ICLE Scholars Co-Author Supreme Court Amicus Brief in American Express Platform Antitrust Case - International Center for Law & Economics

ICLE Scholars Co-Author Supreme Court Amicus Brief in American Express Platform Antitrust Case

This week, a prestigious group of fifteen scholars of antitrust law and economics — ten of whom are affiliated with ICLE — submitted an amicus brief to the United States Supreme Court in State of Ohio, et al. v. American Express Company, et al., “one of the most important antitrust cases in years.” The brief was chiefly authored by ICLE senior scholar, Joshua Wright, and co-authored by ICLE scholars, Geoffrey Manne and Gus Hurwitz, and ICLE academic affiliate, Thom Lambert.

The case involves an antitrust challenge by several state governments alleging that certain provisions in the contracts that American Express executed with merchants resulted in supracompetitive merchant fees. The provisions in question prohibited merchants from advertising discounts or similar incentives to customers in exchange for using non-American Express cards with lower fees. As a result, the states argue, and the district court held, that the provisions “create an environment in which there is nothing to offset [American Express’] incentives. . . to charge merchants inflated prices for [its] services. This, in turn, results in higher costs to all consumers who purchase goods and services from these merchants.” The district court’s decision — and the Petitioners’ argument before the Supreme Court — treated the provisions as typical vertical restraints between the card networks and the merchants, and looked solely at the prices (fees) charged to merchants to identify anticompetitive effect.

The Second Circuit overturned the district court, holding that the antitrust assessment of vertical restraints in two-sided platform markets (like credit card networks) requires more. In particular, the court held that the rule of reason required the plaintiffs to demonstrate not only that the provisions had anticompetitive price effects on the merchant side, but also that any merchant price effects were not outweighed by benefits realized on the cardholder side of the two-sided market.

The antitrust law & economics scholars’ amicus brief supports the Second Circuit’s holding. As the brief notes:

An antitrust plaintiff’s burden is to demonstrate harm to competition, which is defined as harm to the competitive process or to consumers. The Government, however, would have the Court lessen the plaintiff’s burden by allowing it to be satisfied by evidence of price effects limited to an artificially isolated and misleading component of the relevant market. This argument commits two fundamental errors.

First, it erroneously ignores output effects and presumes price effects are conclusive of, or at least tend to provide good evidence regarding, harm to consumers. As noted, price effects are relevant to the extent they are consistent with a reduction in market output or an increase in quality-adjusted market-wide cost to consumers. However, this Court has rejected the proposition that price effects are sufficient to discharge a plaintiff’s burden in contexts where these effects are not informative of an output reduction—for instance, when a price increase is implemented to reflect a quality increase. The Leegin Court explicitly held that the respondent was “mistaken in relying on pricing effects absent a further showing of anticompetitive conduct,” recognizing “prices can be increased in the course of promoting procompetitive effects.”

In other words, when both prices and output increase, courts do not condemn the conduct because these simultaneous results do not indicate that competition has been restricted or consumer welfare harmed. Since market-wide output in two-sided markets is dependent upon the distribution of prices between the two sides, and not just upon the overall prices set for each side, price effects here are particularly uninstructive.

Second, Petitioners’ argument inappropriately divorces inherently intertwined aspects of the market. Plaintiffs cannot lessen their burden by artificially cordoning off segments of the market, and then purporting to show harm only in that artificially segregated piece.

* * *

Petitioners’ rule presumes that a demonstration of effects on one side of a two-sided market sufficiently represents market-wide effects. But modern economics provides no basis for such a presumption. To the contrary, economic analysis demonstrates that consumer welfare might increase, decrease, or remain steady when prices change on one side of a two-sided platform. Accordingly, analyzing just one side of a two-sided market is likely to mislead courts erroneously to condemn procompetitive conduct. It may also lead enforcers to wrongly allow anticompetitive conduct to persist; for instance, an enforcer might analyze effects on one side of the market, observe they were positive, and decide not to investigate further—despite harms arising on the other side and market-wide.

Allowing a plaintiff to discharge its initial burden by demonstrating harm on only one side of a two-sided market runs afoul of both basic legal principles and sound economics. This is particularly true when both prices and output have increased. Accordingly, antitrust law should—and does—reject an approach that would allow plaintiffs to satisfy their burden by drawing artificial distinctions within an antitrust-relevant market and citing to only price effects within that artificial segment.

The outcome of the case will have significant ramifications. The question of how to define markets and evaluate allegedly anticompetitive effects in platform markets is central to assessing the competitiveness of enormous swaths of today’s economy — including in markets involving platforms currently or recently facing antitrust evaluations (e.g., Apple, Google, Monsanto, AT&T, and the like).

Read the full brief here:

Brief for Amici Curiae Antitrust Law & Economics Scholars in Support of Respondents, in State of Ohio, et al. v. American Express Company, et al. (U.S. Supreme Court, 2018)

ICLE scholars and affiliates on the brief:

Additional signatories:

  • James C. Cooper, Associate Professor of Law Antonin Scalia Law School at George Mason University
  • Stephen Haber, A.A. and Jeanne Welch Milligan Professor in the School of Humanities and Sciences, Stanford University
  • Abbott (Tad) Lipsky, Adjunct Professor, Antonin Scalia Law School at George Mason University
  • Steven Semeraro, Professor of Law, Thomas Jefferson School of Law
  • John M. Yun, Associate Professor of Law, Antonin Scalia Law School at George Mason University