Broadening Perspectives in the Age Of Digital Markets: The Need For a Renewed Approach

[By Srishti Suresh]

The author is a student at NALSAR University of Law, Hyderabad.


In the context of digital platforms, the intricate and unique structure of two-sided models have confounded antitrust regulators’, in delineating the right approach of scrutiny to be adopted. Motivated to strike an optimum balance between excessive regulation and undervaluation of market effects, antitrust authorities have been rather skeptical in analyzing the complexity posed by such markets. In the Indian context, the Competition Commission of India (“CCI”) has often faltered in its approach in defining the “relevant” market. The right market definition assumes importance, as the legal bounds of a relevant market has a de facto fundamental consequence on the legal framework adopted by an antitrust regulator, in weighing the anti-competitive and pro-competitive effects.

Understanding Two-Sided Market Platforms

Two-sided markets are platforms, that serve two distinct groups of “customers” with interrelated cross demands. The interdependency between the two sides of the platform significantly reduces transaction costs that otherwise ensue, along with coordination costs.[i] Therefore, in a two-sided market platform, economic value and wealth creation cannot be created alone; economic value grows with the number of connections and options available across the two sides of the platform.[ii] Unless the two sides are ‘on board’, the platform entity cannot effectively thrive in a competitive market. For instance, Facebook connects retailers and advertisers with users, while payment apps such as Apple Pay and PayPal connect customers with merchants. These markets create value through such an interface.

While this model appears seemingly innocuous, its complexity can be attributed to its indirect network effects. Indirect network effects are said to occur when the value created by one side of the platform, affects the value created on the other side of the market. The platform basically functions as a lucrative opportunity pool, catering to the needs of both groups of customers. In the case of digital platforms, with the help of advanced algorithms and filtering, companies are better equipped in ascertaining the immediate requirements of their customers. However, this advantageous network benefit also gives way to glaring asymmetric price structures.[iii] A two-sided market model differs from a traditional single-side one-group customer in this pricing aspect. A profit-maximizing two-sided model can choose to charge below marginal costs, or even a negative price for one side, while increasing the costs to the other side. Different groups can be charged different prices. Online networking platforms, search engines, dating websites, etc., offer free services to registered users, while charging higher fees to advertisers, merchants, and retailers. What attracts the supply side customers (despite higher costs) is the potential outreach to a large customer base.

Defining the Relevant ‘Right’ Market

Having mentioned the existence of two different sides to a platform, it is pertinent for regulators to recognize the same, while assessing the market power of the platform entity. In most cases investigating market dominance, merger inquiries, or assessment of entrenched market power, delineating the distinct markets actually involved is of fundamental importance. Market share is conventionally used as a proxy for market power.[iv] This holds true for single platforms. But this theory runs into difficulties when assessing two-sided platforms, where the pricing power and tactic used on each side depends on the degree of competition on both the sides. A true and informed market power determination relies on such a holistic assessment. However, authorities have adopted different approaches in understanding this market implication.


In Ashish Ahuja v. Snapdeal (2014), the CCI with reference to the retail market held, that “online and offline modes are just two different channels for the same product”. In All India Vendors’ Association v. Flipkart (2018), the Commission rejected the counsel’s request of defining two markets (B2C and B2B) and defined the market as “Services provided by online marketplace platforms for selling goods in India”. The two orders focus on the “product” approach. Regardless of the interdependence between different groups, as long as the two sides are transacting on the same product or service, it is deemed to be a “single” market. However, in Shri Vinod Kumar Gupta v. WhatsApp Inc., the CCI has drawn a distinction between online and offline modes of services offered by digital platforms. In light of their negative switching costs, multi-homing facilities, and lack of geographical barriers, the relevant market was defined as the “market for instant messaging services using consumer communication apps through smartphones”.

As one can observe, there is a glaring inconsistency with the CCI’s approach in defining the relevant markets of two-sided platforms. The balancing of interests when a disparity of interests between the two sides arise, the CCI has offered no coherent reasoning in reaching its decisions.

Moreover, under the Competition Act, 2002, Section 2(r) defines a relevant market as one that pertains either to the particular ‘product’ sold by an entity, or the specific geographical market in which an entity carries out its trade. Further, in defining the relevant market, the availability of substitutes and similar competitors plays a key role in influencing the regulator’s evaluation. However, this attenuated perspective of product and geographic definition remains oblivious to the network effects and interdependency between geographic and product markets that generally ensue in a digital two-sided platform. In platforms such as search engines and network-based payment applications, the customer outreach and motivations for participation, are not captured in the Section provided under the Act. For instance, in the recently approved Facebook/Jio Platforms acquisition, the interface between the telecommunication and social networking giant cannot be confined to a narrow product definition. The potential outreach and impact on different sectors and user groups, warrants a more thorough and delineated understanding of impacted markets. Only when these factors are considered, can the Commission define the “relevant” market and proceed to a market power assessment in the future.

European Union

The EC has recognized, that where more than one side exists to a market with interdependency and cross demands, certain additional questions arise. Most importantly, should the welfare of one side of users be aggregated with the other side, OR, should they be assessed in isolation?

The Guidelines on Article 101 TFEU suggest that where two markets are related, efficiencies achieved on both sides can be taken as a whole, as long as the groups affected by the restriction and benefitting from the restriction, are “substantially” the same. In Cartes Bancaires and MasterCard ruling, the EC has adopted a “by effects” approach in those cases where there is no prima facie anti-competitive behavior. More specifically, in recognizing the cross-demands of two-sided markets, the EC held, that as long as there existed “appreciable objective advantages” for consumers on one end, the advantages to customers on the connected market (platform) as a whole could justify restrictions, if taken together, they are sufficient to compensate for the restrictive effects. In case of no objective advantages to the customers exist, no restriction can justify the welfare trade-offs between the two sides.

In essence, the EC while recognizing the interconnection of two markets in one platform, has allowed for an overall effects-based assessment. If the pro-competitive effects taken as a whole are greater, then the restrictions imposed on anyone side would be justified.

The United States

The landmark case of United States v. American Express laid down the test for defining two-sided market platforms. The District Court had initially rejected an all-encompassing aggregate definition of the relevant market and held that the credit-card market hosted two very distinct but interrelated markets consisting of merchants on one side, and cardholders on the other. The Supreme Court in a majority opinion rejected this distinction and held, that the entire market deals with a single “transaction” and the relevant market are best understood as supplying only one product, consumed by both sides of the platform. The transaction here is viewed as a sub-product of two markets and therefore, a rule of reason approach in evaluating the pro-competitive effects with the anti-competitive effects and restrictions is deemed a better approach. The Court disallowed the defining of the two distinct interrelated markets and based the market power argument on the premise of an objective transaction.


As one can observe, the three jurisdictions have taken different approaches when defining relevant markets. In deferring to the “transaction” and “product/services” offered argument, both the EC and the US Antitrust Division have defined markets based on the end services offered by a platform, as opposed to defining two different markets on either side of the platform, based on the1 platform’s market power on each side. This, it would appear, can effectively downplay the potent impacts of indirect network effects.[v] In the case of online advertisers and free users, the intention is not to get every viewer to buy a product, thereby resulting in a transaction. It might merely be to elicit a response in acknowledging certain services and understanding the preferences of consumer trends. If regulators begin to rely on the value derived from the transaction as the proxy for market definition, the focus of analysis would shift to a single side of the platform. One side of the platform would have to be evaluated at the cost of the other, and the entire goal of discerning the true market power of a two-sided platform is rendered futile.

The CCI which has not fixated itself on a particular approach of defining markets, is better equipped to deal with digital platforms by adopting a case-specific analysis. At a time where M&A transactions between conglomerates is occurring at a rapid rate, the CCI can define markets by evaluating the interplay between the two-sides, before it proceeds into a comprehensive analysis. Nevertheless, in those two-sided platforms with interrelated customer groups, the CCI has to be nimble in understanding the functioning and impacts of the entity on each side of the platform on a distinct basis.


[i] David Evans & Richard Schmalansee, The Antitrust Analysis of Multi-Sided Platform Businesses in Oxford Handbook of International Antitrust Economics 404 (Roger D. Blair and Daniel Sokol et al. 2014).

[ii] Jean Charles Rochet & Jean Tirole, Platform Competition in Two-Sided Markets, (2003) 1 J. Eur. Econ. Ass’n. 990.

[iii] Anders Henten and Iwona Windekilde, Transaction Costs and the Sharing Economy, [26th European Regional Conference of the International Telecommunications Society (ITS)], (Madrid, Spain, 24-25 June 2015).

[iv] David S. Evans, The Antitrust Economics of Multi-Sided Platform Markets, (2003) 20 Yale. J. on Reg. 324-381.

[v] Filistrucchi, Geradin, D. Van Domme and P. Affeldt, Market Definition in Two-Sided Markets: Theory and Practice, (2014) 10(2) J. of Comp. L. and Econ., 293-339.

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