ECONOMIC RATIONALITY AND THE AREEDA-TURNER RULE

William S Comanor, UCSB and UCLA and Ted E Frech, UCSB discuss ECONOMIC RATIONALITY AND THE AREEDA-TURNER RULE.

ABSTRACT: The Areeda-Turner rule in U.S. antitrust jurisprudence limits successful predatory pricing cases to circumstances where prices can be shown to have been set below marginal costs. While not cast so, the rule reflects the view that predatory pricing is rarely attempted; and even where attempted is rarely successful; and even where attempted and successful, is difficult to identify. In this paper, we examine the theoretical and empirical foundations of this rule, and conclude that it is time to demote the Areeda-Turner analysis from the status of a rule to that of a potentially useful form of inquiry in predatory pricing litigation, but one which is neither necessary nor dispositive.