On June 25, 2018, the U.S. Supreme Court, in a 5-4 decision, rejected claims that American Express illegally restrained trade under the Sherman Act. In doing so, the Court laid out for the first time how market definition should be applied to “two-sided” markets, that is, platforms that offer “different products or services to two different groups who both depend on the platform to intermediate between them.” This decision will likely make it more complicated to bring antitrust claims against operators of platforms that can be characterized as two-sided or multi-sided, requiring an antitrust plaintiff to show net anticompetitive harm across all sides of the market.


The case against Amex concerned so-called “anti-steering” provisions that Amex included in its merchant contracts. Amex typically charges merchants higher fees than competing card networks, ostensibly so that Amex can provide greater rewards and other benefits to its card users. Amex said this was fundamental to its business model, which relies on attracting higher income cardholders, who in turn spend more money on their cards. In the past, some merchants wished to encourage customers to use competing cards, a practice known as “steering.” Amex responded by including in its merchant contracts provisions that prohibited merchants from steering, from informing customers of the relative costs of Amex cards, and from taking other actions that might discourage customers from using Amex cards. In addition, Amex adopted a “value recapture” campaign in which it significantly increased the fees it charged to merchants.

The United States and several states alleged that the anti-steering provisions violated Section 1 of the Sherman Act. According to the plaintiffs, merchants steering consumers to use cards with lower fees would force all card issuers to compete more aggressively on processing fees. The district court found that the provisions harmed competition by increasing the price of card processing services to merchants, finding that the anti-steering provisions protected Amex from competition and permitted it to raise its fees without losing significant merchant customers.1 It rejected Amex’s argument that any assessment of competitive effects required considering both sides of the two-sided market because Amex used the fees to pay for attractive rewards for customers, which in turn made the Amex card more valuable for merchants. Thus, the district court rejected Amex’s argument that any increased costs to merchants had to be weighed against any increased benefits provided to users.

The Second Circuit reversed, holding that the competitive effects needed to be considered in a single market for credit card transactions (which includes both merchants and consumers).2 Based on that market definition, it concluded that Amex’s anti-steering provisions had not harmed competition in that market, a holding that the Supreme Court affirmed.

New Rules for Two-Sided Markets

The Supreme Court’s decision focused on how to apply rule of reason analysis to two-sided platform markets like credit cards.

The Court concluded that in a two-sided market, there is just one relevant antitrust market and courts must consider the competitive effects on both sides of the market in conducting a rule of reason analysis. The majority opinion said that Amex was providing “transactions,” which required bringing merchants and consumers together. It conducted an extensive review of the economics literature of two-sided markets and how they work. The Court explained the importance of indirect network effects to two-sided markets and how failing on one side of the market can lead to “a feedback loop of declining demand” on both sides of the market.

Because a successful two-sided market requires sufficient participation on both sides, “[s]triking the optimal balance of the prices charged on each side of the platform is essential for two-sided platforms to maximize the value of their services and to compete with their rivals.” Significantly, the Court acknowledged that the optimal price on one side of the market might be below cost or even negative. As a result, evidence of a price increase on one side of a two-sided market – like the plaintiffs’ evidence of Amex’s increased merchant fees – is not sufficient to show an anticompetitive exercise of market power.3 Instead, a plaintiff must show that the net cost of transactions on the platform were above a competitive level, that the number of transactions (i.e., output) was reduced, or some other stifling of competition in the overall market for platform transactions.

The majority opinion’s also provided some guidance as what qualifies as a two-sided market to which this analysis applies. According to the Court, credit cards are an example of a two-sided market because they “facilitate a single, simultaneous transaction between participants.” But the Court said that some seemingly two-sided markets should be treated as regular, one-sided markets. “A market should be treated as one-sided when the impacts of indirect network effects and relative pricing are minor.” In a prior case involving newspaper advertising, the Court had analyzed only the advertising side of a business model that brings readers and advertisers together. In Amex, the Court said that newspaper advertising should be analyzed as one-sided because “the indirect network effects operate in only one direction: newspaper readers are largely indifferent to the amount of advertising that a newspaper contains.”

The Court also said in a footnote that vertical arrangements, like the Amex merchant rules, may be analyzed differently than horizontal arrangements. The Court has previously said that plaintiffs do not have to prove a relevant market when there is direct evidence of anticompetitive effects, but in the Amex decision the Court limited that exception to horizontal arrangements. This means that antitrust plaintiffs in vertical cases will have to prove a properly defined market, even if there is arguably direct evidence of anticompetitive effects.

What This Means for You

Going forward, the rules for proving an antitrust rule of reason claim in a two-sided (or multi-sided market) are clear: The antitrust plaintiff must prove harm in a single market that encompasses all sides of the market. This will make bringing such claims more complicated, by requiring a more detailed analysis of all sides of the platform plus credible allegations of harm to the market as a whole. Less clear is which markets will qualify as two-sided under the test set forth in the Court’s opinion. As noted, the Court left open the possibility that some two-sided markets should not be treated as such. It is likely that future antitrust claims involving two-sided industries, which have become pervasive in the modern economy, will involve litigating the extent of indirect network effects and whether the Amex requirement of showing a net competitive harm across all sides of a platform market applies.