UK Court Rejects Two-Sided Market Analysis for Multi-Sided Platforms

The United Kingdom Competition Appeal Tribunal (the “Tribunal”) has forcefully rejected two-sided market analysis in a well-reasoned judgment that provides a thorough and insightful discussion of how to define markets where there are multi-sided platforms.

Multi-sided platforms are a hot topic because payment businesses, search engines and social media all involve multi-sided platforms, and are all the subject of intense antitrust scrutiny on both sides of the Atlantic.

On August 8, 2022, the Tribunal issued its judgment in BGL (Holdings) Limited v. Competition and Markets Authority [2022] CAT 36, deciding an appeal against a Competition and Markets Authority (“CMA”) decision that relied on two-sided market analysis to find an infringement where there was a multi-sided platform.

The CMA had found that a price comparison website for home insurance services (“Compare The Market” or “CTM”) had infringed the UK’s Chapter I Prohibition on anti-competitive agreements and concerted practices (similar to Article 101 of the Treaty on the Functioning of the European Union and Section 1 of the U.S. Sherman Act) through the use of “wide” Most Favoured Nation (“MFN”) clauses with insurers. The MFN clauses were deemed to be “wide” because they prohibited the insurers from offering lower prices not only on other price comparison websites, but also through the insurer’s own direct channels.

The CMA found that there was an infringement “by effect” because the wide MFN clauses were likely to lead to less competition over commissions between price comparison websites, higher commissions being paid as a result and, supposedly following directly from that, higher premiums being paid by consumers.

CTM’s appeal focused broadly on two areas: market definition and, relatedly, the effects of the clauses. This post will focus on the market definition analysis.

The CMA defined a single market consisting of “[price comparison website] services for home insurance products in the UK” involving the supply of two services: “(i) customer introduction services to home insurance providers and (ii) price comparison services to consumers.” In other words, the CMA defined a single two-sided market. CTM argued that the CMA had erred in its market definition but, interestingly, it did not contest the finding that there was a single two-sided market.

The Tribunal did not consider itself to be constrained by the arguments of the parties. Over the space of approximately 50 pages, it discussed in the broadest possible terms why market definition matters, how it should be undertaken in the case of multi-sided platforms and what this meant for the case at bar.

Reaching a conclusion that was not proffered by any of the parties, or their economists, the Tribunal concluded that the CMA had erred in defining a single two-sided market and that it should have defined two separate markets, one on each side of the platform. Importantly, it concluded that this was not only right for the case at bar but would generally be right for the assessment of multi-sided platforms. It expressed its views in the following terms:

“146. The economics literature suggests that two-sided markets can be analysed as either a single market or two separate markets. However, when it comes to market definition, to treat them as a single market runs the risk that the analysis of the degree of substitution will be incomplete, and that a single SSNIP[1] on one side of the market is insufficient to test the competitive constraints on the other. …

147. We consider that, as a general precept, the markets in which the different Focal Products provided by Platforms are sold should always be assessed separately. In this way, an outcome neutral assessment of the true position obtains. We say this for the following reasons:

(1) We agree that network effects exist between the Buyers existing on the various sides of the Platform. It is obvious that such network effects exist, and need to be taken into account. However, given the Framework for the assessment of infringements of the Chapter I Prohibition that we have outlined in paragraph 29 above, they are primarily relevant to the later stage of assessing harmful effects. They are relevant at the “market definition” stage only if (and to the limited extent that) they inform the issue of demand-side substitutability.

(2) Market definition is an important and very useful tool for understanding substitutes to Focal Products. The nature of the demand for the Focal Product supplied to each distinct group of Buyers needs to be understood before entering into the entirely separate question of how the markets in which these Focal Products are sold operate. If one regards the Buyers of different Focal Products as a single group, or elides different Focal Products, an immediate analytic uncertainty is introduced. What are, in fact, separate Products provided to different groups of Buyers are wrongly conflated, and the potential significance of substitute products (which may not or may not all be provided through Platforms) is lost. …”

In failing to assess each side of the platform separately, the CMA had failed to appreciate the significance of alternative channels available to consumers for the purchase of home insurance beyond price comparison websites and which might act as a constraint on premiums even if commissions were higher than they might have been absent wide MFNs (though the CAT later concluded that was not established either). Specifically, the CMA had not taken sufficient account of the role of direct renewal offers (which were not subject to the MFNs) and of insurers that choose to only sell direct and not through price comparison websites at all.

Although rather lengthy, the decision should be essential reading for anyone grappling with market definition issues in relation to multi-sided platforms. The Tribunal takes issue with what it calls the “it depends” approach of many economists and a majority of the U.S. Supreme Court (in Ohio v. American Express Co, 138 S. Ct. 2274 (2018)), who suggest that sometimes it is appropriate to consider both sides of the platform as two separate markets and sometimes as one, but without articulating (or, presumably, being able to articulate) when each would be appropriate. Whilst the Tribunal allows for the possibility that the different “rule of reason” in the U.S. approach might justify an alternative analysis, it is not at all obvious that it does.

By Richard Pike

Edited by Gary J. Malone

[1] Small but Significant Non-transitory Increase in Price: economists often test for substitutability, to decide what is really in the same market, by asking whether a small, permanent increase in price of 5-10% by a hypothetical monopolist would be profitable or would lead to enough consumers moving to a different product to prevent it profitably being sustained.