The Pros and Cons of Antitrust in Two-Sided Markets
2014 year’s Pros and Cons seminar addressed the issue of antitrust in two-sided markets with a panel of distinguished practitioners and academics keeping up the tradition of high-quality presentations followed by stimulating debate.
The contributors (back row from the left): Salvatore Rebecchini, Chris Walters, Markus Reisinger, Sheldon Mills, Alfonso Lamadrid, Dan Sjöblom (DG Swedish Competition Authority), Alexis Walckiers, Lapo Filistrucchi, Andrea Amelio, Cristina Caffarra; (front row from the left): Lena Fredriksson (Swedish Competition Authority), Özlem Bedre-Defolie, Birgit Schwabl-Drobir, Rita Wezenbeek, Nicolas Petit, Katarzyna Czapracka.
The seminar started with an introduction by the moderator Cristina Caffarra, Vice president, Head of European Competition Practice, Charles River Associates. Caffarra pointed out how this year’s conference – The pros and cons of antitrust in Two-sided markets- entails a subject of both academic and policy implications. Such an importance has recently been recognized by the appointment of the Prize in Economic Sciences in Memory of Alfred Nobel to Jean Tirole for among other things his work in this field. She also highlighted three important points around the subject: First the very asymmetric nature of the price structure. Second the quality aspects of such markets and the different conducts they can adopt, and thirdly the policy implications that a two-sided market approach can have on different cases regardless if they are of standard antitrust or merger analysis.
Finally Caffarra made a remark about the difference between how US regulators and judges are using two-sided market analysis in comparison to its fellow colleagues in the EU. Her perception is that at the US level the two-sided markets theory is being used at a much more standardized level while in the EU there is still a high degree of anxiety and discomfort, especially in the treatment cases under articles 101 (1) and article 101 (3).
After such an introduction it was turn for Alfonso Lamadrid, Senior Associate, Garrigues, Brussels, and his presentation “The Double Duality of Two-Sided Markets”. Lamadrid’s presentation was a practitioner’s view that intended to develop a complementary view on the subject to the approach of academics and economists.
Lamadrid remarked that all cases in competition law are special but two-sided markets cases are actually unique and noted as the most interesting point of two-sided markets its competitive ambiguity nature as a result of network externalities. Lamadrid thinks that two-sided markets has had a major focus in what he calls the offensive side – that is, that network externalities are perceived as negative – making that the analysis to be concentrated on its anticompetitive potential rather than in the defensive side, – that is the valuation of efficiency gains. Finally Lamadrid invites practitioners and academics to look at the way to bring a balance between the harm and the gains of two-sided markets. One suggestion is to include into the guidelines something on the objective quantification of efficiency for cases involving article 101 (3) and to expand what it can be done under article 101(1).
The next presentation was held by Lapo Filistrucchi, Tenured Researcher at the University of Florence and Associate Professor at Tilburg University. His presentation entitled “Two-sided Markets versus Complement Products: Pricing and Welfare” was a clear explanation on how the two-sided nature of a market can lead to different conclusions about the relationship between products. Filistrucchi started his presentation by reminding the audience why two-sided markets have become so famous and that the subject has called a lot of attention because it has interesting things that go against tradition.
By taking into account a simple model of competition in advertising quantities where TV channels sells advertising and need to attract viewers, Filistrucchi explained how network effects can change the nature of the market and its reaction to changes in quantities. Such a competition can lead to lower prices even lower than under perfect competition assumptions. Finally, Filistrucchi commented about the distinction between welfare assessments from a two-sided market perspective in comparison to a traditional one sided market.
The morning session was completed by Markus Reisinger, Professor and Chairholder, WHU-Otto Beisheim School of Management, with his presentation: “Media Markets as Two-sided Markets: Consumer Behavior and Search Engines”. Reisinger focused on two aspects of media markets: the fact that consumers act differently than in traditional media and how search engines can be search bias.
About the first aspect, Reisinger exposed the differences between traditional media advertising where it is important to multihome to reach all user that usually are single home and internet media market where advertisers as well as users multihome. When it comes to search bias, Reisinger pointed out the tension between organic and sponsored links, the first being the ones that best match with the users’ search and the second ones essentially being advertisements, where the web site owners have paid to have their sites higher up in the search engine ranking for certain keywords. The priority of organic and sponsored links can lead to search quality degradation.
The afternoon session was opened by Özlem Bedre-Defolie, Assistant Professor, European School of Management and Technology, with her presentation “Economics of Payment Cards”. As an introduction to the economics of payment cards, Bedre-Defolie explained first the role of multi interexchange fees (MIF) in the market, as long as what the tourist test is, that is the level that for the merchant is indifferent as to whether he receives a card or cash payment. Turning around these concepts Bedre-Defolie exposed how MIF can lead to market failure and above all how platform competition can only correct the distortions around the fees but not on the total price of the transaction. She also pointed out how the case in Europe where merchants normally multihome and costumers usually single home can lead to high MIF. Finally Bedre-Defolie presented the different alternatives used for different national authorities to deal with MIF such as prohibit/allowing surcharge fees or to establish a cap on MIF.
Next, Katarzyna Czapracka, Associate, White & Case, Brussels took to the floor with her presentation “Antitrust Enforcement and the Two-sided Market Theory: EU Payment Card Cases”.
Czapracka’s intention with the presentation was to fit into the legal analysis of the two-sided markets theory with the help of a historic analysis on the decisions around payment cards by the EU Court of Justice, especially Visa II (2002) and the Mastercard (2014) cases. She pointed out that in Visa II the court framed MIF under article 101 (3) based on an effect analysis and concluded that acquiring banks benefits should be equal to the issuer banks cost. However in Mastercard, based on a two different relevant markets perception, the court decided that MIF were not eligible under article 101 (3) and that the efficiency gains should only look at benefits to merchants. The final conclusion was that the main difference between the two cases is that while the Visa case was based in a cost-benefit analysis between issuing banks and acquiring banks the Mastercard decision lays mainly on the merchants harm.
To round up the afternoon session, Nicolas Petit, Professor at the Law School of the University of Liège, entertained with a dynamic presentation entitled “The theory of Two-Sided Markets: An Economic Bubble?”. His main message was to alert practitioner and academics to be careful with the use of words and the importance to define what we actually mean by two-sided markets. From a very rich set of examples Petit challenged the audience to define different markets that have been previously defined as both a one and a two-sided market. Petit himself encouraged the use of the three points that Rochet and Tirole (2006) proposed as a guideline to define a market as two-sided and challenged the EU commission to take much more into account the two-sided market analysis in their guidelines.