Applying the Rule of Reason to Two–Sided Platform Businesses
In recent years, the federal courts’ analysis of the competitive effects of conduct challenged under the Sherman Act’s rule of reason, which generally includes market definition as a critical step, has been properly guided by sensitivity to business reality and sound economic analysis of the conduct at issue. When it comes to two–sided platforms, the courts should adhere to that same flexible but principled approach and avoid rigid alternatives that would apply regardless of the platform, conduct, or fact–pattern.
In Ohio v. American Express Co., (Case No. 16–1454), now before the U.S. Supreme Court, the U.S. Department of Justice as well as some law professors and economists wrote as amici in support of the Petitioners. They proposed analytical frameworks that would, first, require courts to restrict the relevant antitrust market to the side of the platform that is the subject of the challenged conduct and, second, to then exclude the impact of the conduct on the other side of the platform for the purposes of establishing anticompetitive effects under the first stage of the rule of reason inquiry.
Such a rigid approach could lead courts, and possibly require them, to ignore business reality, sound economics, and fact patterns in analyzing alleged anticompetitive conduct by platform enterprises and defining relevant antitrust markets. Following this approach could result in tribunals wrongly exonerating behavior that is anticompetitive or wrongly condemning behavior that is not. This approach should be rejected in favor of accounting for the business realities of two–sided platforms just as the courts have generally done for enterprises.