Two-Sided Internet Markets and the Need to Assess Both Upstream and Downstream Impacts

56 Pages Posted: 10 Aug 2018

See all articles by Rob Frieden

Rob Frieden

Pennsylvania State University - Dickinson School of Law; Pennsylvania State University, Bellisario College of Communications and Penn State Law

Multiple version iconThere are 2 versions of this paper

Date Written: July 26, 2018

Abstract

This article explains how information, communications and entertainment (“ICE”) companies can acquire market dominance by erecting a platform serving both downstream consumers and upstream ventures via broadband networks. Operating in a two-sided market, these intermediaries can achieve fast growth as they serve diverse geographical markets without having to erect or lease all the infrastructure needed to reach end users. ICE intermediaries also can expand quickly by accruing positive networking externalities with consumer welfare and incentives to subscribe increasing as subscribership grows. ICE platform operators have thrived in a largely deregulated marketplace based on the assumption that consumers have benefitted without the need for government oversight. However, the court of public opinion may have begun to shift 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 uncompensated consumer data collection, privacy intrusions, eliminated or reduced consumer surpluses and harm to ICE ventures, e.g., newspapers, as well as the earnings, employability and stability of employees operating within the “gig economy.” The article shows how 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 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 two-sided market. Additionally, a court might consider the relevant market as limited solely to one side. On the other hand, the article explains that upside market assessments will become essential for a complete and statutory-compliant evidentiary record. The article will examine an antitrust case reflecting disagreement whether the relevant market for credit card services requires courts to examine the transactions occurring on both sides of a platform linking vendors and consumers. The Supreme Court has validated the need to examine both sides of an intermediary’s two-sided market platform to determine the combined effects on consumers and competition when a credit card issuer tried to impose a contractual prohibition on upstream merchants “steering” consumers to an alternative credit card offering lower processing fees. The lower court rejected the language as potentially raising consumer costs, without considering whether such terms might accrue consumer benefits such as financial rebates and airline miles. The article concludes that two-sided markets require assessments of potential competitive and consumer benefits and harms occurring on both sides in antitrust court and other regulatory proceedings. This approach does not favor more extensive government oversight, but instead supports a better calibrated impact assessment on competition and consumers.  

Keywords: Two-Sided Markets, Broadband Intermediaries, Broadband Platforms, Internet Ecosystem, Internet Unicorns, Vertical Restraints, Ecommerce, Antitrust

JEL Classification: K21, K23, L14, L16, L42, L43, L44, L51, L86, Z11, Z18

Suggested Citation

Frieden, Rob, Two-Sided Internet Markets and the Need to Assess Both Upstream and Downstream Impacts (July 26, 2018). Available at SSRN: https://ssrn.com/abstract=3220474 or http://dx.doi.org/10.2139/ssrn.3220474

Rob Frieden (Contact Author)

Pennsylvania State University - Dickinson School of Law

Lewis Katz Building
University Park, PA 16802
United States

HOME PAGE: http://www.personal.psu.edu/faculty/r/m/rmf5/

Pennsylvania State University, Bellisario College of Communications and Penn State Law ( email )

102 Carnegie Building
University Park, PA 16802
United States
814-863-7996 (Phone)
814-863-8161 (Fax)

HOME PAGE: http://www.personal.psu.edu/faculty/r/m/rmf5/

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