Areeda-Turner in Two-Sided Markets

S. Behringer, L. Filistrucchi

Research output: Working paperDiscussion paperOther research output

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Abstract

Areeda and Turner (1975) were the first to argue that a price below marginal costs should be considered a sign of predation. Recognizing that marginal cost data were typically unavailable, the authors concluded that a price below average variable cost should be presumed unlawful. This socalled Areeda-Turner Rule has become the standard to assess claims of predation. We first show that in two-sided markets price cost margins on the two-sides of the market are interrelated and that a monopolist, even in the absence of actual or potential competition, may find it optimal to charge a price below marginal cost on one side of the market. As a result, showing that the price is below average variable cost on one side of the market cannot be considered a sign of predation in such
markets. This is in contrast to a recent decision of the Commercial Court of Paris that sanctioned Google for giving away for free its online mapping services. We thus extend the Areeda-Turner rule to two-sided markets. We argue that one should apply the rule by taking into account revenues and costs from both sides of the market. As applications, we analyse three alleged cases of predatory
behaviour in the market for daily newspapers. Our examples highlight that applying a one-sided Areeda-Turner rule may lead to assess a perfectly legitimate profit maximizing pricing policy as a predatory attempt.
Original languageEnglish
Place of PublicationTilburg
PublisherEconomics
Number of pages24
Volume2014-038
Publication statusPublished - 12 Jun 2014

Publication series

NameCentER Discussion Paper
Volume2014-038

Fingerprint

Two-sided markets
Marginal cost
Predation
Variable cost
Potential competition
Pricing policy
Revenue
Profit
Price-cost margin
Market price
Google
Monopolist
Charge
Costs

Keywords

  • predation
  • market definition
  • two-sided markets
  • network effects
  • daily newspapers

Cite this

Behringer, S., & Filistrucchi, L. (2014). Areeda-Turner in Two-Sided Markets. (CentER Discussion Paper; Vol. 2014-038). Tilburg: Economics.
Behringer, S. ; Filistrucchi, L. / Areeda-Turner in Two-Sided Markets. Tilburg : Economics, 2014. (CentER Discussion Paper).
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Behringer, S & Filistrucchi, L 2014 'Areeda-Turner in Two-Sided Markets' CentER Discussion Paper, vol. 2014-038, Economics, Tilburg.

Areeda-Turner in Two-Sided Markets. / Behringer, S.; Filistrucchi, L.

Tilburg : Economics, 2014. (CentER Discussion Paper; Vol. 2014-038).

Research output: Working paperDiscussion paperOther research output

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Behringer S, Filistrucchi L. Areeda-Turner in Two-Sided Markets. Tilburg: Economics. 2014 Jun 12. (CentER Discussion Paper).