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).

American Express

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 delineation in future cases involving platforms. It does all of this as follows:

Section II describes the majority’s opinion in Amex.

In Amex, the Supreme Court acknowledged that the rule of reason involves a “three-step, burden-shifting framework”. First, the plaintiff must show “that the challenged restraint has a substantial anticompetitive effect that harms consumers in the relevant market.” If the plaintiff carries this burden, “then the burden shifts to the defendant to show a procompetitive rationale”. If this showing is successful, “then the burden shifts back to the plaintiff to demonstrate that the procompetitive efficiencies could be reasonably achieved through less anticompetitive means.”

The Court observed that anticompetitive effects could be shown in two ways —either “directly” by proof of actual detrimental effects on competition, which could include “reduced output, increased prices, or decreased quality in the relevant market[.]”; or “indirectly”, by “proof of market power plus some evidence that the challenged restraint harms competition.”

The plaintiff had relied on direct proof, which would not ordinarily require market definition. However, the Court held that for vertical cases such as this one, even direct proof required a market definition. The Court further concluded that the relevant market consists of both sides of the platform as “the area of effective competition”.  When defining the market, the Supreme Court distinguished between transaction and non-transaction platforms. Platforms that “facilitate a single, simultaneous transaction between participants” platforms must optimise sales, and thereby the network must find the balance of pricing that encourages the greatest number of matches between cardholders and merchants. As a result, the market should encompass both sides of the platform. However, in non-transaction platforms, such as newspapers, there is no transaction-specific relationship between the two sides. As a result, a (non-transaction) platform should be treated as comprising one-sided markets when the impacts of indirect network effects and relative pricing in that market are minor.

Given this market definition, the Court concluded that the plaintiffs had not carried the burden of proof, because ‘Evidence of a price increase on one side of a two-sided transaction platform cannot by itself demonstrate an anticompetitive exercise of market power. To demonstrate anticompetitive effects on the two-sided credit-card market as a whole, the plaintiffs must prove that Amex’s antisteering provisions increased the cost of credit-card transactions above a competitive level, reduced the number of credit-card transactions, or otherwise stifled competition in the credit-card market their burden.’

Section III provides critiques the Supreme Court’s approach on a variety of levels.

A first dimension concerns how the burden-shifting framework was applied. The majority appeared to believe that the entire antitrust challenge depended on the plaintiff’s prima facie case. Some writers on two-sided platforms make the same mistake. However, that clearly is not what the district court did in this case, and it is not the proper way to think of the burden shifting rule-of-reason framework as applied to platforms. The prima facie step of the rule of reason merely considers whether the plaintiff has presented enough evidence of competitive harm to require the defendant to offer an explanation. Because the defendant is the creator of its restraint and presumably knows what its motives were, it is in a far better position to provide proof of its rationale and effects.

This links to the author’s criticism of the market definition. The majority places production complements (i.e. the two sides of the platform) into the same market, simply because making a deal requires both. This jettisons economically coherent conceptions of the relevant market as a group of substitute goods or services. Superior techniques exist for evaluating the pricing relationship among substitutes and complements, and their effects on market power that do not require abandonment of sensible economics, as the court has done.

In any event, market definition and market share are only the starting points in the analysis of market power by indirect measures. If there is direct evidence of anticompetitive effects – as there was here – no market definition may even be required. However, if one is to look at market definition, the way to go about is to identify substitutes – not complements such as card user and merchant services. Even if the presence of a second market side may affect the ability of the first side to exercise market power – as with complements – no part of that determination requires a conclusion that the second side is in the same market where market power is being exercised.

This leads to the appropriate means to identify anticompetitive harm. No one denies that properly conducted antitrust law already requires analysis of two sides in cases of vertical interbrand restraints, including the tying of complementary products. However, this does not require – and has never required – anything as economically incoherent as putting them into the same relevant market. The law of tying and exclusive dealing both assess competitive effects by examining power in a primary market and foreclosure in a secondary market. Typically, as in Amex, the two products are complements. It is true that the Amex majority concluded that the two sides of the transaction were not complements because they were not purchased by the same buyers; their mistake is that the two sides were clearly complements in production, i.e. goods or services that are produced together, such as oil and natural gas, lumber and sawdust, or voice services and messaging services.

Relatedly, one of the main issues with the Supreme Court’s judgment was its decision to ignore the factual record of the case. The rule of reason requires detailed factual analysis because the restraint is not of a type that can be disposed of categorically, as under per se rules of illegality or legality. However, the majority’s opinion contains a single reference to the record, and virtually no analysis. In, fact, the Court never bothered to analyse the particular transactions at issue, or how the antisteering rule affected consumer behaviour and welfare. The key target of the Sherman Act’s restraint of trade standard is reduced output and, consequently, higher prices. The particular fact finding by the district court hit that target’s bullseye. On the question of output, the record showed everything that the Court needed to know.

Instead, the Court concluded that assessing competitive effects for transaction platforms required the fact finder to evaluate both sides. This required the plaintiff to disprove the free riding pro-competitive justification advanced by American Express – in particular, because the finding that higher prices flowed (ineluctably and indisputably) from the antisteering restriction “fail[ed] to take into account offsetting benefits to cardholders in the form of rewards and other services”. That was tantamount to a conclusion that Amex was entitled to raise merchant prices across the board for the benefit of its own cardholders. However, and in addition to this going against the normal logic of burden shifting under the rule of reason, the majority was confused about the existence and nature of free riding. The Court spoke of the other card companies as free riding on Amex’s “investments in rewards”, likening the anti-steering provision to the use of resale price maintenance to protect against dealer free riding. If a cardholder earned its perks simply by owning an Amex card, then, of course, free riding would be possible; but as the dissent properly noted, American Express rewards attach to specific transactions, not to mere possession of the card. Putting the most sensible gloss on the argument, AmEx had invested in a business model that depended on high merchant acceptance fees. When a merchant offered a customer a lower price to use a different card, that offer undermined Amex’s model. However, this is bizarre to the point of making one wonder if that argument, which now has the majority’s imprimatur, will also appear as a defence to price fixing.

In conclusion, stated in rule of reason terms, the question was whether the plaintiff had presented enough evidence of competitive harm to require the defendant to offer a defence. The harms were clear: cardholders were denied an opportunity to obtain lower prices, and merchants were denied the opportunity for a less costly transaction. From a consumer welfare perspective, the directly affected consumers were worse off, as well as other consumers who were forced to pay higher product prices regardless of the form of payment they chose. While Amex itself benefitted by preserving the transaction to its own system, this was at best a wealth transfer from whatever payment method or platform lost the transaction.

The paper closes with a discussion of what are the implications of this decision for the future.

Grouping both sides of a platform into a single relevant market in cases such as this may be economic nonsense, but it is now the law. The Supreme Court held that not every two-sided platform qualified for its unique approach, but noted that transactional platforms in which there is a simultaneous one-to-one correspondence between the transactions on one side of the platform and those on the other side are “different”.

On a cursory analysis, it would seem that a number of ‘transaction’ platforms – such as ride-sharing, hotel and travel booking sites – would require a two-sided market definition. Platforms that exhibit a looser relationship between transactions on one side and those on the other would not fall within the Court’s “single market” rule. This would seem to include newspapers and advertising, computer search engines, advertiser-supported music streaming and other advertiser supported services, and fee-paying content providers, health insurance providers and intermediaries that bring buyers and sellers together but have little to do with the resulting transaction (e.g. real estate websites or eBay).

There are certainly other examples, but the important point is that only a relatively small subset of two-sided platforms fall within the Court’s requirements for treating the two sides as a single market. On this question, maintaining a coherent economic approach to antitrust policy requires that Amex be limited to its facts.


Coming from the doyen of US antitrust, who in my experience has always sought to adopt a measured tone, this no-holds barred criticism of the US Supreme Court’s decision is a bit surprising – even though it is not the first time that the author engages in acerbic criticism of the Supreme Court (e.g. Kodak).

Despite its range, there is one important criticism of this judgment that the author does not address here, but that an earlier paper reviewed here identified: that the Supreme Court’s formulation of the rule of reason means that any conduct that has some pro-competitive effects will be lawful unless a less restrictive conduct is available – regardless of whether these efficiencies exceed the anticompetitive effects. Another thing that struck me was how Hovenkamp seems to implicitly endorse the European approach to payment card systems, particularly in the Commission’s MasterCard decision and subsequent litigation in the English courts– but maybe I am reading too much into the article on this point.

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