IDEAS home Printed from https://ideas.repec.org/p/cvs/starer/94-14.html
   My bibliography  Save this paper

Predation and the Logic of the Average Variable Cost Test

Author

Listed:
  • 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.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Baumol, William J., 1994. "Predation and the Logic of the Average Variable Cost Test," Working Papers 94-14, C.V. Starr Center for Applied Economics, New York University.
    • Handle: RePEc:cvs:starer:94-14
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    1. J. Gregory Sidak & William Baumol, 1994. "Toward Competition in Local Telephony," Books, American Enterprise Institute, number 52984, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. Mohr Jochen, 2018. "Wettbewerbsrecht und Ökonomie im digitalen 21. Jahrhundert: Zugleich ein Beitrag zur Intel-Entscheidung des Europäischen Gerichtshofs und zum Facebook-Verfahren des Bundeskartellamts," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 69(1), pages 259-308, July.
    3. Pietro Crocioni, 2018. "On The Relevant Cost Standard For Price–Cost Test In Abuses Of Dominance," Journal of Competition Law and Economics, Oxford University Press, vol. 14(2), pages 262-291.
    4. 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.
    5. 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;The Industrial Organization Society, vol. 21(4), pages 373-397, December.
    6. 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.
    7. Budzinski Oliver & Köhler Karoline Henrike, 2015. "Is Amazon The Next Google?," ORDO. Jahrbuch für die Ordnung von Wirtschaft und Gesellschaft, De Gruyter, vol. 66(1), pages 263-288, January.
    8. Colombo, Stefano, 2009. "On the effects of selective below-cost pricing in a vertical differentiation model," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 3, pages 1-13.
    9. Kalevi Dieke, Alex & Junk, Petra & Thiele, Sonja & Zauner, Martin, 2012. "Kostenstandards in der Ex-Post-Preiskontrolle im Postmarkt," WIK Discussion Papers 368, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    10. Herbert Hovenkamp, 2015. "The Areeda–Turner Test for Exclusionary Pricing: A Critical Journal," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 46(3), pages 209-228, May.
    11. Sveinn Vidar Gudmundsson, 2011. "Liberalization of Air Transport," Chapters, in: Matthias Finger & Rolf W. Künneke (ed.), International Handbook of Network Industries, chapter 14, Edward Elgar Publishing.
    12. 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.
    13. 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.
    14. Hern, R., 2001. "Competition and access pricing in the UK water industry," Utilities Policy, Elsevier, vol. 10(3-4), pages 117-127.
    15. Morrison, William G., 2004. "Dimensions of predatory pricing in air travel markets," Journal of Air Transport Management, Elsevier, vol. 10(1), pages 87-95.
    16. 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.
    17. Christian Genthon, 2007. "Can we measure Microsoft's market power ?," Post-Print halshs-00153837, HAL.
    18. Brunekreeft, G. & van Damme, E.E.C. & Larouche, P. & Sorana, V., 2006. "On the Law and economics of price squeeze in telecommunications markets," Other publications TiSEM 2f300d44-7100-4e54-a6a3-8, Tilburg University, School of Economics and Management.
    19. Mark L. Burton & David L. Kaserman & John W. Mayo, 2009. "Common Costs And Cross‐Subsidies: Misestimation Versus Misallocation," Contemporary Economic Policy, Western Economic Association International, vol. 27(2), pages 193-199, April.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Klein, Michael, 1996. "Competition in network industries," Policy Research Working Paper Series 1591, The World Bank.
    2. Demetrius Yannelis, 2002. "On access pricing with network externalities," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 30(2), pages 186-190, June.
    3. Lewis, Tracy R. & Sappington, David E. M., 1999. "Access pricing with unregulated downstream competition," Information Economics and Policy, Elsevier, vol. 11(1), pages 73-100, March.
    4. Carlo Cambini, 2000. "Competition between Vertically Integrated Networks: a Generalized Model," ICER Working Papers 01-2000, ICER - International Centre for Economic Research.
    5. repec:ers:journl:v:xv:y:2012:i:sie:p:157-194 is not listed on IDEAS
    6. Cristiano Antonelli, 2003. "Knowledge Complementarity and Fungeability: Implications for Regional Strategy," Regional Studies, Taylor & Francis Journals, vol. 37(6-7), pages 595-606.
    7. Ingo Vogelsang, 2003. "Price Regulation of Access to Telecommunications Networks," Journal of Economic Literature, American Economic Association, vol. 41(3), pages 830-862, September.
    8. Antoine Faure‐Grimaud, 1997. "The Regulation of Predatory Firms," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 6(4), pages 849-876, December.
    9. Bourdeau de Fontenay, Alain & Liebenau, Jonathan & Savin, Brian, 2005. "A New View of Scale and Scope in the Telecommunications Industry: Implications for Competition and Innovation," MPRA Paper 2516, University Library of Munich, Germany.
    10. Vogelsang, Ingo, 2000. "Regulation of Access to the Telecommunications Network of New Zealand: A Review of the Literature," Working Paper Series 3931, Victoria University of Wellington, The New Zealand Institute for the Study of Competition and Regulation.
    11. Gregory L. Rosston, 2006. "The Rise and Fall of Third-party High-speed Access," Discussion Papers 05-019, Stanford Institute for Economic Policy Research.
    12. Cristiano Antonelli, 2007. "Technological knowledge as an essential facility," Journal of Evolutionary Economics, Springer, vol. 17(4), pages 451-471, August.
    13. Isabel Soares & Paula Sarmento, 2012. "Unbundling in the Telecommunications and the Electricity Sectors: How Far should it Go?," European Research Studies Journal, European Research Studies Journal, vol. 0(4), pages 157-194.
    14. Jerry Hausman & J. Gregory Sidak, 2014. "Telecommunications Regulation: Current Approaches with the End in Sight," NBER Chapters, in: Economic Regulation and Its Reform: What Have We Learned?, pages 345-406, National Bureau of Economic Research, Inc.
    15. repec:vuw:vuwscr:18990 is not listed on IDEAS
    16. Cremer, Helmuth & Roy, Bernard & Toledano, Joëlle & de Villemeur, Étienne, 2003. "Access Pricing and Imperfect Competition," IDEI Working Papers 217, Institut d'Économie Industrielle (IDEI), Toulouse.
    17. repec:ebl:ecbull:v:12:y:2007:i:5:p:1-9 is not listed on IDEAS
    18. Herguera, Iñigo & Martinelli, César, 1995. "Regulación de precios de interconexion," DE - Documentos de Trabajo. Economía. DE 10737, Universidad Carlos III de Madrid. Departamento de Economía.
    19. Held, Caroline & Kulenkampff, Gabriele & Plückebaum, Thomas, 2016. "Entgelte für den Netzzugang zu staatlich geförderter Breitband-Infrastruktur," WIK Discussion Papers 405, WIK Wissenschaftliches Institut für Infrastruktur und Kommunikationsdienste GmbH.
    20. Jolian McHardy & Michael Reynolds & Stephen Trotter, 2012. "On the problem of network monopoly," Theory and Decision, Springer, vol. 73(2), pages 223-248, August.
    21. Kotakorpi, Kaisa, 2002. "Access Pricing and Competition in Telecommunications," Discussion Papers 283, VATT Institute for Economic Research.
    22. Carlos Diaz & Raimundo Soto, "undated". "Open-Access Issues in the Chilean Telecommunications and Electricity Sectors," ILADES-UAH Working Papers inv124, Universidad Alberto Hurtado/School of Economics and Business.
    23. Willia H Melody, 2011. "Liberalization in the Telecom Sector," Chapters, in: Matthias Finger & Rolf W. Künneke (ed.), International Handbook of Network Industries, chapter 7, Edward Elgar Publishing.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cvs:starer:94-14. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Anne Stubing (email available below). General contact details of provider: https://edirc.repec.org/data/aenyuus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.