David S. Evans  ‘Basic principles for the design of antitrust analysis for multisided platforms’ (2019) Journal of Antitrust Enforcement 7 319

Competition agencies and courts have increasingly had to deal with multiplatform businesses – and have started to incorporate economic insights on their operation into their decisions. Nonetheless, many questions concerning the design of antitrust analysis involving platform businesses remain unsettled. This article, available here, develops three basic principles for conducting the antitrust analysis of multisided platforms in light of economic learning, as follows: Section II explains how multisided platforms increase welfare by reducing transactions costs and resolving externalities among economic agents. Platforms lower transaction costs by bringing potential traders to a common place for interacting, thereby solving a collective action problem. The economics literature often relies on simple indirect network effects to explain how two-sided platforms create value. Positive indirect network externalities arise because the presence of additional numbers of the right counterparties increases the likelihood of good exchanges. In practice, however, the externality issues addressed by platforms are broader and subtler. Platforms also often deal with negative network externalities…

Francesco Ducci ‘Procedural implications of market definition in platform cases’ (2019) Journal of Antitrust Enforcement 7 419

One of the most important questions raised by the economics of platforms, particularly for the adjudication of competition law disputes, is how to structure a legal framework that incorporates multi-sidedness while remaining consistent with the general principles guiding a rule of reason/effects-based analysis. Such framework becomes more complex in platform cases because the presence of multiple sides with interrelated demand coordinated by an intermediary platform raises additional questions that need to be confronted. This include: (i) How many markets should be defined, a single platform market or separate markets on each side? (ii) Should one aggregate the welfare effects on different users on the various sides of a platform, or should effects on each market side be treated in isolation? (iii) How should the burden of proof of anticompetitive and pro-competitive effects be allocated? Depending on whether the relevant market includes the platform as a whole or just one side, the boundary of the relevant market has fundamental consequences for…

Herbert Hovenkamp ‘Platforms and the Rule of Reason: The American Express Case’ (2019) Columbia Business Law Review, 1 34

In Ohio v. American Express Co. (“Amex”), the Supreme Court had its first explicit opportunity to apply the rule of reason to an allegedly anticompetitive practice on a two-sided platform– i.e. a business that depends on relationships between two different, noncompeting groups of transaction partners (e.g. newspapers, as regards readers and advertisers). This article, available here, considers how the rule of reason should be applied to an exclusionary practice on a platform market. It considers the rule of reason’s basic burden-shifting framework, unique elements of market delineation on platform markets, and the relevance of placing production complements into the same “market.” It criticises the Supreme Court’s unjustified conclusion that a market definition is necessary in an antitrust challenge to a vertical practice; its odd treatment of free rider problems; its lack of attention to the record and to economic analysis; and its confusion of total with marginal harms and benefits. Finally, it looks at the implications of the Court’s decision for market…

Giuseppe Colangelo and Mariateresa Maggiolino ‘Applying Two-Sided Markets Theory: the MasterCard and American Express Decisions’ (2018) Journal of Competition Law & Economics 14(1) 115

The first judgments to apply the economic theory of multisided markets to the payment card industry have been recently adopted in the UK and in the US. This paper, available here, uses these cases to try to show that antitrust authorities should take into consideration the two-sided nature of the credit-card industry, and to explain how this can be done. Taking the multisided nature of payment systems into account is necessary to arrive at a realistic description of these markets, and to develop solid theories of harm and procompetitive justifications that can explain some business practices involving credit cards. It is structured as follows: Section II briefly describes the main economic features of multisided business models. Different authors have defined multisided markets differently, as they looked at different markets and business models. Nonetheless, the following generic traits tend to characterise all such markets: the presence of indirect network externalities that cannot be internalised through a bilateral exchange (usage and membership…

Cyril Ritter ‘Antitrust in two-sided markets: looking at the U.S. Supreme Court’s Amex case from an EU perspective’ Journal of European Competition Law & Practice (2019, forthcoming)

As reviewed in last week’s email/posts, the U.S. Supreme Court recently found that American Express’s ‘anti-steering’ rules did not violate U.S. antitrust law (in a decision reviewed here). In its judgment, the Supreme Court addressed a variety of topics essential to antitrust analysis – market definition, two-sided markets, harm through price effects and output effects, cross-market efficiencies and ancillary restraints – in ways which are at odds with the European approach. This paper, available here, seeks to compare the EU and US approaches in this respect.   It is structured as follows: Section three contains a comparison of the AmEx majority and dissenting opinions. In the interest of clarity, I will review it here, instead of following the paper’s structure. In Ohio v American Express, the majority held that only one market should be defined in two-sided transaction markets. Because there is a single relevant market, cognisable harm must refer to net harm across merchants and cardholders. Even demonstrating that the benefits…

Sainsbury v MasterCard, Asda et al. v MasterCard and Sainsbury v Visa [2018] EWCA 1536 (Civ)

This is a UK judgment by the Court of Appeal concerning the correct approach to payment cards’ interchange fees. The decision was issued on appeal from three different lower court judgments that focused on whether the setting of default multilateral interchange fees (“MIFs”) within the MasterCard and Visa payment card systems amounted to an anticompetitive collusive practice. It is important to begin by describing the factual background of all these cases. Unlike American Express, or the card system at stake in the US Supreme Court judgment discussed above, MasterCard and Visa are four-party card schemes. Such schemes work as follows: a merchant accepts certain credit and debit cards pursuant to an agreement with an “Acquirer”, i.e. a bank or financial institution belonging to the MasterCard or VISA scheme. The card will have been issued by another bank belonging to the scheme (the ‘Issuer’). The Acquirer will charge a fee to the Merchant for the services it provided in respect of a…

Dennis Carlton ‘The Anticompetitive Effects of Vertical Most-Favored-Nation Restraints and the Error of Amex’ (2019) Columbia Business Law Review 88

Ohio v American Express involved the use of what are called “no steering” restraints, in which a retailer is not allowed to use a variety of tactics to steer a consumer away from using an American Express (“Amex”) card and towards using another payment mechanism, such as money or competing payment cards. The reason why a merchant might want to do this is because the cost that the merchant incurs when a customer uses an Amex card can be higher than when the customer uses another credit card, debit card or cash. Although not challenged in the case, the Amex contractual rules also prevent a retailer from imposing a surcharge on customers who use an Amex card to reflect the higher merchant cost. The contractual clause at stake in this case was a type of vertical most-favoured-nation (‘MFN’) restraint, i.e. a restraint in which one supplier tells a retailer that the retailer cannot set the retail price of its product…

Joshua Wright and John Yun ‘Burdens and Balancing in Multisided Markets: The First Principles Approach of Ohio v. American Express’ (2019) Review of Industrial Organization

This article, available here, argues, contrary to the arguments made in the piece above, that the Supreme Court decided the Ohio v American Express case correctly. Multisided platforms have distinct and critical features that set them apart from single-sided markets. Any prima facie antitrust assessment of competitive harm must incorporate the impact on consumers in all sides of a market regardless of market definition, and output effects should be the primary emphasis of any such competitive effects analysis. The paper is structured as follows: Section 2 identifies two broad schools of thought on market definition and competitive effects for multisided platforms. There is a divide among antitrust practitioners, courts, and economists regarding how multisided platforms should be assessed in antitrust investigations. A first school advocates for a separate effects and markets’ approach. Because users on different sides of a platform have different economic interests, it is inappropriate to view platform competition as being for a single-product offered at a single (i.e., net,…

Erik Hovenkamp ‘Platform Antitrust’ Journal of Corporation Law (forthcoming),

This paper argues that the recent Supreme Court decision in American Express v Ohio is misguided. It is available here. Platform competition creates challenges for antitrust, but does not warrant the upheaval of the antitrust laws that the Supreme Court’s majority opinion prescribed. Instead, the traditional rule-of-reason approach is much better suited to deal with such cases. The paper is structured as follows: The paper begins by providing an overview of the distinctive features of platforms and platform competition, as reflected in the platform economics’ literature. There is no universally accepted definition of a two-sided platform, since multi-sidedness is a matter of degree. The economic literature identifies various types of platforms, such as: (a) transaction platforms, i.e. platforms that provide instrumental value by facilitating transactions between the two sides of a market; and (b) media platforms, where the two-sides of a platform comprise consumers of content and advertisers. It is sufficient here to describe a two-sided platform as a firm that (a)…

Michael Katz and Jonathan Sallet ‘Multisided Platforms and Antitrust Enforcement’ (2018) Yale Law Journal 2142

This paper,  available here, looks at two questions regarding competition enforcement in platform markets: (i) how should one account for the distinct characteristics of platforms when defining an antitrust market; and (ii) how, if at all, should one weigh user groups’ gains and losses on different sides of a platform against one another. In short, the authors argue that enforcers and courts should use a multiple-markets approach to multisided platforms, in which different groups of users on different sides of a platform belong in different product markets. This approach allows one to account for cross-market network effects without collapsing all platform users into a single product market. They further argue that enforcers should consider the price structure of a platform, and not simply its net price, when assessing competitive effects. This justifies the use of a separate-effects analysis, according to which anticompetitive conduct harming users on one side of a platform cannot be justified just because that harm funds benefits for users…