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Abstract

If the Supreme Court’s recent decision in Apple Inc. v. Pepper (Apple) had hewed to the precedent established by Ohio v. American Express Co. (Amex), it would have begun its antitrust inquiry with the observation that the relevant market for the provision of app services is an integrated one, in which the overall effect of Apple’s conduct on both app users and app developers must be evaluated. A crucial implication of the Amex decision is that participants on both sides of a transactional platform are part of the same relevant market, and the terms of their relationship to the platform are inextricably intertwined.

We believe the Amex Court was correct in deciding that effects falling on the “other” side of a tightly integrated, two-sided market from challenged conduct must be addressed by the plaintiff in making its prima facie case. But that outcome entails a market definition that places both sides of such a market in the same relevant market for antitrust analysis.

As a result, the Amex Court’s holding should also have required a finding in Apple that an app user on one side of the platform who transacts with an app developer on the other side of the market, in a transaction made possible and directly intermediated by Apple’s App Store, is similarly deemed to be in the same market for standing purposes.

Under the proper conception of the market, it is difficult to maintain that either side does not have standing to sue the platform for alleged anticompetitive conduct relating to the terms of its overall pricing structure, whether the specific terms at issue apply directly to that side or not. Both end users and app developers are “direct” purchasers from Apple—of superficially different products, but in a single, inextricably interrelated market. Both groups should have standing and should be able to establish antitrust injury—harm to competition—by showing harm to either group, as long as they can establish the requisite interrelatedness of the two sides of the market.

As we discuss, such a result would have been consistent with the way antitrust doctrine has long evolved—in both its substantive and its procedural aspects—to reflect new economic knowledge, particularly with respect to such “nonstandard” business models.

I. Introduction ... A. Ohio v. American Express Co. and Apple Inc. v. Pepper: A Failure of Antitrust Doctrinal Evolution

II. The Nexus Between Procedure and Substance in Antitrust Law ... A. Quick Look and the Evolution of the Standards of Antitrust Review ... B. The Interplay of Procedure and Substance in the Doctrines of Antitrust Standing ... 1. Antitrust Injury and Antitrust Standing ... 2. The Indirect Purchaser Doctrine

III. Nonstandard Contracts and Antitrust Doctrine: Accommodating the Economics of Two-Sided Markets in Antitrust Procedure ... A. The Basic Economics of Two-Sided Markets ... B. Amex, Market Definition, and Effects Analysis ... 1. Implications for the Consideration of “Out-of-Market” Effects ... C. The Relationship Between Market Definition and Standing

IV. The Court’s Failure to Incorporate the Economics of Two-Sided Markets in Its Apple Inc. v. Pepper Decision ... A. Campos v. Ticketmaster and the Error of Doctrinal Formalism ... 1. The Consequences of the Formalistic Application of Illinois Brick to New Business Models

V. What the Proper Procedural Analysis in Apple Inc. v. Pepper Would Have Looked Like ... A. Procedure Does Not Determine Substantive Outcomes

VI. Conclusion

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