Areeda–Turner in Two-Sided Markets

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.

Algorithmic attention rents: A theory of digital platform market power

“…If the participation of sides is relatively fixed (due to user stickiness and third-party lock-in), then extracting monopoly rents from one side of the platform requires adjusting attention allocations on the other side(s), since users must consume greater quantities of the more profitable content. 21 In a multisided digital platform, increasing profits or profitability for the platform thus tends to require changing the information content shown to users on the screen (Behringer and Filistrucchi, 2015): What information outputs a platform's organic algorithms optimize for (such as recommendation algorithms optimizing for more sustained engagement); and/or the algorithmic mix of outputs (such as more advertising and fewer organic outputs) are essential ingredients to a platform increasing user monetization and extracting more profits from its ecosystem of firms or advertisers. Without changing the type of content shown to users, the opportunities for user monetization by the platform's third-party firms or advertisers are limited to the traditional solution of raising prices (e.g., for advertising, subscriptions, or other fees).…”

“…But over time, as user growth slows, increasing profits from user participation become a function of the quantity of advertising. Weyl (2010, p. 1643) goes so far as to see “the platform’s problem as [first] choosing participation rates on the two sides rather than the prices supporting this allocation.” User responsiveness to advertising, often measured in real time by the platform, becomes key for determining the optimal business model mix such that (Behringer and Filistrucchi, 2015, p. 293): “In two-sided markets, quantities on one market side are functions of prices on that market side and quantities on the other market side.”…”

Should the State Control Tariffs?

“…The term "selling at a loss" as what is mentioned in the law this is because refers to the sale of products or services below cost (Colombo, 2011;Peltier et al, 2013) or average variable cost (AVC) (Areeda & Turner, 1975;Behringer & Filistrucchi, 2015). Thus, the price set is shallow and definitely below the competitors' prices (Durrance, 2012).…”