Defining Antitrust Markets When Firms Operate Two-Sided Platforms

Abstract

Two-sided platforms (2SPs) cater to two or more distinct groups of customers. As we will explore, members of one customer group need members of the other group for a variety of reasons. The platform helps these customers get together in many ways and thereby creates value for these customers that they could not readily obtain without the coordination that the platform provides. Today, 2SPs are the dominant form of business organization in a wide variety of industries, including many economically significant ones. Well-known examples are American Express (travelers’ checks and charge cards), Google (search engine-based portal), the New York Stock Exchange (buyers and sellers), and Microsoft (software platforms). The antitrust issues that can arise for 2SPs are similar to those for traditional businesses. Members of these platforms can conspire to fix prices, to acquire market power through mergers, and attempt to obtain or to perpetuate monopoly power through the usual panoply of unilateral practices. However, the standard tools of analysis may need to be modified to fit these 2SP businesses. This Article focuses on defining relevant markets and assessing market power when the subjects of antitrust analysis include 2SPs. The fact that 2SPs compete simultaneously for two distinct customer groups has three ramifications. First, focusing on one dimension of this competition tends to distort the competition that actually exists among firms. Second, market definition is supposed to identify the constraints on pricing and other business decisions. Changing the price for one set of customers affects the demand of the other set of customers, which in turn has a feedback effect on the demand of the first set of customers. The interdependencies between the two customer groups may provide an economically important constraint, yet this is ultimately an empirical issue. Third, the possibility of obtaining supracompetitive profits through certain business actions depends on the relationship between the two sides due to their interlinked demand and the nature of the competition on both sides. Profits on one side can be dissipated on the other side. That possibility affects the analysis of incentives and the sorts of anticompetitive practices that make business sense.