COMPETITION • EUROPEAN AND FRENCH LAW • MARKETS
Where two distinct relevant markets are interdependent, competition authorities use the concept of two-sided market to explain how they operate. Two-sided markets are characterized by interactions of at least two types of economic agents leading to a network externality, which corresponds to a situation in which the economic activity of an operator – consumption or production – has a positive or negative impact on the well-being that can be withdrawn by another agent from his own activity, without this impact coming from a market-based mechanism or resulting in a monetary transfer.
The concept of a two-sided market is used both in cartel law and in merger control.
In the context of a two-sided market, one side may be the relevant market and the other side may be a distinct related market, with the interaction between them constituting only one contextual element to be taken into account in the analysis of anticompetitive effects in the relevant market. In cartel law, the European courts thus consider that, despite the fact that the card issuing activity belongs to the two-sided market for payment systems, issuing and acquiring services differ when they are aimed at distinct customer bases. According to the French Competition Authority, the market for services related to payments by check overlaps with the market for check forms, which concerns the banks issuing and paying out checks, and the market for check remittance, where both payees and remitting banks operate. Similarly, the payment card market, which is a two-sided market, is characterized by network externalities: holding a certain payment card has greater added value for a cardholder if there is a large network of merchants accepting this card and, conversely, acceptance of a type of card is all the more essential for a merchant if there are a large number of holders of this type of card. The Competition Authority sometimes uses the two-sided nature of the market to explain how it operates, without always drawing specific conclusions.
In applying Article L. 420-2 of the Commercial Code, the Competition Authority has also identified several two-sided markets.
This is the case of the national film advertising market, which includes the combination of the supply of advertising agency services specialized in the cinema medium and the demand from cinema owners, since the agencies’ role is to approach advertisers and convince them to use the advertising space on the cinema screen. In the same way, the market of precise cartography allowing the geolocalization of sales outlets on the websites of undertakings and that of online advertising are related and two-sided markets because they use the same raw materials.
On such a market, since either side’s market shares are not indicative of the parties’ market power, the intra-group market share, which is traditionally excluded from the calculation of market shares – should be taken into account in the analysis of the market power of the undertaking concerned.
Finally, in its 2009 Merger Control Guidelines, the French Competition Authority stressed that the two-sided nature of certain markets should be taken into account either when defining the market or when analyzing the effects of the transaction in question. At the market definition stage, the concept of a two-sided market justifies taking into account, in the media sector, interactions with the advertising market. In effect, without a readership, the commercial advertising market would not exist and without classified ads, the readership would not be there. The same is true for the mobile telephone market, where there are interactions between, on the one hand, the level of call terminations and the intensity of competition on the subsidizing of mobile phones and, on the other hand, the price of subscriptions and communications.