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Predation and the Logic of the Average Variable Cost Test

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  • Baumol, William J

Abstract

This article explores principles for execution of the widely accepted Areeda-Turner test of predatory pricing. Defining an Areeda-Turner price as one that does not threaten to exclude any more-efficient supplier, I conclude that (1) any individual price that is not below average avoidable cost cannot be predatory; (2) thus, average avoidable cost, not marginal cost, is crucial in testing predation; (3) sets of prices of different products of the firm can violate the test if the revenues of any combinations of the firm's products fall short of the combined avoidable costs of those products; and (4) a firm's failure to maximize its profits during some relatively brief period is not by itself legitimate evidence of predation. Copyright 1996 by the University of Chicago.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Law & Economics.

Volume (Year): 39 (1996)
Issue (Month): 1 (April)
Pages: 49-72

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Handle: RePEc:ucp:jlawec:v:39:y:1996:i:1:p:49-72

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Cited by:
  1. Kai Hüschelrath & Jürgen Weigand, 2013. "Predation enforcement options: an evaluation in a Cournot framework," European Journal of Law and Economics, Springer, vol. 35(2), pages 241-272, April.
  2. Hern, R., 2001. "Competition and access pricing in the UK water industry," Utilities Policy, Elsevier, vol. 10(3-4), pages 117-127.
  3. Michael Katz, 2002. "Recent Antitrust Enforcement Actions by the U.S. Department of Justice: A Selective Survey of Economic Issues," Review of Industrial Organization, Springer, vol. 21(4), pages 373-397, December.
  4. Colombo, Stefano, 2009. "On the Effects of Selective Below-Cost Pricing in a Vertical Differentiation Model," Economics Discussion Papers 2009-25, Kiel Institute for the World Economy.
  5. Török, Ádám, 2009. "Társadalomtudományi tények és természettudományos módszerek
    [Social scientific facts and natural scientific techniques]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(12), pages 1067-1087.
  6. Christian Genthon, 2007. "Can we measure Microsoft's market power ?," Post-Print halshs-00153837, HAL.
  7. Valentiny, Pál, 2004. "Árprés és felfaló árazás. Közgazdasági elmélet, bírói, szabályozói gyakorlat
    [Price squeezing and predatory pricing. Economic theory and judicial and regulatory practice]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 24-45.
  8. Edlin, Aaron S. & Farrell, Joseph, 2002. "The American Airlines Case: A Chance to Clarify Predation Policy," Department of Economics, Working Paper Series qt0wx7c4zf, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  9. Török, Ádám, 2011. "A dominanciaproblémák tényeinek értelmezése és a közgazdaság-tudományi módszertan
    [Interpretation of the facts of dominance problems and the methodology of economics]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(1), pages 41-55.
  10. Lindsey, Robin & West, Douglas S., 2003. "Predatory pricing in differentiated products retail markets," International Journal of Industrial Organization, Elsevier, vol. 21(4), pages 551-592, April.

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