Two-Sided Red Herrings

11 Pages Posted: 18 Oct 2018

See all articles by David S. Evans

David S. Evans

Global Economics Group; University College London

Richard Schmalensee

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: October 2, 2018

Abstract

A surprising amount of debate leading up to the Supreme Court’s decision in American Express, and the commentary following this landmark ruling, attempt to trivialize and marginalize the modern economic learning on multi-sided platforms. Despite these efforts the 2nd Circuit Court of Appeals and the Supreme Court ultimately embraced the economic literature on these business models.

This article debunks five red herrings that have been floated in the debate:

(1) the two sides are just complements, nothing new there;

(2) everything is two-sided, or who’s to know what’s two-sided;

(3) as industries mature two-sidedness goes away;

(4) markets must be one sided since the services to the two sides aren’t interchangeable; and

(5) two-sided analysis “devastates” antitrust law.

The Supreme Court’s decision has raised a host of interesting issues, including how to deal with two-sided platform businesses that look different from American Express’s credit-card platform and what sort of evidence is necessary or sufficient in markets with platform businesses to establish competitive effects. Like any Supreme Court decision, not every word was chosen as carefully as it might have been, and clarifications will be needed going forward. The large and evolving literature on two-sided platforms will prove helpful to sort that out and we anticipate that the courts will embrace this constructive approach.

Keywords: multisided platforms, two-sided platforms, American Express Supreme Court decision, indirect network effects, antitrust of two-sided platforms

JEL Classification: L11, L14, L21, L40, L41, L42, K21

Suggested Citation

Evans, David S. and Schmalensee, Richard, Two-Sided Red Herrings (October 2, 2018). Available at SSRN: https://ssrn.com/abstract=3261802 or http://dx.doi.org/10.2139/ssrn.3261802

David S. Evans (Contact Author)

Global Economics Group ( email )

111 Devonshire St.
Suite 900
Boston, MA 02108
United States

University College London ( email )

Gower St
London WC1E OEG, WC1E 6BT
United Kingdom

Richard Schmalensee

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Room E62-525
Cambridge, MA 02142
United States
617-253-2957 (Phone)
617-258-6617 (Fax)

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