| By: |
Stefan Behringer;
Lapo Filistrucchi |
| 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: |
L12 L41 L82 |
| Date: |
2014 |
| URL: |
http://d.repec.org/n?u=RePEc:frz:wpaper:wp2014_10.rdf&r=all |