The Same Coin? Two-Sided Markets in the U.S. and EU

Defining the relevant market remains a central feature of antitrust analysis. Traditionally, courts in the United States (U.S.) and European Union (EU) defined markets based on demand- and supply-side substitutability where buyers and sellers directly exchange a single product or service. But as digital and other markets involving “platforms” that simultaneously interact with more than one group of customers have grown into a key part of the global economy (e.g., payment cards, ride-sharing apps, food delivery services, etc.), literature emerged regarding “two-sided” or “multi-sided” markets. This literature and the underlying economic phenomenon, in turn, influenced U.S. and EU courts to adjust relevant market definition when examining antitrust claims involving such platforms.

Two-Sided Market Definition in the United States

Two-sided market definition expands traditional applications of single-market definition to encompass two groups of customers linked by a transaction platform. Most prominently, the U.S. Supreme Court in Ohio v. American Express Co., 138 S. Ct. 2274 (2018) (“Amex”), upheld a two-sided market definition for the credit-card industry because “credit-card networks cannot make a sale unless both sides of the platform [i.e. cardholders and merchants] simultaneously agree to use their services.”

Since the Amex case, U.S. courts have considered applying a two-sided market definition to airline global distribution systems and health insurance. Judges retain discretion to determine as a matter of fact when other industries involve two-sided transaction platforms in accordance with the Supreme Court’s framework.

When evaluating a two-sided transaction platform, U.S. courts look at the competitive effects on both sides of the platform. While the parameters for applying two-sided market definition remain subject to debate and development, courts have provided the following guidance in evaluating two-sided transaction platforms:

• Assessing competitive price requires examining the two-sided price, or “net price,” of a transaction on the platform; evidence related to price solely on one side is insufficient to demonstrate anticompetitive effects.
• Prices are supracompetitive only where the net prices charged to each side of the platform combined exceed the prices that would have been charged in a competitive market.
• The platform’s indirect network effects may require it to charge one side more than the other and design its relative price structure to “bring both sides onboard.”
• Measuring damages requires accounting for countervailing effects to each side of the platform.

See, e.g., Amex, 138 S. Ct. at 2287; US Airways, Inc. v. Sabre Holdings Corp., 938 F.3d 43, 57, 59; In re Payment Card Interchange Fee & Merch. Disc. Antitrust Litig., 2022 WL 14865281, at *12 (E.D.N.Y. Oct. 26, 2022).

Two-Sided Market Definition in the EU

Debate is ongoing in the EU over whether and when reviewing authorities should apply the single-market approach (i.e., two-sided market definition) or a “multi-markets” approach to market definition in cases involving multi-sided platforms. Unlike the two-sided market approach, the multi-markets approach involves defining separate markets for each customer group and considering the cross-group network effects both at the market definition stage and at subsequent stages of a competition law analysis. See, e.g., Judgment of 11 September 2014 in Case C-67/13 P, Groupement des cartes bancaires v Commission, ECLI:EU:C:2014:2204, paras. 77-80.

The EU courts also balance multi-sided platforms’ competitive effects differently. Unlike the U.S. courts’ combined weighing of competitive effects from each side of a platform, EU courts cannot offset anticompetitive effects on only one side of the platform with procompetitive advantages on the other side absent evidence of “appreciable objective advantages” in the market at issue. See, e.g., Judgment of 11 September 2014 in Case C-382/12 P, MasterCard and Others v Commission, ECLI:EU:C:2014:2201, para. 242.

Although the Commission and EU courts have generally preferred the multi-markets over the single-market approach, the Commission’s recently released draft revised Market Definition Notice offers new guidance for multi-sided platforms. The Commission may define the relevant market for multi-sided platforms as either a single market (i.e., two-sided) or separate markets for each side of the platform (i.e., multi-market). The Commission may also consider non-price elements in assessing substitution, including product functionality, intended use, evidence of hypothetical substitution, industry views, barriers to entry, and switching costs.

Conclusion

As reviewing authorities on both sides of the Atlantic continue to tailor market definition to fit evolving multi-sided platforms, more and more industries may be subject to analysis where competitive effects including price are considered only when combined and netted together to take into account how those platforms operate and simultaneously serve two sets of customers in the real world.