Abstract
We extend the Areeda–Turner rule to two-sided markets. We show that a two-sided monopolist may find it short-run profit-maximizing to charge a price below marginal cost on one side of the market. Hence showing that the price is below marginal cost on one side of a two-sided market cannot be considered a sign of predation. We then argue for a two-sided Areeda–Turner rule that takes into account price-cost margins on both sides of the market. Two examples highlight that applying a one-sided Areeda–Turner rule may lead one to assess legitimate prices as predatory or to consider predatory prices as legitimate.
Highlights
We extend the Areeda–Turner rule to two-sided markets
Showing that the price is below marginal cost on one side of a two-sided market cannot be considered a sign of predation
Recognizing that marginal cost data were typically unavailable, the authors suggested to presume as unlawful a price that is below average variable cost
Summary
We extend the Areeda–Turner rule to two-sided markets. We do so by following the original logic of Areeda and Turner (1975). Following the original logic of Areeda and Turner (1975), we seek a threshold for the price, such that a price below this threshold should be deemed predatory We argue that such a threshold needs to take into account the specificity of two-sided markets. In the recent case Bottin Cartographes versus Google, for instance, the Commercial Court of Paris Judgements such as the one above may partly be due to the fact that most policy contributions so far, such as Wright (2004), have criticized the application of the one-sided Areeda–Turner rule to two-sided markets without suggesting an alternative.
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