Geoffrey Manne on Ohio v. Amex antitrust case on Knowledge@Wharton podcast
Geoffrey Manne recently appeared on the Knowledge@Wharton podcast from the Wharton School at the University of Pennsylvania. The topic of the show was “Why Tech Companies Are Worried about the Ohio v. Amex Case,” and its implications for the economic analysis of two-sided platforms in the tech economy as a result of the impending decision.
From the Knowledge@Wharton page:
A U.S. Supreme Court case over the legitimacy of a credit card issuer’s terms of business with its merchant establishments is reverberating far and wide. Among others, it is rattling technology companies — including Google, Facebook and Amazon — that have business models involving multiple customers.
The case prompting all those fears – Ohio v. American Express – which the Supreme Court heard on February 26, attempts to reverse a September 2016 ruling by the U.S. Court of Appeals for the Second Circuit that went in favor of American Express. At the core of the issue are so-called “anti-steering” restrictions that Amex imposes on merchant establishments, disallowing them to “steer” customers to using cards such as Visa, MasterCard or Discover that charge lower merchant fees than Amex. The merchants would typically do that by offering customers discounts on their purchases, or in essence, “sharing” what they would save in merchant fees if the customers use a lower-fee card such as a Visa or MasterCard.
Knowledge@Wharton discussed the larger implications of the case with Herbert Hovenkamp, a professor with a joint appointment at the University of Pennsylvania Law School and Wharton, and Geoffrey A. Manne, a founder and executive director of the International Center for Law and Economics (ICLE) in Portland, Ore. They shared their insights on the Knowledge@Wharton show on SiriusXM channel 111.
Manne, who is also a distinguished fellow at Northwestern Law School, explained why companies like Amazon, Google and Uber might be worried about the outcome of the Supreme Court decision. “The fear is if you only look at one side of these two-sided markets, or put another way, you look at [one] part of the transaction, there’s a risk that you will see what looks like prima facie anti-competitive harm — whether that’s in the form of high prices without increasing output or some kind of a restraint that looks problematic,” he said.
Technology companies such as Google or Facebook charge prices on one side of their markets, say to advertisers, and use that revenue to subsidize the creation and maintenance of the product itself, which they then give away to consumers, he explained.