This Autumn/Winter 2014 issue completes the tenth year of Competition Policy International. During this time the CPI Journal has published 303 articles and our companion publication, CPI’s Antitrust Chronicle, has published another 1,138. Taken together, CPI’s complete works demonstrate—perhaps more effectively than anywhere else—the vibrancy, diversity, and increasing importance that antitrust issues have assumed in global legal, political, scholarly, and cultural arenas.
Letter From the Editor
Jean Tirole, who has been a regular contributor to CPI over the years, both begins our issue, with an article on payment card regulation co-authored with Helene Bourguignon and Renato Gomes, and ends our issue with the classic. Richard Schmalensee, who taught Tirole when he getting his Ph.D. at MIT, provides an overview of the importance of Rochet and Tirole’s work on multi-sided platforms to industrial organization generally and antitrust specifically. Between these bookends we present a diverse selection of articles on the law and economics of multi-sided platforms by key contributors in the area. Our next section benefits from the fact that 2014 was a watershed year for court decisions on multi-sided platforms.
A Symposium on Antitrust Economics of Multi-Sided Platforms
The role of payment cards in modern economies can hardly be underrated. In 2013, debit and credit card transactions represented roughly half of all consumer payment transactions in Western Europe, and accounted for more than 45% of all payment transactions in the United States. The payment card industry has faced intense antitrust scrutiny on both sides of the Atlantic, partly in response to the merchants’ recurrent complaints about high transaction fees.
Many of the leading controversies in competition policy in the last two decades, especially those surrounding the Microsoft case, reflect the challenges posed by platform industries. Unfortunately, too often economists and policymakers have drawn the wrong lessons when thinking about such industries.
Competition Policy and Regulation in Credit Card Markets: Insights from Single-sided Market Analysis
This paper reexamines the economics of two common features of credit card networks: the interchange fee paid by merchant banks, or acquirers, to cardholder banks, or issuers; and the restraint commonly placed on merchants against surcharging for credit card transactions.
Software platforms usually impose rules and standards and often exclude participants that harm others in the community, and reward participants that benefit others in the community. Competition policy should presume that these governance systems, and the restrictions they place on platform participants—including their possible expulsion from the platform—are efficient and pro-competitive. Software platforms could, however, employ governance systems to foreclose competition.
In connecting buyers to sellers, some two-sided platforms require that sellers offer their lowest prices through the platform, disallowing lower prices for direct sales or sales through competing platforms. In this article, we explore the various contexts where such restrictions have arisen, then consider effects on competition, entry, and efficiency.
Economic Considerations Raised by the Federal Trade Commission’s Investigation of Google’s Search Practices
In January 2013, the Federal Trade Commission closed its nineteen-month antitrust investigation into Google’s search practices. The FTC’s investigation and its resolution raised interesting antitrust issues, some of which were novel, and some of which were fundamental to sound antitrust enforcement.
Cases on Multi-Sided Platforms
Antitrust Issues in Two-Sided Network Markets: Lessons from In Re Payment Card Interchange Fee and Merchant Discount Antitrust Litigation
In 2013, I served as a court-appointed expert in consolidated class and individual plaintiff antitrust litigation against Visa and Mastercard in the Eastern District of New York. The litigation involved a challenge to default interchange fees established by Visa and Mastercard, and to certain network rules imposed on affiliated merchants. Although it was not my task to adjudicate the dispute, an evaluation of the reasonableness of the eventual settlement from an economic perspective inevitably entails a comparison between what the plaintiffs received in the proposed settlement and the expected returns to the plaintiffs
of litigating the case to conclusion.
The Two Sides of the Cartes Bancaires Ruling: Assessment of the Two-Sided Nature of Card Payment Systems Under Article 101(1) TFEU and Full Judicial Scrutiny of Underlying Economic Analysis
The European Court of Justice recently delivered two seminal rulings in Groupement des Cartes Bancaires v Commission and MasterCard v Commission. These two judgments brought much awaited clarification to the application of Article 101 of the Treaty on the Functioning of the European Union in two important areas. of litigating the case to conclusion.
On September 11, 2014, the Court of Justice overturned the judgment of the General Court upholding the European Commission’s decision in Groupement des Cartes Bancaires. This paper contends that the Court of Justice’s judgment is significant in two respects.
The press release announcing that Jean Tirole had been awarded the 2014 Nobel Prize in Economic Sciences noted that he had “made important theoretical research contributions in a number of areas.” One of his most important contributions was the discovery and pioneering analysis of multi-sided platforms in his 2003 paper with Jean-Charles Rochet, Platform Competition in Two-Sided Markets.
Many if not most markets with network externalities are two-sided. To succeed, platforms in industries such as software, portals and media, payment systems and the Internet, must “get both sides of the market on board.”