Many of the world's most prominent firms today operate as "platforms" that facilitate interactions among different groups of users. For example, Amazon brings together merchants and consumers; Google joins advertisers and consumers engaged in online search; Facebook connects advertisers with consumers engaged in social networking; the Apple "App Store" links app sellers with iPhone and iPad users; and Airbnb introduces landlords to short-term renters.
The platform business model is hardly new. For centuries, newspapers have acted as a means for advertisers to reach consumers attracted to the platform by the provision of news and other information. Similarly, by providing means of payment, credit and debit card networks have long served as intermediaries between merchants and consumers. Antitrust scrutiny of platforms is also not novel. In the last three-quarters of a century, the U.S. Department of Justice (DOJ) has brought major antitrust cases against several platforms. (1)
What is new, however, is the development of extensive economic analyses of platform competition. Following the pioneering 2006 work of Jean-Charles Rochet and Jean Tirole, (2) scholars have explored the economics of platform conduct and the manner in which antitrust principles should be applied to platforms. (3) Platforms are different, but how different? And how do these differences inform the correct application of legal and economic antitrust principles? In this Feature, we build on recent economic scholarship to address two foundational questions for the application of antitrust enforcement to platforms: first, how courts should account for the distinct characteristics of platforms when defining an antitrust market, (4) and second, how, if at all, courts should weigh user groups' gains and losses on different sides of a platform against one another.
The first question is important because established antitrust analysis generally begins with defining the relevant antitrust market(s), and vigorous, ongoing debate centers on the appropriate approach to market definition in platform industries. (5) A characteristic feature of platforms--close linkages between different sides of a platform (e.g., advertisers want to be on the platform where readers are)--has given rise to the fundamental question of how market definition should reflect these linkages.
One approach, advocated by Lapo Filistrucchi and others for an important class of multisided platforms, defines the relevant product market as encompassing both sides of a platform. (6) Under their approach, one would view Airbnb as competing in a single product market encompassing the rental-matchmaking services sold to landlords on one side and renters on the other. We call this the single-market approach. (7) We ultimately argue, however, that platforms are better viewed as operating in multiple separate, yet deeply interrelated, markets. Under this view, Airbnb participates in one market in the provision of support services to landlords and in another market in the provision of services to short-term renters. We call this alternative the multiple-markets approach. Crucially, when applied appropriately, this approach gives careful consideration to any significant linkages between the markets on the different sides of a platform that might be present. And as we discuss, an advantage over the single-market approach is that the multiple-markets approach fully recognizes that the interests of users on different sides of a platform are not fully aligned with one another, and that the state of competition, and indeed the sets of competitors, on different sides of a platform can significantly differ from one another. (8)
The second foundational question--how should antitrust weigh distinct gains and losses experienced by users on different sides of a platform--arises because, in some cases, anticompetitive conduct harms users on one side of a platform while benefitting users on another. (9) In terms of overarching philosophy, there are two polar approaches. One, net-effect analysis, argues that the appropriate consumer-welfare standard (10) should weigh all platform users equally and focus solely on the net effects. (11) The other pole, separate-effects analysis, insists that each buyer group is entitled to the benefits of competition and, consequently, that harm to one user group due to harm to competition cannot be offset by gains to another user group that result from the loss of competition. By ensuring each group of users enjoys the benefits of competition, separate-effects analysis would resolve that harm to a group of users on one side of a platform due to anticompetitive conduct cannot be offset by gains to a user group on another side that are a consequence of that conduct. We will show that such an understanding better comports with the fundamental purposes of antitrust law.
This Feature proceeds as follows. Part I offers simple hypothetical and real-world analogues through which we illustrate several critical issues pertaining to antitrust enforcement and multisided platforms. Part II discusses the surprising lack of consensus regarding what constitutes a multisided platform. With the issues identified and the nature of platforms themselves examined, Part III turns to the primary role of market definition in assessing market power. Part IV addresses competitive effects between and within markets, examining the effect of a narrow focus on the net price and its implications on balancing harms to users on one side of a platform against gains (if any) to users on the other side. Finally, Part V develops our normative framework for how antitrust law should treat market definition and cross-market effects, in addition to noting the practical implications of such analysis.
A PARADIGMATIC EXAMPLE
Imagine the following: a hypothetical, application-based service named "Dine Out" provides restaurants access to potential customers by making it easy for customers to make reservations. Dine Out is thus a platform facilitating transactions between restaurants and diners. Dine Out charges each restaurant a fee, a portion of which it uses to provide consumers with reward points having monetary value. Imagine further that Dine Out imposes contractual limitations on all participating restaurants that bars them from asking diners to use other means of making reservations that are cheaper for the restaurant or otherwise "steering" diners to such alternatives. These limitations also prevent each restaurant from imposing a surcharge on those diners who use Dine Out rather than a less expensive means of booking, such as calling the restaurant directly.
Such circumstances can arise in a variety of settings. For example, in 2002, the Reserve Bank of Australia required leading credit-card companies to eliminate their rule against surcharges, and subsequent efforts led to the elimination of anti-steering rules that had denied merchants the ability to ask a customer to use a means of payment other than the credit card he or she initially intended to use. (12) Issues regarding limitations on surcharging and steering remain central to Ohio v. American Express. (13) Similar issues arise with respect to the use of platform-parity policies by online booking companies that facilitate transactions between hotels and travelers wishing to purchase travel services. Under such a policy, a hotel must charge its customers the same room rate regardless of the platform through which they book their rooms. (14)
In other situations, platform users themselves, rather than platforms, can impose anti-steering provisions. For example, health insurance companies could be seen to constitute platforms that facilitate the interaction between healthcare providers and patients. The Charlotte-Mecklenburg Hospital Authority allegedly imposed contractual restrictions on insurers to prevent them from telling their members that care was available from a higher quality or lower cost hospital. (15)
Returning to the Dine Out hypothetical, how should courts consider the competitive impact of the restrictions on restaurants? (16) On the one hand, a plaintiff could argue that the contractual provisions harm restaurants by limiting price competition between Dine Out and its rivals because, even if a restaurant participates on both Dine Out and a competing reservation platform, the restaurant has no means of inducing its customers to utilize the platform that is, from the restaurant's point of view, cheaper. Consequently, it would be argued, Dine Out and its rivals face diminished competitive pressures to hold down their fees to restaurants. (17) The plaintiff might also argue that the contractual provisions artificially limit entry by rendering ineffective those business models of new competitors to Dine Out that would charge lower fees to restaurants. Among its responses, Dine Out might contend that the no-surcharge rule and other contractual limitations promote consumer welfare by facilitating the rewards program, which conveys value to customers, and by catalyzing competition among Dine Out and its competitors to offer the best customer rewards.
In terms of our fundamental questions, the plaintiff might adopt the multiple-markets approach and argue that, under a separate-effects analysis, it should prevail if it can demonstrate that merchants are harmed by Dine Out's policies. By contrast, Dine Out might adopt the single-market approach and insist that, under a net-effect analysis, only a showing that merchants were harmed more than diners benefitted would be sufficient for the plaintiff to prevail. As this hypothetical illustrates, the choices of whether to adopt a single- or multiple-markets approach and conduct a net-effects analysis or a separate-effects analysis can fundamentally shape the nature of a court's examination of whether a platform's conduct is anticompetitive. However, before we can discuss the...