Chillin'Competition

The U.S. Supreme Court has issued today its Opinion in the AMEX case. It is available here. This is likely to be the most discussed antitrust opinion in the decade.

The lesson in a nutshell. Showing an apparent restriction on one side of a multi-sided platform is not sufficient to meet the burden of establishing prima facie anticompetitive effects. The plaintiffs’ argument “wrongly focusses on just one side of the market”. EU readers will wonder whether this was not already settled, well that is because…

EU Courts got there first. Back in December 2017 I outlined the main lessons flowing from EU case law regarding multi-sided platforms (see here). In that post I wrote “my bet is that when the SCOTUS rules on Amex (a case which some expect will provide us with quasi divine guidance), it will say nothing new as regards what we already have in EU case law”. And then in February, I insisted that the case “is important, but it could not be more straightforward in the light of the current EU case law. Indeed, the issues to be decided upon in that case are exactly the ones that EU Courts have perfectly understood”. Today’s Opinion fits exactly with the ideas developed in those posts. The merit obviously isn’t mine, it’s the ECJ that got it right and got there first. Actually, I think the issue continues to be better solved in EU law than in this case. In the EU we don’t need to hold the existence of a single product/ relevant market to factor in multi-sidedness; considering it under the relevant economic and legal context is arguably a more refined way to get to the right result.

Identifying multi-sided platforms. The Opinion makes sure to explain that not every market exhibiting some indirect network effects qualifies as a multi-sided platform. It relies on established economic literature and, in line with it, clarifies that a market is to be treated as multi-sided when indirect network effects are strong and don’t just go in one direction so that greater output depends on striking the balance between the different sides (“interconnected pricing and demand”).

Burden-shifting. At what stage is multi-sidedness relevant? All parties agree that the restraints should be assessed under a 3-step rule of reason analysis applicable to vertical restraints. In the first step, it is for the plaintiff to show a substantial anticompetitive effect in the relevant market. In the second, it is for the defendant to bring forward a pro competitive rationale. In the third, the plaintiff must show that there were less restrictive alternatives to attain the procompetitive effects. The transcript of the hearing reveals that all parties considered multi-sidedness to be relevant, the question was whether these considerations belonged to the first or second step. In other words, it was all about who bears the burden of proof (i.e who benefits from uncertainty). The SCOTUS makes clear that this is a question to be dealt with upfront by the plaintiff. As the CJEU had already established, multi-sidedness is part of the economic and legal context against which a restriction must be established in the very first place, when the burden still lies with the accuser.

Business model and inter-brand/platform competition. The Opinion notes that Amex competes with Visa and MasterCard “by using a different business model” (i.e. providing better rewards, which requires a continuous investment funded by charging higher merchant fees). The SCOTUS considers that this business model has “stimulated competitive innovations” in the industry, but creates frictions with merchants, who have incentives to “steer” consumers to pay with other cards. The restraints at issue were precisely Amex’s antisteering provisions used since the 1950’s and which the Court considers “necessary to maintain cardholder loyalty”.

On output and inter-platform competition as the relevant criteria. The Opinion confers great importance to the fact that “while these agreements have been in place, the credit-card market experienced expanding output and improved quality”. It also observes that Amex has made payment services “available to low-income individuals who otherwise could not qualify for a credit card and could not afford the fees that traditional banks charge”. It also underlines that the provisions have not stifled but “promote[d] inter-brand competition” and did in no way prevent rivals from promoting their broader acceptance. In my mind, those are indeed the right elements to look at, just like they are for other intra-brand vertical restrictions. In fact. this has a lot to do with what we recently discussed regarding McDonalds. In the words of the Opinion, to establish relevant anticompetitive effects the plaintiffs should prove that the provisions “increased the cost of credit-card transactions above a competitive level, reduced the number of credit card transactions, or otherwise stifled competition in the credit-card market”.

On causality/attributability. The plaintiffs alleged harm was that the high price of Amex’s merchant fees. But the Court rightly observed that rivals’ merchant fees also increased “even at merchant locations where Amex is not present”, suggesting that the explanation may lie not so much in a restriction but “rather [in] increased competition for cardholders”. This is a sound analysis that again reveals how looking at inter-platform competition produces more accurate results than isolating silos.

The phrases that encapsulate it. “Amex business model has stimulated competitive innovations in the credit-card market, increasing the volume of transactions and improving the quality of the services. Despite these improvements, Amex’s business model sometimes causes frictions with merchants”. Once again, I find it quite hard to believe that Justice Thomas wrote something with which I can agree. It has become populistic popular to argue that multi-sided platforms are “gatekeepers”. In reality, all of the ones we typically think of have actually spurred output and competition. If third parties somehow depend on them, or if frictions exist, that is often because they have created opportunities for third parties in the first place. This doesn’t mean specific restrictions cannot be challenged, but one needs to show how they are severable from the system that enables the opportunities/the greater output in the first place (ah, the counterfactual! See point 6 here)

Why this doesn’t immunize multi-sided platforms. Proponents of the new antitrust revolution have been quick to criticize the Opinion for “immunizing multi-sided platforms from antitrust scrutiny”. EU case law again offers two killer arguments against this interpretation:

• Remember what happened after the CJEU ruled in Cartes Bancaires? Under the clarified/new framework the EC was still able to win after the case was sent back to the GC. This is therefore not about immunization; it’s about following the right analytical framework, without shortcuts.
• Vertical restraints (which is what anti-steering provisions are, according to all parties) have long been held to pretty much the same standard now applicable to multi-sided platforms, and for the very same reasons. It is not enough to show an apparent reduction in intra-brand competition if it spurs inter-brand competition. See cases like Pronuptia or Metro. And has this resulted in immunizing vertical restraints? No, it has only structured the analysis to adapt it to reality. Good cases remain possible.

A 5-4 vote. The 5-4 vote, and above all, the transcript of the oral hearing reveals that some misconceptions were not entirely dispelled. That is unfortunate, particularly because I generally tend to agree with the Justices who are on the dissenting side in this case. When time allows we will write another post commenting on the dissenting opinion and on why I think it gets it wrong, at least under EU law standards. Some may think the 5-4 vote suggests that this is a political decision. The convergence with EU case law would suggest this is not the case.

A very timely Opinion. For many reasons, this is a very timely Opinion. In 5 days I was supposed to hand in an article for The Antitrust Bulletin dealing precisely with case law lessons for antitrust enforcement in multi-sided markets! Fortunately, since my second son was born just last week (now I need to babysit another Pablo 😉 ) and summer looks busy,  the editors have graciously granted me an extension until late October. The thoughts in this blog post will be expanded then, also to incorporate this case and reflect any comments you might have.

Disclaimer. I had no role in this case and don’t work for Amex. I do work for a number of multi-sided companies that will like this Opinion, and also for a bunch of not multi-sided companies that may not. The views in this post are the same ones I have been holding for the past 4 years including here, here,here and here.