Two Sided Internet Markets and the Need to Assess Both Upstream and Downstream Impacts
56 Pages Posted: 14 Mar 2018 Last revised: 22 Aug 2018
Date Written: March 1, 2018
This paper will explain how many information, communications and entertainment (“ICE”) markets support companies serving both downstream consumers, but also upstream ventures that access consumers primarily through an intermediary. Operating in a double-sided marketplace, intermediaries can achieve fast growth as they serve diverse geographical markets without having to erect or lease the telecommunications and information processing infrastructure needed to switch, route and deliver content to end users. ICE intermediaries also can expand quickly by accruing positive networking externalities as consumer welfare and incentives to subscribe increase. ICE platform operators have thrived in a largely deregulated marketplace with prospective regulation largely preempted by the view that consumers have benefitted without the need for government oversight. However, the court of public opinion may have begun to deviate from the view that platform operators present a universally positive value proposition. A proper assessment of consumer welfare balances downstream enhancements through convenience, cost savings, free-rider opportunities and innovation with upstream costs including the value of uncompensated consumer data collection, the viability and competitiveness of ICE ventures, e.g., newspapers, as well as the earnings, employability and stability of employees operating within the “gig economy.” The paper determines that many of the platform intermediaries most likely to harm consumers and competition have benefitted by a reluctance of government agencies to examine upstream impacts. Such reticence stems from legitimate concerns about over-reach, mission creep and jurisdiction. It also may represent prudent concerns that government not interfere and handicap successful ventures simply because their marketplace victories also trigger defeats. An emphasis on consumer impact steers agencies and reviewing courts toward a downstream emphasis, because consumers reside on that side of the double-sided market. On the other hand, the paper asserts that upside market assessments will become essential for a complete and statutory-compliant evidentiary record and thorough analysis. The paper will examine United States v. American Express Company, 838 F.3d 179 (2d Cir. 2016)(appeal pending), where an appellate court assessed both sides of a credit card issuer platform to determine the combined effects on consumers when an issuer tried to impose a contractual prohibition on merchants “steering” consumers to an alternative credit card offering lower processing fees to merchants. The lower court rejected the language as potentially raising consumer costs, without considering whether such terms might actually facilitate consumer benefits such as financial rebates. The paper concludes that double-sided markets require assessments of potential competitive and consumer harm occurring on both sides.
Keywords: double-sided markets, platforms, Internet intermediaries, positive network economies, gig economy
JEL Classification: D49, D61, D85, K23, L22, L51, L86, L96, O33
Suggested Citation: Suggested Citation