Antitrust Policy for Two-Sided Platforms: The Failure of American Express and the Path Forward
44 Pages Posted: 23 Apr 2019
Date Written: February 21, 2019
Two-sided platforms serve two sets of customers and enable them to interact with each other. The five most valuable corporations in America – Amazon, Apple, Facebook, Google, and Microsoft – all operate two-sided platforms. But despite their growing power, the Supreme Court made it more difficult to stop them from stifling competition. In American Express, the Court dismissed a challenge to Amex’s anti-steering provisions, which preclude merchants from steering their customers toward cheaper credit cards. Although these provisions suppress price competition on their face, the Court held that the plaintiffs had not shown that Amex had market power or that its conduct harmed consumers in the aggregate.
This article, the first comprehensive analysis of the decision, exposes the flaws in the Court’s reasoning. It shows that Amex did possess market power. Using a method I proposed in a recent article, it establishes that Amex’s conduct almost certainly enabled it to maintain its fees above the competitive level. It also shows, contrary to the Court’s analysis, that Amex’s repeated fee increases demonstrated market power. Finally, the Court was incorrect to insist that in a two-sided platform case, the relevant market must encompass both sides of the platform. That approach systematically understates the defendant’s power.
The Court’s most fundamental error was to rule that the plaintiffs cannot carry their initial burden unless they tote up the effects of Amex’s conduct on both sides of its platform and show that consumers were harmed on balance. This is procedurally inefficient because it requires the plaintiff to anticipate the defendant’s justifications. It is also substantively wrong. Amex cannot excuse its exclusionary conduct on the ground that it used some of its supracompetitive margin to increase cardholder rewards. Absent a market failure – and Amex could not establish one – those consumer benefits are a byproduct of Amex’s exclusionary behavior, not a reason to allow it.
American Express was deeply flawed. The final section of the article sets forth the principles that should have been adopted and explains how courts can follow them while limiting the impact of this decision.
Keywords: two-sided platforms, high tech, antitrust, monopoly, credit cards, anti-steering provisions
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