What the Court’s Expert in the Interchange Fee Litigation Said about Analyzing Antitrust for Two-Sided Platforms

David Evans, Sep 10, 2013

Last week a court appointed expert in the interchange fee litigation in the United States submitted a memorandum that evaluated the economic arguments presented by the plaintiffs and defendants. His memorandum highlights the importance of the new economic learning on two-sided platforms, and some of the questions courts will be grappling with in cases involving these platforms. These platforms constitute a large and growing part of the economy.

NYU Professor Alan Sykes, who has a Ph.D. in economics and a law degree, both by way of Yale, submitted a 51-page memorandum to Judge John Gleeson. Judge Gleeson is overseeing the proposed settlement in the antitrust case brought by merchants against the four-party payment card networks and merchants over interchange fees and other network rules. The proposed settlement has gotten highly contentious. Many merchants have opted out of it. Some are trying to block it altogether. Professor Sykes’ assignment was to assess whether the settlement was a reasonable deal for the merchants. To do so, he examined the likelihood of the plaintiffs prevailing on establishing liability and proving damages.

The proper antitrust analysis of two-sided platforms was central to his findings. His discussion provides an excellent road map of issues that are likely to arise in other cases. It also emphasizes that, at least among economists, there remains little controversy that sound economic analysis needs to take the features