Responses to Entry in Multi-Sided Markets: The Impact of Craigslist on Local Newspapers

Abstract

How do firms respond to entry in multi-sided markets? We address this question by studying the impact of Craigslist, a website providing classified-advertising services, on local US newspapers. We exploit temporal and geographical variation in Craigslist’s entry to show that newspapers with greater reliance on classified-ad revenue experience a larger drop in classified-ad rates after Craigslist’s entry. The impact of Craigslist’s entry on the classified-ad side appears to propagate to other sides of the newspapers’ market. On the subscriber side, these newspapers experience an increase in subscription prices, a decrease in circulation, and an increase in differentiation from each other. On the display-ad side, affected newspapers experience a decrease in display-ad rates. We also find evidence that affected newspapers are less likely to make their content available online. Finally, we estimate that Craigslist’s entry leads to $5.0 billion in year 2000 dollars in savings to classified-ad buyers during 2000-2007.

Keywords: entry, pricing, platforms, two-sided markets

JEL Classification: L13, L86, O33