Antitrust

S H E A R M A N & S T E R L I N G L L P | 1 1 1 two-sided issues when they are properly presented. In all two-sided platform markets, the firm must balance the value offered on one side of its platform with the value offered on the other. Often, the firm sets the price on one side of the platform as free or even negative to generate demand on the other side and thereby maximize its total revenue. Analysis of competition in platform industries must consider the effects of the restraint on both sides of the platform, including the kind of feedback loop and network effects that were central to the Court's analysis here. Second, price increases standing alone do not demonstrate market power. The Court rejected the District Court's reliance on merchant fee increases as proof of either market power or anti- competitive effects because this analysis did not consider prices on the other side of the platform. Id. at 2288. Nor did the plaintiffs attempt to establish by any other means that American Express' pricing or margins on transactions were supracompetitive. Id. Third, strong consumer demand for a product does not equate to market power where continuing investment and price competition are necessary to maintain that demand. If a vertical restraint does not enable a firm to relax its competitive efforts, the restraint simply does not increase or maintain market power. Fourth, vertical restraints that protect differentiated product competition are important and valuable. The plaintiffs' case was both remarkably simple and remarkably narrow — merchant fees were higher than they would be absent the NDPs; they ignored the admitted innovation, competition and consumer benefits that characterized the industry in recent years. By contrast, the Court found that NDPs "promote interbrand competition" by protecting American Express's investments in cardholder rewards, which in turn enable American Express to pursue a differentiated business model that "focuses on cardholder spending rather than cardholder lending." 138 S. Ct. at 2282, 2288. While enforcers have an understandable desire for lower prices generally, they should carefully consider the benefits of differentiated product competition before challenging a restraint designed to promote such competition. Finally, antitrust litigants who ignore evidence of output do so at their peril. As the Supreme Court noted, the plaintiffs did not and could not attempt to prove that the NDPs reduced output. 138 S. Ct. at 2288–89. In fact, the evidence showed that output of transactions was skyrocketing and competition for consumers was intense, manifesting itself in any number of ways, not the least of which was consumer rewards. E N F O R C E R S S H O U L D C A R E F U L LY C O N S I D E R T H E B E N E F I T S O F D I F F E R E N T I A T E D P R O D U C T C O M P E T I T I O N B E F O R E C H A L L E N G I N G A R E S T R A I N T D E S I G N E D T O P R O M O T E S U C H C O M P E T I T I O N

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