Disaggregating Market Defnition: Amex and a Plural View of Market Defnition

• Publication year: 2021
• Citation: Vol. 98

98 Nebraska L. Rev. 460. Disaggregating Market Defnition: AmEx and a Plural View of Market Defnition

Disaggregating Market Defnition: AmEx and a Plural View of Market Defnition[DAGGER]

Daniel Francis(fn*)
Jay Ezrielev(fn**)

ABSTRACT

The orthodox view of market definition in antitrust cases is that the same principles of market definition should apply at all stages of an antitrust analysis, and, in particular, that markets should be defined for virtually all purposes by reference to demand-side substitutability. Commentators have struggled to reconcile the Supreme Court's recent decision in Ohio v. American Express Co.-in which the majority combined services to cardholders and services to merchants into a single antitrust market, despite the evident lack of substitutability between them-with that familiar view.

In this short Article, we suggest that this effort at reconciliation may be unnecessary, and perhaps even undesirable. Against the orthodox view, we claim that market definition should be "disaggregated" such that the correct approach to market definition may vary depending on the element of the antitrust analysis for which it is being used. Thus, while market definition based on substitutability is an appealing tool for the assessment of market power, it may not be appropriate for the evaluation of competitive effects in all cases under Section 1 of the Sherman Act. The majority opinion in AmEx can (and perhaps should) be understood as an implicit-albeit cryptic-endorsement of a disaggregated approach to market definition.

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TABLE OF CONTENTS

I. Introduction .......................................... 461

II. The AmEx Majority Opinion ........................... 465
A. Overview .......................................... 465
B. Market Definition ................................. 465
C. Analysis of Competitive Effects .................... 467

III. AmEx and a "Plural View" of Market Definition ....... 470
A. The Unitary View ................................. 472
B. The Plural View ................................... 476

IV. AmEx and the Integrity Principle ..................... 480

V. Conclusion ............................................ 485

I. INTRODUCTION

The decision of the U.S. Supreme Court in Ohio v. American Express Co. (AmEx) has sparked a surge of interest in the antitrust analysis of multisided platforms.(fn1) The case concerned agreements between American Express and merchants that accept American Express cards, prohibiting those merchants from "steering" customers away from American Express cards.(fn2) The Court's decision evaluated the claims of a set of government plaintiffs that such "antisteering" provisions violated Section 1 of the Sherman Act.

The distinguishing (if, arguably, not quite unique(fn3)) feature of the decision lies in the fact that the American Express credit card network is a "multisided platform." The two sides of the American Express platform serve, respectively, the cardholders and merchants participating in the network. While lower courts have previously grappled with antitrust analysis in the context of platforms,(fn4) AmEx represents the Supreme Court's first modern foray into this space, triggering an outpouring of scholarly literature(fn5) as well as considerable attention in the popular press.(fn6)

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In his opinion for the Court, Justice Thomas concluded for a five member majority that the plaintiffs had failed to make a prima facie showing-as required at the first stage of rule of reason analysis- that the defendant's antisteering provisions gave rise to an anticompetitive effect, thus foreclosing liability under Section 1 of the Sherman Act. Justice Breyer's dissent for four members of the Court accused the majority of ignoring elementary antitrust principles and neglecting an ample record of anticompetitive effects.

While the two opinions diverge on a number of issues, the most significant disagreement relates to market definition. Specifically, a majority of the Court held that the relevant market for the antitrust assessment of the antisteering provisions should include services and customers on both sides of the platform: that is, both merchant and cardholder services.(fn7) The dissent protested that this market definition violated the cardinal antitrust principle that relevant markets can include only substitutable products and services.(fn8) By this logic, because cardholder services are not substitutable for merchant services, the relevant market in AmEx-and the assessment of prima facie competitive effects-should have included only the merchant side of the platform.(fn9)

These dueling opinions have sparked a minor cottage industry in AmEx exegesis (in which this Article gladly participates), as scholars and practitioners attempt to work out what the decision implies for future Sherman Act cases involving multisided platforms (and cases arguably involving multisided platforms(fn10)). Although the AmEx majority restricted the scope of its analysis to cases involving "transaction platforms" for which a sale on one side of platform must occur simultaneously with a sale on the other side of a platform, readers

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from Justice Breyer onward have noted that the logics of the majority opinion may not easily be confined to such platforms.(fn11) Thus, AmEx appears to have raised more questions than it has answered. And, as multisided platforms are ubiquitous in commerce, those questions cast a long shadow over a wide variety of industries, including (in addition to credit and payment cards): online dating sites, online search, cable television, online marketplaces, physical marketplaces, operating systems, applications software, social media, newspapers and magazines, smartphones, medical conferences, vacation rental networks, job search networks, insurance networks, restaurant reservation systems, and ride-sharing services.

In this Article, we set out one account of what AmEx could mean for market definition in future antitrust cases. We argue that, while the conventional view of market definition (which we will call the Unitary View) holds that market definition must be approached in the same way in all the stages of an antitrust analysis-such that, for example, the correct relevant market in which to analyze market power is automatically the correct relevant market in which to assess competitive effects-the AmEx majority opinion suggests a different approach. We offer an alternative view (which we call the Plural View), according to which the principles of market definition may vary with the antitrust analysis being considered. Specifically, we claim that market definition for the purposes of determining market power and market definition for the purposes of measuring competitive effects need not involve the application of the same rules, and need not produce the same answers. And if market definition is ultimately an exercise in defining which market participants and activities matter for the purposes of antitrust analysis, our basic claim is that different sets of market participants and activities may matter for different purposes.

We reserve for another day, and for a lengthier writing, the many broader questions raised by the Plural View. In particular, we do not offer a general account of when and to what extent the principles of market definition should be differentiated. Instead, by way of a starting point, we offer here the tentative view that the "substitutability principle"-according to which an antitrust market contains reasonable substitutes from the perspective of the demand side of the market, and only such reasonable substitutes-is an appropriate yardstick when measuring market power, but it may not be an adequate measure for assessing competitive effects in every Section 1 case.

We offer an alternative market definition principle for the assessment of competitive effects in Section 1 cases. Under this principle (which we call the integrity principle), the relevant market in which to

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assess competitive effects must include the direct effects of the challenged conduct as well as any effects of the conduct that the defendant has the ability and incentive to engage in because of the challenged conduct. Relevant markets defined based on the integrity principle may be broader than conventional substitution-based markets. In a case involving conduct by a company operating a two-sided platform, the integrity principle implies that activities and effects on both sides of the platform should be included in a competitive effects analysis when and only when-as in AmEx itself-the challenged conduct on one side of the platform gives the defendant the ability and incentive to engage in conduct, impose term, or otherwise create effects on the other. We argue that this principle not only sets a logical bound to AmEx's single market approach in Section 1 cases, but that it is grounded in and consistent with existing practices with respect to the antitrust analysis of both conduct and mergers.

To be clear, we address here only the question of which activities and entities should be included in the definition of a relevant antitrust market for effects analysis under Section 1 of the Sherman Act. We do not argue that procompetitive benefits should be assessed in the first stage of a rule of reason analysis under Section 1. It is elementary that a plaintiff's burden at this first stage is limited to a showing of anticompetitive effects, not...