Ohio v. American Express: The Decision [SCOTUSbrief]
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Ohio v. American Express: The Decision [SCOTUSbrief]


Fundamentally, the antitrust laws are about
harm to competition in markets. So, we define the market as our unit of analysis,
uh, where that harm or benefit to the marketplace might occur. The credit card industry operates in what
we call a two-sided market. Companies like Mastercard, Visa, and American
Express balance two sides in the marketplace. One the one side, uh, stores are merchants
that accept cards and allow consumers to use them, uh, at the point of sale. And on the other side, consumers are attracted,
uh, by benefits that cardholders offer, frequent flyer miles, uh, and other amenities. Whereas stores, uh, are attracted by the prospect
of increased sales by consumers who wish to use that card, uh, inside the merchant’s marketplace. In two-sided markets, uh, market definition presents
a fundamental difficulty. There are more than one market or more than
one group of consumers affected. Whether antitrust law would treat two-sided
or multi-sided markets differently than single-sided markets was really what was at stake in Ohio
versus American Express. What was at the heart of this particular litigation
is a contractual provision that American Express requires merchants to agree to. Occasionally, merchants would steer customers
at the point of sale towards using Mastercard or Visa rather than American Express so they
could use lower merchant fees. A steering arrangement, a contractual provision
imposed by American Express among retailers, prohibited merchants from doing so. American Express’ business model was: charge
higher merchant fees, prohibit steering to its competitors at the point of sale, but
to use those higher fees to fund its benefits to consumers. Because of the steering provisions, American
Express was able to increase output over time, become a more effective competitor against
Mastercard and Visa. The tricky question in front of the Court
was whether American Express’ steering provisions, that clearly resulted in slightly higher prices
for merchants at the point of sale, were part of the normal competitive process or were
anti-competitive. Justice Thomas’ opinion focused on the economics
of two-sided markets and how to distinguish them from the normal single-sided markets,
uh, that antitrust is normally concerned with. Justice Thomas’ opinion identified that the
card networks at work here, American Express, were transactional platforms. And the way they competed was a little bit
different than we think about the steel industry, or the automobile industry, or supermarkets,
or other markets that we commonly see at- at issue in antitrust cases. Here, firms compete by bringing together two
sides of disparate markets that have interdependent demand: cardholders and merchants. A rule that harm to any group of consumers
on any side of a platform would be sufficient to declare a practice unlawful, Justice Thomas
reasoned, would result in a rule in which all sorts of pro-competitive activity would
be chilled. The antitrust laws would be doing the opposite
of what they were designed to do. In order to avoid that result, Justice Thomas
and the majority set forth a relatively straightforward rule. And it’s not a special rule for platforms. It is bringing in line antitrust rules for
platforms with traditional treatment. Plaintiffs have the same burden, that is, to satisfy the prima facie burden,
a plaintiff must show harm to the overall competitive process. Justice Breyer authored the dissent and the
opinion, joined by Justice Sotomayor, Kagan, and Ginsburg. Justice Breyer’s dissent held that the appropriate
way to handle multi-sided markets under Section 1 of the Sherman Act would be to allow the
plaintiff to prevail wherever it could show harm to one group of consumers. In this case, Justice Breyer would have concluded
that because merchants pay higher merchant fees when they used the American Express network
as a result of the steering fees, that would be sufficient for the plaintiff’s burden to
be dispelled. The majority decision makes clear that the
antitrust framework for Section 1 that applies to traditional markets is flexible enough
to reach transactional platforms, credit card networks and ridesharing apps being two particularly
good examples. The decision leaves open whether that same
approach will be applied to non-transactional platforms that have the advertisers on one
side and users on another, and are missing that component where each side can be held
together through a common transaction that remains to be seen likely in future litigation.

2 Comments

  • jakexter1

    The anti-competitive market practices doesn't make sense to me. If the merchants don't like the stipulation they don't have to carry the card. You even see this in practice where small businesses won't allow use of those cards (Amex and discover) because of high merchant costs. Maybe I'm missing something as I am not a credit card economist.

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