mean

S.D.

Mean

S.D.

192,298.500

207,164.700

6,566.000

1,063,167.000

242,807.400

253,657.300

172,595.400

182,278.600

Sales

IssuesCover priceJPY

636.072

348.058

222.447

1,853.724

632.682

395.034

637.395

328.100

AdvertisingPages

59.42032.1997.803

225.32063.54933.61157.81031.501Price of advertising

1,000 JPY

2,110.323

1,243.008

397.6145,680.000

1,858.809

1,227.111

2,208.436

1,235.890

Contents

Pages

162.757

67.18645.390516.516166.91573.909161.135

64.336

Magazine size

cm2

582.589

72.251

310.800

623.700

559.91283.809591.435

65.140No. of issues per year

Issues

21.72914.0824.000

48.00024.84115.30620.51513.388Irregular size

Dummy

0.710

0.454

0.000

1.000

0.591

0.492

0.757

0.429

2

9.702

3.264

3.010

13.950

8.564

3.318

10.1473.133

Size of advertisingcm

Note: price variables (cover price and price of advertising) are deflated by the general consumer price index (CPI: 2005 = 1.0).For the details, see text.

30

Table 4: Estimation results of reader demandFirst stage regression results
Reader demandln(w/i share)ln(Share within genre)

0.225(0.062)***ln(Cover price)−3.189(0.746)***ln(Advertisement)

0.332(0.065)***ln(Contents)

0.437(0.083)***ln(Price)ln(Advertisement)

0.030(0.045)−0.622(0.134)

***

0.049

(0.043)

1.255(0.128)***−0.013(0.019)−0.249(0.048)

***

0.000

(0.000)−0.001(0.000)******−0.004(0.002)0.006(0.004)(0.025)*0.006(0.009)−0.021(0.013)−0.163(0.085)*0.021(0.023)−0.026(0.040)−0.041(0.004)***−0.005(0.002)**0.004(0.003)−3.603(0.803)

***

6.242

(0.278)

***

6.201

(0.568)0.350(0.173)

WPI: paper * pages * size

−0.218(0.171)

WPI: ink * pages * size

0.208

(0.073)

Rivals' contents

0.001(0.001)

Rivals' no. of issues/year−0.019(0.004)

Rivals' magazine size

−0.047

Rivals' irregular dummy
No. of rivals w/i genre**

Instruments:

Constant

10.317(4.454)

**

***

*

Magazine fixed effects

Yes

Yes

Yes

Yes

Year dummies

Yes

Yes

Yes

Yes

Hansen J stat. (df = 4)

5.047

R2

0.951

0.920

0.975

0.930

F(205, 1337)

1,578.360***

5,728.860***

801.800******

Note: No. of observations = 1,543, ***, **, and * denotes statistically significant at 1%, 5%, and
10% level, respectively. The standard errors are in parentheses. The first stage regression results arealso presented.

31

Table 5: Estimation results of advertiser demand
Advertiser

First stage regression results

demandln(Ad. price)ln(Advertising price)−5.319 (1.403)***ln(Sales)

1.593 (0.516)***

ln(Contents)

0.159 (0.377)

Size of advertising0.492 (0.131)ln(Sales)

0.228 (0.063) ***0.205 (0.157)

0.094 (0.004) ***−0.002 (0.008)

WPI: paper * Pages * Size

−0.342 (0.102) ***−0.455 (0.250) *WPI: ink * Pages * Size

0.078 (0.027) ***0.097 (0.068)

Wage: print * Pages * Size

0.039 (0.023) *0.173 (0.049) ***12.212 (0.326) ***10.194 (0.897) ******Instruments:

Constant

41.499 (19.756) **Magazine fixed effects

Yes

Yes

Yes

Year dummies

Yes

Yes

Yes

Hansen J stat. (df = 1)

0.061
0.975

0.957

R

2

0.104

F(202, 1340)

12,608.74***

4,673.45***

Note: No. of observations = 1,543, ***, **, and * denotes statistically significant at 1%, 5%, and
10% level, respectively. The standard errors are in parentheses. The first stage regression results arealso presented.

32

Table 6: Estimated price cost margin ratio and marginal costs: Reader side
Model 1Model 2Model 3Model 4(Comp, Comp)(Comp, Coop)(Coop, Comp)(Coop, Coop)

PCM

MC

PCM

MC

PCM

MC

PCM

MC

1992

−0.109601.010−0.052573.500−0.194689.280−0.029560.140

1993−0.067557.6400.009

524.275−0.120595.0450.045

508.360

1994−0.084556.285−0.016504.700−0.119606.2500.027

497.0851995−0.148593.620−0.038517.545−0.314703.400−0.077530.850

1996−0.153633.010−0.034547.910−0.330774.050−0.014562.630

1997−0.162602.440−0.040531.555−0.353721.450−0.040547.905

1998−0.158576.890−0.027489.150−0.372735.440−0.049504.1801999−0.137614.500−0.016504.510−0.323749.580−0.033517.6402000−0.177640.130−0.064557.535−0.386785.435−0.088576.025

2001−0.239695.310−0.077581.015−0.494848.785−0.104625.635

2002−0.234737.095−0.070642.140−0.490941.530−0.123681.130

2003−0.226746.940−0.053598.010−0.527988.340−0.136680.6102004−0.289759.670−0.053636.840−0.5591003.600−0.152686.460

2005−0.296737.860−0.084614.250−0.592954.810−0.173680.0502006−0.308734.170−0.068613.280−0.7451004.700−0.208669.8002007−0.297767.780−0.079614.680−0.6751030.500−0.176691.395

Note: The median of the estimated total price cost margin ratio and marginal costs (MC) on readerside under respective supply models are reported: for example, Model 2 represents that the readerside is cooperative, but the advertiser side is oligopolistically competitive. The estimates of marginal
costs are in JPY.

33

Table 7: Estimated price cost margin ratio and marginal cost: Advertiser side
Model 1Model 2Model 3Model 4(Comp, Comp)(Comp, Coop)(Coop, Comp)(Coop, Coop)

PCM

MC

PCM

MC

PCM

MC

PCM

MC

1992

0.108

1,148.000

0.111

1,146.100

0.106

1,149.000

0.111

1,145.800

1993

0.090

1,157.300

0.093

1,155.300

0.090

1,158.100

0.094

1,154.950

1994

0.095

1,410.350

0.098

1,408.050

0.095

1,411.350

0.098

1,407.750

1995

0.115

1,379.800

0.119

1,375.750

0.113

1,382.250

0.119

1,375.900

1996

0.112

1,458.850

0.115

1,454.250

0.110

1,461.850

0.115

1,454.650

1997

0.114

1,374.650

0.118

1,369.650

0.112

1,377.800

0.118

1,370.050

1998

0.116

1,461.000

0.120

1,456.200

0.114

1,464.200

0.119

1,456.700

1999

0.111

1,400.600

0.116

1,396.500

0.108

1,403.300

0.115

1,396.700

2000

0.118

1,360.850

0.123

1,355.750

0.116

1,364.200

0.123

1,356.350

2001

0.128

1,437.950

0.133

1,432.700

0.124

1,441.950

0.132

1,433.300

2002

0.127

1,484.300

0.132

1,478.250

0.124

1,488.850

0.132

1,479.050

2003

0.128

1,577.500

0.132

1,570.500

0.124

1,583.000

0.132

1,571.600

2004

0.132

1,796.300

0.137

1,788.700

0.1291,802.300

0.136

1,790.200

2005

0.133

1,856.400

0.137

1,849.200

0.131

1,862.100

0.136

1,850.500

2006

0.137

2,263.800

0.141

2,255.400

0.133

2,271.000

0.140

2,257.200

2007

0.133

2,322.300

0.138

2,313.200

0.129

2,329.850

0.137

2,315.050

Note: The median of the estimated total price cost margin ratio and marginal costs (MC) on
advertiser side under respective supply models are reported: for example, Model 2 represents that thereader side is cooperative, but the advertiser side is oligopolistically competitive. The estimates ofmarginal costs are in 1,000 JPY.

34

Table 8: OLS Estimation results of marginal cost: Full sample

ReaderModel 2Model 3Model 4(Comp, Comp)(Comp, Coop)(Coop, Comp)(Coop, Coop)

Est.

Est.

Est.

Est.

S.E.

S.E.

S.E.

S.E.

WPI: paper * pages * size

0.673 (0.141) ***0.584 (0.156) ***0.703 (0.136) ***0.714 (0.151) ***WPI: ink * pages * size

−0.203 (0.030) ***−0.182 (0.033) ***−0.208 (0.029) ***−0.217 (0.032) ***Wage: printing * pages * size

−0.072 (0.036) **−0.049 (0.040)−0.085 (0.035) **−0.077 (0.039) **Constant

6.384 (0.042) ***6.177 (0.046) ***6.556 (0.040) ***6.304 (0.045) ***

0.945

0.942

0.943

0.946

WPI: paper * pages * size

0.185 (0.149)

0.189 (0.150)

0.181 (0.149)

0.188 (0.150)

WPI: ink * pages * size

−0.100 (0.031) ***−0.101 (0.032) ***−0.099 (0.031) ***−0.101 (0.032) ***Wage: printing * pages * size

−0.004 (0.039)−0.005 (0.039)−0.003 (0.038)−0.004 (0.039)

Constant

14.156 (0.044) ***14.156 (0.044) ***14.156 (0.044) ***14.156 (0.044) ***R
Advertiser

Model 1

2

2

R
0.944
0.944
0.944
0.944
Note: No. of observations = 1,545. The dependent variables are the logs of the estimated marginal costs under respective supply models. All regressions
include magazine fixed effects and year dummies. ***, **, and * denotes statistically significant at 1%, 5%, and 10% level, respectively. The estimatedstandard errors are in parentheses.

35

Table 9: Test Statistics of alternative supply modelsh'Model 2Model 3Model 4(Comp, Coop)(Coop, Comp)(Coop, Coop)−7.6682.956−15.054(11.522)(10.911)(12.219)

5.919

2.819

(9.799)(11.198)

Full samples:1 (Competitive, Competitive)

2 (Competitive, Cooperative)−7.4353 (Cooperative, Competitive)(9.852)
1992−1997:
1 (Competitive, Competitive)h−2.656

1.769−3.056(3.699)(3.427)(3.765)

2.307

2.218

(3.005)(3.761)2 (Competitive, Cooperative)−2.3003 (Cooperative, Competitive)(2.960)1998−2007:
1 (Competitive, Competitive)−5.5763.051−8.694(8.784)(8.203)(8.704)

4.778

0.951

(7.316)(8.085)2 (Competitive, Cooperative)−6.2013 (Cooperative, Competitive)(7.073)
Note: Rivers and Vuong (2002) test statistics are presented. H0: h is asymptotically equivalent to h’,
H1: h is asymptotically better than h’, and H2: h’ is asymptotically better than h. If α is the size of thetest, and tα and t1−α denote the values of the inverse standard normal distribution evaluated at α and
1−α, H0 is rejected in favor of H1 if Tn < tα and that H0 is rejected in favor of H2 if Tn > t1−α. Because
the test statistics depend on the estimated demand parameters, the bootstrapped standard errors oftest statistics with 500 replications are reported in parentheses.

36

Table A1: Panel data of the Japanese magazine market

No.

%

1992

67

4.34

1993

70

4.54

1994

64

4.15

1995

74

4.80

1996

78

5.06

1997

80

5.18

1998

85

5.51

1999

93

6.03

2000

100

6.48

2001

106

6.87

2002

110

7.13

2003

117

7.58

2004

119

7.71

2005

117

7.58

2006

129

8.36

2007

134

8.68

Total

1,543

100.0037

Table A2: OLS Estimation results of marginal cost: 1992−1997 & 1998−2007

1992-1997:

Reader(No. = 433)

Reader(No. = 1,112)

Model 4(Comp, Comp)(Comp, Coop)(Coop, Comp)(Coop, Coop)

Est.

Est.

S.E.

Est.

Est.

0.067

(0.529)

S.E.

S.E.

WPI: ink * pages * size**

−1.517 (0.599)**

Wage: printing * pages * size

0.808

(0.379)**0.876(0.438)**0.733

Constant

6.158(0.061)

***

5.989

(0.071)

***

6.317

2

0.973

0.968

**

−0.105 (0.496)−1.426 (0.561)**(0.350)**0.884(0.410)**(0.056)

***

6.050

(0.066)

***

0.865

(0.498)*0.777(0.564)

0.975

0.859

(0.497)0.777(0.563)

Wage: printing * pages * size

−0.731 (0.411)*−0.733 (0.412)*−0.730 (0.410)*−0.733 (0.412)*

Constant

13.771***13.769***13.772***13.768(0.067)***(0.066)

0.969

WPI: paper * pages * size

0.630

WPI: ink * pages * size

0.866

(0.498)0.777(0.564)(0.067)0.969(0.159)0.496

Wage: printing * pages * size

−0.059 (0.058)−0.103 (0.048)**−0.039 (0.064)−0.063 (0.053)

Constant

6.259

***

6.065

(0.045)

0.953
0.174

WPI: ink * pages * size

−0.183 (0.055)

Wage: printing * pages * size

0.036

(0.045)Constant

13.995(0.042)R

2(0.175)(0.049)

***

***

0.953

WPI: paper * pages * size

(0.149)

0.178
***

***

0.953

(0.496)0.778(0.562)(0.066)

*

0.712

0.969

(0.152)

***

0.661

(0.173)***−0.072 (0.056)−0.126 (0.046)***−0.060 (0.063)−0.107 (0.053)

**

6.455

***

6.135

***

(0.043)0.953(0.150)−0.185 (0.055)
0.035(0.046)13.991(0.042)

0.953

0.853

0.969

***

2

*

0.973

WPI: ink * pages * size

2

*

S.E.

WPI: paper * pages * size

R
Advertiser

Model 3−0.399 (0.423)−1.005 (0.479)

R

1998-2007:

Model 2−0.122 (0.459)−1.285 (0.519)

WPI: paper * pages * size

R
Advertiser

Model 1

0.170
***

***

0.953
(0.149)−0.182 (0.054)
0.036(0.045)13.998(0.042)0.953(0.049)

0.176
***

***

(0.150)−0.184 (0.055)
0.036(0.046)13.991(0.042)

***

***

0.953

Note: The dependent variables are the logs of the estimated marginal costs under respective supply models. All regressions include magazine fixed effects and year
dummies. ***, **, and * denotes statistically significant at 1%, 5%, and 10% level, respectively. The estimated standard errors are in parentheses.

38