On June 25, 2018, the U.S. Supreme Court, in a 5-4 decision by Justice Thomas, held that provisions in American Express Company’s contracts with merchants that restricted the ability of these merchants to steer customers to other credit or charge cards did not violate the Sherman Act. Ohio v. American Express Co., 138 S. Ct. 2274, 2280 (2018). In doing so, the Court recognized the importance of examining the effects on an alleged restraint on both sides of a two-sided platform market.

This ruling has important implications for antitrust analysis, not only for the credit card industry, but for other industries that operate in two-sided, or even multisided platform markets where firms must compete simultaneously for different groups of customers whose demands are distinct but interrelated.


American Express contracts with merchants to accept charges on its charge and credit cards in return for its agreement to reimburse merchants for those charges, minus a designated merchant discount fee. American Express’s merchant contracts typically contain non-discrimination provisions (NDPs) in which the merchant agrees not to discriminate against American Express by, inter alia, indicating a preference for another card or attempting to dissuade cardholders from using the card. United States v. American Express Co., 838 F.3d 179, 191 (2d Cir. 2016). The plaintiffs (the U.S. Department of Justice (DOJ) and 17 state Attorneys General) challenged the NDPs under Section One of the Sherman Act, arguing that the NDPs unreasonably restrained competition because they allegedly reduced competitors’ incentives to reduce merchant fees because reducing merchant fees would not necessarily result in greater volume. Id. at 192. After a lengthy bench trial, the District Court agreed, finding that the NDPs were unreasonable restraints in violation of the Sherman Act. United States v. American Express Co., 88 F. Supp. 3d 143 (E.D.N.Y. 2015). Based on this finding, the court entered a sweeping injunction that not only prohibited American Express from enforcing the NDPs, but prohibited American Express from unilaterally treating merchants differently based on whether they steered or not. United States v. American Express Co., 2015 WL 1966362 (E.D.N.Y. Apr. 30, 2015). On appeal, the Second Circuit reversed the District Court’s order, holding that the plaintiffs had failed to prove the NDPs violated the Sherman Act. The state plaintiffs, but not DOJ, petitioned for certiorari, which the Supreme Court granted.


Because the NDPs are vertical restraints subject to the rule of reason, the Supreme Court began with market definition. The District Court had found that the relevant market was for the provision of “network services,” meaning the “core enabling functions provided by networks, which allow merchants to capture, authorize, and settle transactions for customers who elect to pay with their credit or charge card” and expressly rejected the idea that the market should be evaluated as a “single platform-wide market for transactions” that encompassed both merchant and consumer interactions. 88 F. Supp. 3d at 171–72. The Court rejected this approach, agreeing with the Second Circuit that the credit card industry operates in a two-sided market that simultaneously provides service to two different groups: cardholders and merchants. 138 S. Ct. at 2280. 

In evaluating how the NDPs affect competition, the Court focused on the interconnected nature of the respective demands on each side of the market — demand for merchants to accept a network’s card and the demand for consumers to use it — explaining that a credit card “is more valuable to cardholders when more merchants accept it, and is more valuable to merchants when more cardholders use it.” Id. The Court described the dynamic relationship between these groups as an example of “indirect network effects,” a feature of two-sided platforms where the value of the platform to one group depends on how many members of another group participate. Id. at 2280–81. Indirect network effects, the Court observed, are critical considerations for competition among two-sided platforms, which “must take these indirect network effects into account before making a change in price on either side,” or they risk creating “a feedback loop of declining demand.” Id. 

The Court found that the plaintiffs failed to take these two-sided considerations into account in defining the relevant market and that the plaintiffs’ focus on merchant fees improperly ignored competition on the other side of the market: the competition for cardholders. Id. at 2287. Plaintiffs’ evidence of fee increases to merchants, the Court found, “cannot by itself demonstrate an anticompetitive exercise of market power” because “Amex uses its higher merchant fees to offer its cardholders a more robust rewards program, which is necessary to maintain cardholder loyalty and encourage the level of spending that makes Amex valuable to merchants.” Id. at 2287–88. Thus, higher prices charged by Amex to merchants were not an anti-competitive effect of the NDPs in its merchant contracts, but rather evidence that competition for cardholders — in the form of better cardholder rewards funded by those increased merchant fees — was in fact flourishing. Id. at 2288–90.


The American Express case contains several lessons for antitrust analysis and antitrust litigation, and these are not limited to two-sided markets. While some of these lessons are not particularly novel, they bear repeating because they found an unusual application in this case and because they are sometimes forgotten, including by regulators and enforcers. 

First, antitrust analysis must consider the total market affected by a restraint, including two-sided platform markets where appropriate. Here, the plaintiffs and their expert acknowledged that the market was two-sided but made minimal efforts to incorporate that fact into their analysis. The District Court took the same approach, not wishing to take “the concept of two-sidedness too far.” 88 F. Supp. 3d at 172–73. The Supreme Court, on the other hand, devoted substantial discussion to the proper approach to twosided analysis. 138 S. Ct. at 2280–81. In light of this analysis, it will be difficult for future litigants to simply pay lip service to two-sided issues when they are properly presented. In all two-sided platform markets, the firm must balance the value offered on one side of its platform with the value offered on the other. Often, the firm sets the price on one side of the platform as free or even negative to generate demand on the other side and thereby maximize its total revenue. Analysis of competition in platform industries must consider the effects of the restraint on both sides of the platform, including the kind of feedback loop and network effects that were central to the Court’s analysis here. 

Second, price increases standing alone do not demonstrate market power. The Court rejected the District Court’s reliance on merchant fee increases as proof of either market power or anticompetitive effects because this analysis did not consider prices on the other side of the platform. Id. at 2288. Nor did the plaintiffs attempt to establish by any other means that American Express’ pricing or margins on transactions were supracompetitive. Id.  

Third, strong consumer demand for a product does not equate to market power where continuing investment and price competition are necessary to maintain that demand. If a vertical restraint does not enable a firm to relax its competitive efforts, the restraint simply does not increase or maintain market power. 

Fourth, vertical restraints that protect differentiated product competition are important and valuable. The plaintiffs’ case was both remarkably simple and remarkably narrow — merchant fees were higher than they would be absent the NDPs; they ignored the admitted innovation, competition and consumer benefits that characterized the industry in recent years. By contrast, the Court found that NDPs “promote interbrand competition” by protecting American Express’s investments in cardholder rewards, which in turn enable American Express to pursue a differentiated business model that “focuses on cardholder spending rather than cardholder lending.” 138 S. Ct. at 2282, 2288. While enforcers have an understandable desire for lower prices generally, they should carefully consider the benefits of differentiated product competition before challenging a restraint designed to promote such competition.

Finally, antitrust litigants who ignore evidence of output do so at their peril. As the Supreme Court noted, the plaintiffs did not and could not attempt to prove that the NDPs reduced output. 138 S. Ct. at 2288–89. In fact, the evidence showed that output of transactions was skyrocketing and competition for consumers was intense, manifesting itself in any number of ways, not the least of which was consumer rewards.