An approach for market definition of multi-sided platforms

INTERTWINED SIDES - Because of the link between the two customer groups on online

platforms, it is not correct to define and analyse the relevant market for each side in isolation. If the provider does not behave like a one-sided firm but takes the interdependence of the two sides of the platform into account in its pricing and production decisions, the application of a one-sided logic may lead to an erroneous assessment of the competitive strength of the multi- sided business.320 If the product or service is given away at one side of the platform, there is a particular risk that the free side will be overlooked in the market definition.321 The

KinderStart v. Google case in the United States illustrates this. In this case, the Court for the

Northern District of California declined to apply antitrust law to internet search on the ground that the claimants had not cited any authority indicating that antitrust law is concerned with competition in the provision of free services. Although the District Court was aware that the provision of search functionality may lead to revenue from other sources, it argued that the

318 _{See section 2.3.1.} 319 _D.S.E

VANS AND M.NOEL, "Defining Antitrust Markets When Firms Operate Two-Sided Platforms",

Columbia Business Law Review 2005, vol. 2005, (101), p. 128.

320 _{See D.S.E}

VANS, "The Antitrust Economics of Multi-Sided Platform Markets", Yale Journal on Regulation 2003, vol. 20, no. 2, (325), p. 356-358. For a description of some other basic fallacies that can arise from applying a one-sided economic logic to multi-sided businesses, see J.WRIGHT, "One-sided Logic in Two-sided Markets", Review of Network Economics 2004, vol. 3, no. 1, (44).

321

D.S.EVANS, "The Antitrust Economics of Multi-Sided Platform Markets", Yale Journal on Regulation 2003, vol. 20, no. 2, (325), p. 358; L.FILISTRUCCHI,D.GERADIN,E. VAN DAMME, et al., "Market Definition in Two-

Sided Markets: Theory and Practice", Journal of Competition Law and Economics 2014, vol. 10, no. 2, (293), p. 321; J.WRIGHT, "One-sided Logic in Two-sided Markets", Review of Network Economics 2004, vol. 3, no. 1, (44), p. 62.

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search market could not be regarded as a relevant market for antitrust purposes on the ground that KinderStart had not alleged that anyone pays Google to search.322

MARKET FOR PERSONAL DATA - Instead of basing the market definition for an online platform

on the services that are offered, the relevant market could be defined in accordance with the way the provider monetises its business. For online intermediaries this would mean that the relevant market consists of a market for personal information monetised through

advertising.323 Such an approach is consistent with the nature of these platforms which do not gain revenue by selling their technology to consumers like ‘traditional’ ICT companies such as Microsoft and Intel, but rely on deriving benefits from valuable information they collect about their users.324

SUPPLY AND DEMAND FOR DATA?- However, a correct market definition under current competition law standards requires the existence of supply and demand for the product or service.325 One can doubt whether the collection of personal data from users by providers of online platforms constitutes an economic exchange. Although one may argue that users are increasingly aware that they give access to their personal information by utilising the features of online platforms,326 the provision of data does not seem to constitute a genuine supply of a product by users in exchange for being able to employ search or social networking

functionalities. Contrary to usual economic transactions, users as suppliers of data cannot determine the amount and type of information they want to supply and do not have influence on what they will get in return. Instead, the providers of the online services unilaterally decide what type and which amount of data will be extracted and impose their practices on users as a take-it-or-leave-it offer. This interaction between users and providers therefore seems to constitute a form of one-sided retrieval of information rather than an economic transaction.

322

KinderStart.com, LLC v. Google, Inc., No. C 06-2057 JF (RS), 2007 WL 831806 (N.D. Cal. March 16, 2007), par. 5.

323 _{In her dissenting statement as a Federal Trade Commissioner in the Google/DoubleClick merger, Pamela} Jones Harbour suggested to define a market for data, separate and apart from the markets for the services offered by the merging parties. See Dissenting Statement of Commissioner Pamela Jones Harbour, Google/DoubleClick, FTC File No. 071-0170, 20 December 2007, p. 9, available at

http://www.ftc.gov/sites/default/files/documents/public_statements/statement-matter-

google/doubleclick/071220harbour_0.pdf and P.J.HARBOUR AND T.I.KOSLOV, "Section 2 In A Web 2.0 World: An Expanded Vision of Relevant Product Markets", Antitrust Law Journal 2010, vol. 76, no. 3, (769), p. 783- 787 for a further development of the concept of data markets.

324 _C.B

UTTS, "The Microsoft Case 10 Years Later: Antitrust and New Leading “New Economy” Firms",

Northwestern Journal of Technology and Intellectual Property Spring 2010, vol. 8, no. 2, (275), p. 290. See also

S.W.WALLER, "Antitrust and Social Networking", North Carolina Law Review 2012, vol. 90, no. 5, (1771), p. 1784-1785 and F.THÉPOT, "Market Power in Online Search and Social Networking: A Matter of Two-Sided Markets", World Competition 2013, vol. 36, no. 2, (195), p. 217-218.

325 _{See Commission Notice on the definition of relevant market for the purposes of Community competition law} [1997] OJ C 372/5, par. 13-23.

326 _{See R.C}

ASADESUS-MASANELL AND A.HERVAS-DRANE, "Competing with Privacy", Harvard Business School

Working Paper 13-085 October 2013, p. 4, available at http://www.hbs.edu/faculty/Publication%20Files/13- 085_95c71478-a439-4c00-b1dd-f9d963b99c34.pdf who ‘expect consumers to become increasingly familiar with

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TRADING DATA -Current competition law standards only allow for the definition of a market for data in case the information is actually traded. Examples are the data licensing activities of Twitter and the sale of collected personal information about consumers by data brokers to other businesses. Under prevailing competition law principles, the relevant market for online services such as search engines, social networks and e-commerce platforms thus cannot take data as object as long as there is no economic transaction between the respective providers and users for data, and the providers of these online platforms do not sell or trade data to third parties.327 So far, the European Commission has not yet had to define a market for personal data or for any of its particular usages.328 In its Facebook/WhatsApp merger decision, the Commission expressly stated that it had not investigated any possible market definition with respect to the provision of data or data analytics services, since neither of the parties involved was active in any such potential markets. At the time of the merger, Facebook only used the information about its users for the provision of targeted advertising services and did not sell user data to third parties or offer any data analytics services. WhatsApp did not collect personal data that would be valuable for advertising purposes and messages sent through WhatsApp by users were not stored in WhatsApp’s service but only on the users’ mobile devices or elected cloud. As a result, the Commission did not see a reason to consider the existence of a potential market for personal data.329 In such circumstances, current

327

See also the discussion in I.GRAEF, "Market Definition and Market Power in Data: The Case of Online Platforms", World Competition 2015, vol. 38, no. 4, (473), p. 490.

328 _{Speech former Competition Commissioner Almunia, ‘Competition and personal data protection’, Privacy} Platform event: Competition and Privacy in Markets of Data Brussels, 26 November 2012, SPEECH/12/860. 329

Case No COMP/M.7217 – Facebook/WhatsApp, 3 October 2014, par. 70-72.

Facebook/WhatsApp merger decision:

The Facebook/WhatsApp investigation of the European Commission covered three areas: consumer communications services, social networking services and online advertising services. With regard to the relevant market for consumer

communications services, the Commission found that Facebook Messenger and WhatsApp were not close competitors and that consumers would continue to have a wide choice of alternative communications apps after the transaction. The

Commission did not take a final view on the existence and the still evolving boundaries of a potential market for social networking services and concluded that, irrespective of the exact market borders, Facebook and WhatsApp were only distant competitors given the differences between the functionalities and focus of their services. In the area of online advertising services, the Commission argued that the merger would not raise competition concerns even if Facebook would introduce targeted advertising on WhatsApp or start collecting data from WhatsApp users with a view to improving the accuracy of the targeted ads served on Facebook’s social networking platform. In the Commission’s view, there would continue to be a sufficient number of alternative providers to Facebook for the supply of targeted advertising after the merger, and a large amount of internet user data that are valuable for advertising purposes were not within Facebook's exclusive control.

Case No COMP/M.7217 – Facebook/WhatsApp, 3 October 2014, par. 101-115, 146-158, 172-179 and 184-189.

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competition law principles only allow for a market definition based on the services that online platforms offer. Even if it is considered that users pay for the free services with their personal data, the focus of market definition under existing standards is on the type of product or service offered instead of on the means of payment.330

SHOULD ONE OR MORE MARKETS BE DEFINED FOR A MULTI-SIDED BUSINESS?- The crucial issue with respect to market definition of multi-sided businesses is whether one market for the platforms as a whole should be defined or whether separate markets should be distinguished for each of the sides of the platform. The European Commission explicitly considered this question in the context of payment cards. In its MasterCard decision of December 2007, the Commission did not define one but several relevant markets for payment card systems. MasterCard argued that one relevant market existed in which different payment card systems’ services compete with each other and with all other forms of payment including cash and cheques.331 The Commission did not accept this market definition proposed by MasterCard and stated that ‘Two-sided demand does not imply the existence of one single “joint product”

supplied by a “joint venture”’.332

Instead, the Commission identified an upstream or network market in which card scheme owners compete to persuade financial institutions to join their schemes and a downstream market in which competition between financial institutions for card-related activities takes place. Within this downstream market, the Commission distinguished between a relevant market for acquiring and a relevant market for issuing services.333 In its decision, the Commission relied on the restrictive effects of the alleged practices in the acquiring market. The General Court upheld the market definition relied upon by the Commission.334 Before the Court of Justice, the General Court’s assessment of the market definition was not challenged as a result of which the Court of Justice dismissed the ground of appeal relating to market definition.335

330 _{See section 4.3.2 below where it is argued that, despite the limitations of current competition law standards, a} potential market for data may be defined in addition to the markets for the services provided to users and advertisers. This in order to take better account of potential competition and to make competition analysis more conducive towards innovation. See also section 5.2 below for a further analysis of the role of data as a currency for digital services offered to users without any monetary charges.

331

Cases COMP/34.579 - MasterCard, COMP/36.518 - EuroCommerce and COMP/38.580 - Commercial

Cards, 19 December 2007, par. 250-255.

332 _{Cases COMP/34.579 - MasterCard, COMP/36.518 - EuroCommerce and COMP/38.580 - Commercial}

Cards, 19 December 2007, par. 257.

333

Cases COMP/34.579 - MasterCard, COMP/36.518 - EuroCommerce and COMP/38.580 - Commercial

Cards, 19 December 2007, par. 278-282.

334 _{Judgment in MasterCard, T‑111/08, ECLI:EU:T:2012:260, par. 172-175.} 335

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In the literature, opposing views are present. In the context of search engines for instance, some authors claim that a different relevant market for each side of the platform must be delineated while others seem to allude to the definition of one market for the search engine as a whole.336 Arguably the most comprehensive contribution to the academic debate is the

336 _{See T.H}

OPPNER, "Defining Markets for Multi-Sided Platforms: The Case of Search Engines", World

Competition 2015, vol. 38, no. 3, (349), p. 352-356 (arguing that separate relevant markets have to be defined for

each of the sides of a search engine) and J.D.RATLIFF AND D.L.RUBINFELD, "Is there a market for organic search engine results and can their manipulation give rise to antitrust liability?", Journal of Competition Law and

Economics 2014, vol. 10, no. 3, (517), p. 534-538 (arguing that the relevant market should be broad enough to

encompass both search advertising and organic search).

MasterCard case:

In its 2007 decision, the Commission concluded that MasterCard’s multilateral interchange fees (MIFs) for cross-border payment card transactions with MasterCard and Maestro consumer debit and credit cards in the European

Economic Area (EEA) violated Article 101(1) TFEU. MIFs are fees charged by a cardholder’s bank (the issuing bank) to a merchant’s bank (the acquiring bank) for each payment made at a merchant’s outlet with a payment card. The Commission concluded that MasterCard’s MIFs restricted competition between acquiring banks and inflated the cost of card acceptance by retailers without leading to proven efficiencies under Article 101(3) TFEU.

MasterCard was given six months to conform to the Commission’s order to set its MIFs in compliance with the EU competition rules. MasterCard appealed the Commission decision before the General Court and pending the judgment, in April 2009, unilaterally undertook to reduce its cross-border MIFs to 0.30% of the transaction value for consumer credit cards and 0.20% of the transaction value for consumer debit cards and to amend other rules and practices. The judgment of the General Court which upheld the decision of the Commission was issued on 24 May 2012.

On 11 September 2014, the Court of Justice confirmed that MasterCard’s MIFs for cross-border payment transactions in the EEA restrict competition in breach of Article 101 TFEU.

In July 2015, the Commission issued a new Statement of Objections to MasterCard on cross-border rules and MIFs relating to payments made by cardholders from non-EEA countries.

Cases COMP/34.579 - MasterCard, COMP/36.518 - EuroCommerce and COMP/38.580 -

Commercial Cards, 19 December 2007.

Press Release European Commission, ‘Antitrust: Commissioner Kroes takes note of

MasterCard's decision to cut cross-border Multilateral Interchange Fees (MIFs) and to repeal recent scheme fee increases’, 1 April 2009, IP/09/515, available at http://europa.eu/rapid/press- release_IP-09-515_en.htm?locale=en.

Judgment in MasterCard, T‑111/08, ECLI:EU:T:2012:260. Judgment in MasterCard, C-382/12 P, ECLI:EU:C:2014:2201.

Press Release European Commission, ‘Antitrust: Commission sends Statement of

Objections to MasterCard on cross-border rules and inter-regional interchange fees’, 9 July 2015, IP/15/5323, available at http://europa.eu/rapid/press-release_IP-15-5323_en.htm.

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framework developed by Filistrucchi et al. which distinguishes between multi-sided

transaction markets (‘payment card type’) and multi-sided non-transaction markets (‘media type’) in order to identify the appropriate approach towards market definition of multi-sided platforms.337

TRANSACTION MARKETS - Depending on the qualification of the platform, Filistrucchi et al. argue that one relevant market for the whole platform or several interrelated relevant markets for each side have to be defined.338 In transaction markets, as the name suggests, a visible transaction takes place between the different customer groups which makes it impossible for a business in the market to target only one customer group. Undertakings present in these markets are therefore by definition multi-sided platforms.339 An example is the payment card industry where a payment card provider has to be active on the buyer as well as on the merchant side of the platform in order to do business. Because a single and observable

transaction takes place, it is impossible to use platform A on the buyer side and platform B on the merchant side. Either the buyer and the merchant both use platform A or the transaction does not take place through platform A.340 Since a firm is either on both sides of the platform or on none, one relevant market should be defined for platforms in multi-sided transaction markets in the view of Filistrucchi et al.341 This also applies to the interaction between buyers and sellers on e-commerce platforms. Since a transaction takes place between the two

customer groups, it is impossible for an e-commerce platform to be active on only one side. However, between users and advertisers on e-commerce platforms no observable transaction occurs. The working of e-commerce platforms is similar to that of search engines, social networks and other media businesses as far as the relationship between users and advertisers is concerned.

337 _L.F

ILISTRUCCHI,D.GERADIN AND E.VAN DAMME, "Identifying Two-Sided Markets", World Competition 2013, vol. 36, no. 1, (33), p. 40-41.

338 _{Wright suggested that the necessity to define separate relevant markets on each side of a multi-sided platform} depends on whether it charges membership fees or transaction fees. In his view, one relevant market for the whole platform has to be defined if a transaction fee is charged. In this situation, it would not make sense to define separate markets, since the platform collects revenues from all sides of the platform at the same time. See J.WRIGHT, "One-sided Logic in Two-sided Markets", Review of Network Economics 2004, vol. 3, no. 1, (44), p. 62. However, the framework proposed by Filistrucchi et al. in which the presence of an observable transaction is determinative for the question whether one or separate relevant markets on each side of a platform should be defined, seems more accurate. Even if the platform charges a membership fee, a transaction between the sides may take place that would justify the definition of only one relevant market for the entire platform. See L. FILISTRUCCHI,D.GERADIN,E. VAN DAMME, et al., "Market Definition in Two-Sided Markets: Theory and

Practice", Journal of Competition Law and Economics 2014, vol. 10, no. 2, (293), p. 302.

339 _{However, this does not mean that only multi-sided platforms are included in the relevant market. Direct} transactions between both sides that do not require intermediation from a third party could form a substitute for multi-sided platforms facilitating an interaction. For instance, multi-sided payment card providers may

experience competitive pressure from direct cash payments. See L.FILISTRUCCHI,D.GERADIN,E. VAN DAMME, et al., "Market Definition in Two-Sided Markets: Theory and Practice", Journal of Competition Law and Economics 2014, vol. 10, no. 2, (293), p. 303.

340

Other examples of multi-sided transaction markets are auction houses and operating systems. See L. FILISTRUCCHI,D.GERADIN AND E.VAN DAMME, "Identifying Two-Sided Markets", World Competition 2013, vol. 36, no. 1, (33), p. 41.

341 _L.F

ILISTRUCCHI,D.GERADIN,E. VAN DAMME, et al., "Market Definition in Two-Sided Markets: Theory and

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NON-TRANSACTION MARKETS - Media markets can be considered as multi-sided non-

transaction markets. In these markets, the situation is different. Because no observable transaction takes place,342 it is possible for a competing undertaking to be active on only one side of the platform. In other words, platforms in multi-sided non-transaction markets may also face competition from one-sided undertakings. For instance, an online search engine may experience competitive pressure from single-sided libraries on the user side. In addition, multi-sided businesses having only one overlapping customer side may compete with each another. An online search engine may theoretically, for example, compete with online social networks on the advertiser side, while its users will not regard the social network features substitutable to the search services that the search engine offers. If only one relevant market