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  • Ishita Mishra

Multi-Sided Markets: Practical Indicia Approach in Delineation of Relevant Market

[Ishita is a student at Symbiosis Law School, Pune.]

The advent of multi-sided markets has introduced a new dimension to the delineation of the relevant market before computing anti-competitive behavior. The digital realm, in particular, has come under the scrutiny of competition authorities in numerous jurisdictions, with the European Commission being at the forefront of the notion of taking regulatory action against big tech companies. Recently, it has passed the Digital Markets Act 2022 (DMA) and Digital Services Act 2022 (DSA), which shall focus on such ‘gatekeepers’ creating entry barriers in the digital market. Last introduced in 1977, it has drafted a revised market definition notice, aiming to update the definition of relevant markets to account for the evolving nature of the digital marketplace, which has taken on a multi-sided format. Notably, the digital market in India has also emerged as a focal point for scrutiny, emphasizing the need for legislation similar to the DMA and DSA.

The article assesses the distinctive characteristics of multi-sided markets, becoming crucial for the delineation of the relevant market including network effects, substitutability assessment, the applicability of quantitative assessments, and characteristics of the platform, drawing from various jurisdictions. It proposes the application of the practical indicia approach as the most suitable strategy in such a context. The article aims to contribute to the existing discourse on adapting competition laws to the evolving digital landscape.

Multi-Sided Markets and Network Effects

The multi-sided market model consists of two distinct groups of platform users on opposite ends, who engage with each other through the platform. Two-sided platforms represent the simplest form of multi-sided markets. For example, a hotel booking platform deals with a guest looking for accommodation on one side and a hotelier on the other, with the platform facilitating interaction and transaction between them.

Network effects become a significant aspect to appreciate when comprehending the dichotomy of multi-sided markets. There can be both direct and indirect network effects. Only multi-sided markets can achieve indirect network effects. Under direct network effects, the value of the product/ service fluctuates with the fluctuation in the users of the product/ service. In indirect network effects, there are two groups on opposite sides, and the value of the product/ service fluctuates based on the interaction between the two groups. For example, if buyers increase in a multi-sided market platform, there is an increase in price to be paid for a product/ service by the sellers on the platform.

The issue in delineating multi-sided markets arise due to the often-asymmetrical value distribution under such platforms. For instance, Facebook charges its advertisers but not its users. The imbalance leads to the question of whether a platform-level approach should be followed, with both sides encompassing one single market, or both should be looked at and assessed separately.

Defining the relevant market can influence the assessment of dominance. Thus, with both sides encompassing a single market can expand the relevant market for the platform, having a reduced market share. This can lead it to refute the claim of it being dominant in the relevant market. On the other side, defining the market from one single side can result in a narrow definition which may lead to the platform having a larger market share, affecting its assessment of dominance. Hence, the delineation of the relevant market becomes a complex yet significant factor to evaluate before the assessment of dominance under multi-sided markets.

The issue was highlighted under Amex v. Ohio, wherein the merchant and the user were concluded to encompass one single market. The differentiation was based on platform typology, being a transaction-based platform. Both direct and indirect network effects were appreciated and incorporated under such delineation. It was based on the research on platform typology providing that under transaction platforms, a transaction occurs only when both sides agree to use the same platform, giving rise to benefits to both sides and strong indirect network effects. Thus, either the merchant shall be present on both sides or it will not be present at all. It differentiates the platform from being either a transaction or non-transaction platform, recommending a separate market approach for non-transaction-based platforms as enabling a transaction is not always an integral part of their service. Moreover, in cases wherein the impact of indirect network effects is strong, the research suggests a platform-level approach, and vice-versa.

Substitutability Assessment

Under such cases, competition authorities have often followed the substitutability assessment, assessing substitutability possibilities for user groups from alternative sources compared to the product/ service offered by the platform. The economic model was appreciated in the Czech case, being distinct from other booking platforms. Here, substitution possibilities from both sides were considered. Following such a dual approach, two separate markets were identified, one for guests seeking accommodation and accommodation providers. Both were identified as end customers.

Different approaches have been followed by different jurisdictions while acknowledging and accepting the duality or the existence of such multi-sided markets. In Austria, the demand-substitutability has been analyzed from just the customers of the service, in a case concerning the financial sector. The market was defined to encompass both sides. The German National Competition Authority (NCA) suggests defining separate markets for each side, except a matching platform. It looks into additional factors, such as platform characteristics and demand homogeneity on either side.

The Indian competition authority, Competition Commission of India (CCI) has only recently acknowledged the existence of such multi-sided markets in Vijay Gopal v. Big Tree Entertainment Private Limited (BookMyShow). However, an inconsistent practice has been followed without supplying reasons for looking at one side of the market. In FHRAI v. MakeMyTrip, the market was delineated from the perspective of hoteliers without sufficient reasoning. India is still in the early stages of assessing and appreciating multi-sided markets.

Applicability of SSNIP Test

There are divided opinions on the applicability of the small but significant and non-transitory increase in price (SSNIP) test in multi-sided markets, especially in terms of zero-price markets. The applicability of the SSNIP test under a multi-sided market becomes difficult because of the pricing structure of such markets.

On the applicability of the test on the two separate sides of the market, the test can be challenging to implement. Although, it can be a valuable tool for analyzing the sides’ interdependence. However, there are risks of the market being too narrowly defined if the interdependence of the sides is not adequately accounted for. Hence, the SSNIP test has been rarely applied because it is inaccurate and not an appropriate tool for such forms of market. The inaccuracy and gaps in the applicability of the SSNIP test under such circumstances were analyzed in the 2019 Congressional Report in the US.

The United Kingdom’s 2021 CMA Merger Assessment Guidelines do not refer to the SSNIP test in the context of multi-sided markets. Instead, they rely on specific guidelines for assessing the relevant market under such cases. First, it is analyzed as to how the competition works and whether the competitive aspect functions only on one side of the platform. If the platform operators focus on improving aspects of the offer on only one side, both sides of the platform may be analyzed separately. However, under cases wherein the competitive aspect affects both sides of the platform, such as technological efficiency, both markets are to be analyzed together. Second, wherein the competitive conditions, such as alternatives available, are different for both sides of the platform, both sides may be analyzed separately. Last, network effects have also been taken into account. Under cases wherein indirect network effects are strong, the assessment is undertaken for both sides together.

Other Quantitative Assessments

Small but significant non-transitory decrease in quality test (SSNDQ), or modifying the SSNIP into a cost-oriented test i.e., small but significant and non-transitory increase in costs (SSNIC) come into play when analyzing such qualitative aspects in the absence of quantitative data. Such qualitative data can be quantifiable to a certain degree, such as customer attention on advertisements categorized under ‘attention costs.’ Thus, under such a case, an assessment can be undertaken of how consumers might shift to other platform substitutes when there is an increase in advertisements.

However, the assessment also has setbacks, such as not considering customer preferences. Thus, the results can be highly subjective. Even if there is an increase in the number of advertisements and the customers can detect quality degradation in the service, they still might stay on the platform due to their platform bias. Hence, even though quantifiable, the parameters can be highly subjective, falling out of the purview of just a monetary expense. It is suggested against the application of such tests in the market.

Characteristics of Platform

Competition authorities have started relying on a more characteristic-based approach or a qualitative assessment in light of the complexities of the applicability of the SSNIP test. However, it is advisable to look at both assessments together and not over-rely on such qualitative measures.

Regulators may engage in the qualitative assessment of the functions provided by digital services in assessing the scope of such zero-price markets. Such inquiries can further be supplemented by empirical evidence on products that consumers believe to be 'reasonably interchangeable' with the product at issue. In the Czech CHAPS case, the market assessment included an assessment of the nature of the platform, the products offered, and hypothetical competitors without considering the SSNIP test. The 2019 Congressional Report elucidates upon the inapplicability of the SSNIP test in zero-price technology markets, not being suitable for the peculiarities of such markets. It also suggests a more characteristic-based approach, pointing towards the US Horizontal Merger Guidelines 2010 where quality is referred to in the application of the hypothetical monopolist test.

In the German NCA decision in CTS Eventim, the NCA assessed the peculiar characteristics of the platform through surveys to the relevant market of ticketing system platforms that did not charge booking platforms but charged event organizers. They were held to be operating in the same market as there was a close connection between the zero-price side of the platform and its for-payment side. Thus, interdependence was explicitly recognized in the core analysis.

In Brown Shoe v. United States (Brown Shoe), the practical indicia approach was adopted wherein the product’s practical indicia or its peculiar characteristics and uses, unique production facilities, distinct customers, distinct prices, etc., were looked into. Courts employing the practical indicia approach adopt a qualitative approach in assessing the scope of certain multi-sided markets. Courts rely on ‘industry recognition’ of the scope of relevant markets. The same can be corporate conduct, internal strategy documents, and expert testimony for delineation of the relevant market. While the approach may have its difficulties such as defects in methodology and wording of the survey, there has been greater importance drawn to such an approach especially, in zero-price markets, enabling a greater understanding of such market format.

Way Forward

It is imperative to comprehensively evaluate multi-sided markets and demarcate the market after appreciating its dichotomy and the interdependency of the two sides. However, there is a lack of uniformity in adopting consistent practices across various jurisdictions. This complexity is further compounded in cases where zero-price markets are present in such market structures. The existing literature suggests that quantitative tools may not be suitable for assessing substitutability but can still be utilized to a limited extent. The most suitable approach in the context of CTS Eventim and Brown Shoe is to adopt a more characteristic approach, examining the practical indicia. The CCI, having only recently recognized the existence of multi-sided markets, nonetheless lacks in undertaking a comprehensive investigation to appreciate its unique characteristics for a fair delineation of the relevant market before computing anti-competitive behavior. Reliance should be placed on qualitative tools as a complement to quantitative tools in the form of surveys of competitors, customers, and industry experts, striking a balance between the two approaches to yield optimal results.


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