Following on from yesterday’s blog on the MasterCard / Visa decision, we’ve also taken a look at how the US is approaching antitrust issues in two-sided markets, with SCOTUS giving its first Opinion on these in the AmEx litigation (originally brought with the DoJ, but continued by only eleven states following the administration change).
AmEx is a closed loop network, with AmEx holding relationships with Cardholders and Merchants. In a 5-4 decision considering anti-steering provisions that prohibited merchants from avoiding fees by discouraging AmEx use at the point of sale, SCOTUS found no violation of the Sherman Antitrust Act (upholding the U.S. 2nd Cir. Court of Appeals). SCOTUS was asked to determine whether the parties had met the burdens in a three step rule of reason analysis (plaintiff must prove anticompetitive effects; defendant must show a procompetitive justification; plaintiff must show that efficiencies could have been achieved through less restrictive means).
The plaintiffs sought to argue that a market definition wasn’t necessary because they had offered evidence that showed adverse effects on competition. The majority disagreed with this, and noted that the cases relied on by the plaintiffs for this proposition were horizontal restraint cases. Here, vertical arrangements were at issue, and given that they’re not always anti-competitive, the market definition was relevant.
The majority held that the relevant market included both sides of the transaction, and it had to be shown that both sides of the transaction were harmed by the provision. The Court stated that “a market should be treated as one sided when the impacts of indirect network effects and relative pricing in that market are minor”, and divided two-sided markets into two categories:
- Two-sided transaction platforms that facilitate a single, simultaneous transaction and are best understood as supplying that transaction as the product (such as those between AmEx Cardholders and Merchants); and
- Platforms where the two sides aren’t selling directly to each other (such as newspapers, where users are indifferent to the amount of advertising).
Further, with the first category, evaluating both sides would be necessary to assess competition; only other two-sided platforms can compete for transactions. Non-transaction platforms often do compete with companies that do not operate on both sides. Unfortunately for the plaintiffs, their evidence was insufficient as they had only focused on the increase to merchant fees. This division will perhaps create some debate as to which category a platform falls into, and arguments around how strong indirect network effects are.
The majority stated that in order to show that the provisions were anticompetitive, plaintiffs should have demonstrated that they increased the cost of credit card transactions above a competitive level, reduced the number of transactions, or otherwise stifled competition. In fact, the majority found that the provisions were pro-competitive, as they helped maintain a competitor to MasterCard and Visa.
The dissenting opinion, which included some persuasive points, wanted the US to follow other jurisdictions and take action against high fees charged by credit-card companies to Merchants, viewing the provisions as clearly anticompetitive. It referred to findings by the District Court, and stated that a market definition was unnecessary because of direct evidence of anticompetitive effects (primarily that AmEx was able to keep increasing fees without losing any large Merchants), but the correct relevant market should have been only the one side – the services are complementary, not substitutes – and that the other side of the market should have come in at the second step of the rule of reason analysis. This perhaps puts the dissenting justices more in line with the CoA’s approach.
Dissenting, Justice Breyer further countered the view that the provisions were pro-competitive by stating that “if American Express’ merchant fees are so high that merchants successfully induce their customers to use other cards, American Express can remedy that problem by lowering those fees or by spending more on cardholder rewards so that cardholders decline such requests”.
Back in the UK, the Merricks collective claim is attempting to show that harm was caused to consumers –not on the flip side of the market, but by Merchants passing on the cost of the MIFs to customers. Although the CAT refused to allow the action, the appeal is due to be heard later this year. Whilst there is quite a hurdle to jump in how to ensure consumers receive compensatory amounts rather than token sums of money, if the class is certified, the analysis of effects on consumers and the links between the different markets could make for interesting reading.
(On a collective action side note… After two years of build-up, it’s good to see that the first trucks collective claim has started rolling towards certification, and interestingly, is using a special purpose vehicle more typical of litigation in the Netherlands than the UK.)