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In Ohio v. American Express Co., the Supreme Court applied antitrust’s rule of reason to a two-sided platform. The challenge was to an “anti-steering” rule, a vertical restraint preventing merchants from shifting customers who offered an AmEx card from to a less costly alternative such as Visa or Mastercard.

A two-sided platform is a business that depends on relationships between two different, noncompeting groups of transaction partners. For example, a printed periodical such as a newspaper earns revenue by selling both advertising and subscriptions to the paper itself. Success depends on a platform’s ability to maintain the appropriate balance between participation on one side and the other. For example, if Uber, a two-sided platform offering transportation services, sets too high a fare it will have enough drivers but too few passengers.If the price is too low, it will have too many passengers in relation to available drivers.

Administering antitrust under the rule of reason depends on careful fact finding. Under antitrust’s per se rule, once a practice is proven little evidence of anticompetitive effects is relevant. By contrast, the rule of reason requires a searching factual examination of a record, enabling the court to understand the effects of the defendant’s activities. This obliges appellate courts to review the record, and the Supreme Court’s AmEx opinion should be tested against this requirement. The Court ignored specific district court fact findings to the effect that AmEx’s anti-steering rule imposed higher costs on everyone, including customers who purchased with cash.

The Court also concluded that AmEx’s anti-steering rule combatted free riding, because otherwise competing card issuers could profit from AmEx’s business model. That might be true if one could obtain AmEx’s perks merely by owning the card, but here one received the perks only for transactions actually made with the card, so there was no free riding.

More generally, the Court’s analysis assumed that costs on one side of a two-sided platform are offset by gains on the other side. In some situations, such as the Uber example above, that may be true. But in the AmEx case both sides of the platform were harmed by the anti-steering rule. Both customers and merchants lost an opportunity to bargain around Amex's higher fees. In addition, competing platforms were also worse off because whey were denied the opportunity to offer a lower cost substitute transaction.

Competition always exists at the margin. One cannot evaluate the competitive effects of a particular restraint by considering whether the overall costs of a defendant’s business practices exceed the benefits. The AmEx challengers were not trying to tear down AmEx’s entire business, but only to enjoin its anti-steering rule. That requires assessing the marginal costs and benefits of the anti-steering rule. The record was clear that at the margin each merchant affected by the steering rule was worse off, and each cardholder was worse off as well.

The Court’s assumption about offsetting cost and benefits also led it to conclude that in a qualifying two-sided platform, both sides should be included in the market definition. The two sides are, of course, complements in production, not substitutes. This holding is thus in conflict with an idea that is central to antitrust analysis, which is that relevant markets consists of a “collusive group,” or substitutes.

Further, the Court exacerbated this problem by holding that in a case involving a vertical restraint a relevant market must be defined, even if market power is based on direct effects. That conclusion, which was never briefed or argued and never cited any of the economic literature on the question, flies in the face of decades of progress toward more accurate methodologies for assessing power. Further, it turns into a question of law something that is clearly an issue of fact – namely whether the defendant has sufficient power to produce an anticompetitive restraint.

The Court did limit the scope of its holding to situations involving a simultaneous one-to-one transaction across the two sides of the platform. That would include credit card networks as well as other direct transactional networks such as Uber. However, it would exclude situations where there is not a simultaneous one-to-one relationship between transactions on the two sides, such as Netflix or music streaming services, periodicals or search engines partially supported by advertising, or most exchanges on sports networks. Neither would it include situations where the relationship between the transactions on the two sides is actuarial, such as health insurance networks.


two-side markets, rule of reason, relevant market, market power, free riding, vertical restraints

Publication Title

Columbia Business Law Review

Publication Citation

2019 Colum. Bus. L. Rev.. 35 (2019)