Ohio v. American Express Co., Docket 16-1454

Antitrust: Economic analysis:

Two-sided platform: Uber: Credit-card market: Antisteering provisions:

Vertical restraints: Rule of reason: Relevant market: Markets for complementary products:

When a cardholder uses a credit card to buy something from a merchant, the transaction is facilitated by a credit-card network. The network provides separate but inter­related services to both cardholders and merchants. For cardholders, the network extends them credit, which allows them to make purchases without cash and to defer payment until later. Cardholders also can receive rewards based on the amount of money they spend, such as airline miles, points for travel, or cash back. For merchants, the network allows them to avoid the cost of processing trans­actions and offers them quick, guaranteed payment. This saves merchants the trouble and risk of extending credit to customers, and it increases the number and value of sales that they can make.

By providing these services to cardholders and mer­chants, credit-card companies bring these parties together, and therefore operate what economists call a “two-sided platform.” As the name implies, a two-sided platform offers different products or services to two different groups who both depend on the platform to intermediate between them. See Evans & Schmalensee, Markets With Two-Sided Platforms,  Issues in Competition L. & Pol’y 667 (2008) (Evans & Schmalensee); Evans & Noel, Defining Antitrust Markets When Firms Operate Two-Sided Plat­forms, 2005 Colum. Bus. L. Rev. 667, 668 (Evans & Noel); Filistrucchi, Geradin, Van Damme, & Affeldt, Market Definition in Two-Sided Markets: Theory and Practice, 10 J. Competition L. & Econ. 293, 296 (2014) (Filistrucchi). For credit cards, that interaction is a transaction. Thus, credit-card networks are a special type of two-sided plat­form known as a “transaction” platform. See id., at 301, 304, 307; Evans & Noel 676–678. The key feature of transaction platforms is that they cannot make a sale to one side of the platform without simultaneously making a sale to the other. See Klein, Lerner, Murphy, & Plache, Competition in Two-Sided Markets: The Antitrust Eco­nomics of Payment Card Interchange Fees, 73 Antitrust L. J. 571, 580, 583 (2006) (Klein). For example, no credit-card transaction can occur unless both the merchant and the cardholder simultaneously agree to use the same credit-card network. See Filistrucchi 301.

Two-sided platforms differ from traditional markets in important ways. Most relevant here, two-sided platforms often exhibit what economists call “indirect network ef­fects.” Evans & Schmalensee 667. Indirect network ef­fects exist where the value of the two-sided platform to one group of participants depends on how many members of a different group participate. D. Evans & R. Schmalensee, Matchmakers: The New Economics of Multisided Plat­forms 25 (2016). In other words, the value of the services that a two-sided platform provides increases as the num­ber of participants on both sides of the platform increases. A credit card, for example, is more valuable to cardholders when more merchants accept it, and is more valuable to merchants when more cardholders use it. See Evans & Noel 686–687; Klein 580, 584. To ensure sufficient partic­ipation, two-sided platforms must be sensitive to the prices that they charge each side. See Evans & Schma­lensee 675; Evans & Noel 680; Muris, Payment Card Regulation and the (Mis)Application of the Economics of Two-Sided Markets, 2005 Colum. Bus. L. Rev. 515, 532– 533 (Muris); Rochet & Tirole, Platform Competition in Two-Sided Markets,  J. Eur. Econ. Assn. 990, 1013 (2003). Raising the price on side A risks losing participa­tion on that side, which decreases the value of the plat­form to side B. If participants on side B leave due to this loss in value, then the platform has even less value to side A—risking a feedback loop of declining demand. See Evans & Schmalensee 675; Evans & Noel 680–681. Two-sided platforms therefore must take these indirect net­work effects into account before making a change in price on either side.

(…) The optimal price might require charging the side with more elastic demand a below-cost (or even negative) price. See Muris 519, 550; Klein 579; Evans & Schmalensee 675; Evans & Noel 681. With credit cards, for example, networks often charge cardholders a lower fee than merchants because cardholders are more price sensitive.

(…) To maintain the loyalty of its cardholders, Amex must continually invest in its rewards program. But, to fund those invest­ments, Amex must charge merchants higher fees than its rivals. Even though Amex’s investments benefit mer­chants by encouraging cardholders to spend more money, merchants would prefer not to pay the higher fees. One way that merchants try to avoid them, while still enticing Amex’s cardholders to shop at their stores, is by dissuad­ing cardholders from using Amex at the point of sale. This practice is known as “steering.”

Amex has prohibited steering since the 1950s by placing antisteering provisions in its contracts with merchants. These antisteering provisions prohibit merchants from implying a preference for non-Amex cards; dissuading customers from using Amex cards; persuading customers to use other cards; imposing any special restrictions, conditions, disadvantages, or fees on Amex cards; or pro­moting other cards more than Amex. The antisteering provisions do not, however, prevent merchants from steer­ing customers toward debit cards, checks, or cash.

(…) The Court of Appeals for the Second Circuit reversed. United States v. American Express Co., 838 F. 3d 179, 184 (2016). It concluded that the credit-card market is one market, not two. Id., at 196–200. Evaluating the credit-card market as a whole, the Second Circuit concluded that Amex’s antisteering provisions were not anticompetitive and did not violate §1. See id., at 200–206.

We granted certiorari, 583 U. S. ___ (2017), and now affirm.

In this case, both sides correctly acknowledge that Amex’s antisteering provisions are vertical restraints— i.e., restraints “imposed by agreement between firms at different levels of distribution.” Business Electronics, at 730. The parties also correctly acknowledge that, like nearly every other vertical restraint, the anti-steering provisions should be assessed under the rule of reason. See Leegin, at 882; State Oil, at 19; Business Electronics, at 726; Continental T. V., Inc. v. GTE Sylvania Inc., 433 U. S. 36, 57 (1977).

(…) The rele­vant market is defined as “the area of effective competi­tion.” Typically this is the “arena within which significant substitution in consumption or production occurs.”

(…) But courts should “combine” different products or services into “a single market” when “that combination reflects commercial realities.” (…) See also Brown Shoe Co. v. United States, 370 U. S. 294, 336– 337 (1962) (pointing out that “the definition of the relevant market” must “‘correspond to the commercial realities’ of the industry”).

(…) As explained, credit-card networks are two-sided plat­forms. Due to indirect network effects, two-sided plat­forms cannot raise prices on one side without risking a feedback loop of declining demand. See Evans & Schma­lensee 674–675; Evans & Noel 680–681.

And the fact that two-sided platforms charge one side a price that is below or above cost reflects differences in the two sides’ demand elasticity, not market power or anticompetitive pricing. See Klein 574, 595, 598, 626. Price increases on one side of the platform likewise do not suggest anticompetitive effects without some evidence that they have increased the overall cost of the platform’s services. See id., at 575, 594, 626. Thus, courts must include both sides of the platform—merchants and cardholders—when defining the credit-card market.

(…) Newspapers that sell advertisements, for example, arguably operate a two-sided platform be­cause the value of an advertisement increases as more people read the newspaper. Klein 579. But in the newspaper-advertisement market, the indirect networks effects operate in only one direction; newspaper readers are largely indifferent to the amount of advertis­ing that a newspaper contains. See Filistrucchi 321, 323, and n. 99; Klein 583. Because of these weak indirect network effects, the market for newspaper advertising behaves much like a one-sided market and should be analyzed as such. See Filistrucchi 321; Times-Picayune Publishing Co. v. United States, 345 U. S. 594, 610 (1953).

Contrary to the dissent’s assertion, post, at 11–12, merchant ser­vices and cardholder services are not complements. See Filistrucchi 297 (“A two-sided market is different from markets for complemen­tary products, in which both products are bought by the same buyers, who, in their buying decisions, can therefore be expected to take into account both prices”). As already explained, credit-card companies are best understood as supplying only one product—transactions—which is jointly consumed by a cardholder and a merchant. See Klein 580. Merchant services and cardholder services are both inputs to this single product. See ibid.

(…) To demonstrate anticompetitive effects on the two-sided credit-card market as a whole, the plaintiffs must prove that Amex’s antisteering 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.

In sum, the plaintiffs have not satisfied the first step of the rule of reason. They have not carried their burden of proving that Amex’s antisteering provisions have anti­competitive effects. Amex’s business model has spurred robust interbrand competition and has increased the quality and quantity of credit-card transactions. And it is “the promotion of interbrand competition,” after all, that “is . . . ‘the primary purpose of the antitrust laws.’”

Because Amex’s antisteering provisions do not unrea­sonably restrain trade, we affirm the judgment of the Court of Appeals.

(U.S.S.C., June 25, 2018, Ohio v. American Express Co., Docket 16-1454, J. Thomas)

Considérations économiques liées au fonctionnement d’un système « two-sided platform ».

Ici le marché considéré est celui des cartes de crédit (considérées comme ne formant qu’un seul marché).

La question posée est celle de la compatibilité avec le droit des cartels de la clause contractuelle que Amex insère dans ses contrats avec les commerçants pour leur interdire de dissuader leurs clients de payer avec le système Amex (qui peut coûter plus cher aux commerçants que les systèmes concurrents, pour financer de cette manière des services plus avantageux aux consommateurs utilisateurs d’Amex, dans le but de faire dépenser davantage ces consommateurs). La Cour juge ici que cette clause contractuelle ne porte pas atteinte au droit des cartels, même bien au contraire. Elle favorise la concurrence intermarques et augmente le nombre et la qualité des transactions par cartes de crédit.