On January 22, 2022, the Taiwan Competition Law Society and the Fair Trade Commission (“FTC”) of the Executive Yuan held the “Symposium on the Study and Analysis of Important Cases of Competition Law in Europe and the US in Recent Years.” With the digital economy as the main theme, the symposium discussed, under the vigorous development of today’s digital economy and platform economy business models, whether and how fair trade laws (competition laws) should adjust in response to the innovation in competition. Shortly after the symposium, the FTC released the “White Paper on Digital Economy and Competition Policy (First Draft)” on March 3 of the same year. It has recently completed the collection of public comments and will release after finalized. Whether the application of competition laws needs to be modified under the digital economy has become a hot topic in competition law in recent years. This article intends to take the platform economy as an example to outline the market definition of two-sided platforms and the evaluation methods for anti-competition, which can serve as a reference for businesses when evaluating competition law compliance.

There are many types of “two-sided markets” in theory, and in the corresponding “two-sided platforms,” innovative business models constantly emerge. Among them, “transactional two-sided platform” is one of the main types for which there are currently discussions on whether competition law applications need to be modified. A “transactional two-sided platform” refers to a platform for the purpose of enabling the two groups in the two-sided market to directly and simultaneously complete transactions. Examples are Uber, Shopee, momo shopping network, etc. They often have the characteristics of indirect network effects (the increase/decrease in the number of users on one side of the two-sided market will affect the increase/decrease in the value of the platform to users on the other side) and asymmetry of price structure (the fees charged by the platform to users at both sides are considered as a whole, and the price distribution of the platform to users at both sides will affect the usage and transaction volume of the platform).

Take an e-commerce platform as an example, where the users are two separate groups, merchants and consumers, which makes it a two-sided market. The platform is a transactional two-sided platform for the purpose of direct and instantaneous transactions between merchants and consumers. The more merchants there are on the platform, the more valuable the platform is to the consumers due to the variety of products. On the other hand, the more consumers on the platform, the more valuable the platform is to the merchants due to increased trading opportunities, which constitutes an indirect network effect.

In addition, in order to attract more merchants or consumers to join the platform to increase potential users on the other side, the platform may subsidize one side for items such as advertising fees, delivery charges, etc., and the subsidies and other costs will be distributed to users on both sides. The setting of the price structure (the proportion of the overall cost allocated to both sides) will affect the willingness and transaction volume of users (and potential users) on both sides to use the platform. Based on the above-mentioned characteristics, although a transactional two-sided platform is a two-sided market, the relationship between the two sides is close, which raises the question of whether a two-sided platform should be defined as one or more markets, which in turn affects the assessment of competitive behaviors.

Regarding the market definition of transactional two-sided platforms, the academic community had a heated discussion about the 2018 US case of Ohio v. American Express. The majority of the opinions took into consideration the characteristics of transactional two-sided platforms (as aforementioned) and defined such a two-sided platform as a single relevant market. There is also a view that if the products traded by users on both sides of a two-sided platform are the same, e.g., Rakuten, Agoda, line taxi, etc., such two-sided platform should be regarded as one relevant market. This view is based on the identity of the products/services for market definition, which is different from the basis of the previous view. As one can see, although the theoretical basis is different, defining a transactional two-sided platform as a single relevant market seems to be the current trend.

Furthermore, if a transactional two-sided platform is defined as a single relevant market when evaluating whether the effectiveness of competition has been impaired, the focus will not be only on the affected side of the two-sided market; instead, the overall effect on the “affected side” and the “benefitted side” will be considered. In other words, although raising the cost of one side of the platform often makes such side inefficient, due to the characteristics of a transactional two-sided platform, the interests of the other side may in fact be increased to a greater extent at this time. Therefore, if the overall efficiency still increases, the relevant behavior will not be considered anticompetitive. Take predatory pricing as an example. Although a transactional two-sided platform often has free or very low prices for users on one side, they may charge prices much higher than the cost of providing services to the other side. When the cost of both sides of the market is considered, zero-dollar pricing is not necessarily equivalent to predatory pricing that restricts competition, and regarding charging the other side a price much higher than the cost, one needs to consider whether it is done to attract users and balance the cost of the two-sided market. Therefore, it is not necessarily a reproachful behavior.

In this digital age, business models are constantly revolutionizing, and theories related to competition law are also evolving in the process. From market definition to the identification of anti-competition behaviors, there have emerged new viewpoints different from the traditional ones. When evaluating business models, businesses should be aware of trends in competition law so that they may make profits in compliance with the law.

(This article was published in the Expert’s Commentary Column of the Commercial Times：https://view.ctee.com.tw/tax/39847.html）