Areeda–Turner in Two-Sided Markets

Areeda–Turner in Two-Sided Markets 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Industrial Organization Springer Journals

Areeda–Turner in Two-Sided Markets

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Publisher
Springer Journals
Copyright
Copyright © 2015 by The Author(s)
Subject
Economics / Management Science; Industrial Organization; Microeconomics
ISSN
0889-938X
eISSN
1573-7160
D.O.I.
10.1007/s11151-015-9460-5
Publisher site
See Article on Publisher Site

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.

Journal

Review of Industrial OrganizationSpringer Journals

Published: Apr 18, 2015

References

  • Upward pricing pressure in two-sided markets
    Affeldt, P; Filistrucchi, L; Klein, TJ
  • Competition in two-sided markets
    Armstrong, M

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