Areeda-Turner in Two-Sided Markets

TILEC Discussion Paper No. 2014-024

CentER Discussion Paper No. 2014-038

24 Pages Posted: 19 Jun 2014

See all articles by Stefan Behringer

Stefan Behringer

University of Duisburg-Essen - Mercator School of Management

Lapo Filistrucchi

Tilburg University, TILEC; University of Florence, Dipartimento di Scienze Economiche

Multiple version iconThere are 2 versions of this paper

Date Written: June 12, 2014

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 so-called 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.

Keywords: predation, market definition, two-sided markets, network effects, daily newspapers

JEL Classification: L12, L41, L82.

Suggested Citation

Behringer, Stefan and Filistrucchi, Lapo, Areeda-Turner in Two-Sided Markets (June 12, 2014). TILEC Discussion Paper No. 2014-024. Available at SSRN: https://ssrn.com/abstract=2454392 or http://dx.doi.org/10.2139/ssrn.2454392

Stefan Behringer (Contact Author)

University of Duisburg-Essen - Mercator School of Management ( email )

Lotharstra├če 65
Duisburg, Nordrhein-Westfalen 47057
Germany

HOME PAGE: http://www.stefanbehringer.com

Lapo Filistrucchi

Tilburg University, TILEC ( email )

P.O. Box 90153
Tilburg, Noord-Brabant NL-5000 LE
Netherlands
+31 13 466 3360 (Phone)
+31 13 466 3042 (Fax)

HOME PAGE: http://www.lapofilistrucchi.com

University of Florence, Dipartimento di Scienze Economiche ( email )

via delle Pandette 9
Florence, Florence IT-50127
Italy
+39 055 2759579 (Phone)
+39 055 2759910 (Fax)

HOME PAGE: http://www.lapofilistrucchi.com

Register to save articles to
your library

Register

Paper statistics

Downloads
242
rank
83,436
Abstract Views
1,616
PlumX Metrics