Market definition for two-(or multi) sided platforms – demand interdependence and substitution as guiding principles

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The past year has led to a lot of discussion on the relation between competition law and (online) platforms and a lot of disagreement on how competition law should apply in such cases as displayed by comments on the major cases of Amex and Google. Unsurprisingly, one of the most contentious aspects of these cases was the market definition. It would appear that performing this task in the case of two-or multi sided platforms has led to quite a few complications. Therefore this post, which summarizes an extensive study on online platforms, seeks provide some clarity and guidance with regard to one of the most important steps in the process of the market definition for platforms. Namely, the question of how many markets need to be defined in the case of two- or multi sided platforms.

Market definition for platforms

Despite the impression that current discussions may give, the concept of platforms is not inherently linked to the digital economy; traditional markets, shopping malls, nightclubs, newspapers and payment cards are all examples of more traditional platforms. These platforms all share the same core principle that determines their success and existence. Namely, these platforms must bring together two (or more) separate customer groups and facilitate the interaction between such groups in return for a fee. The type of interaction facilitated by the platform and the manner in which such service is monetized depends on the value such platform seeks to create for its customers in each case.

In the context of the market definition, the two-sided nature of platforms means that demand-side substitutability could (and should) be assessed with regard to more than one customer group. Accordingly, the market definition process might result in more than one relevant market. Consequently, defining the relevant market for a platform first requires establishing how many markets need to be defined. In the case of two-sided platforms, the choice comes down to defining a single relevant market for the platform of separate relevant markets with regard to the separate customer groups of the platform. The choice between these possibilities has significant consequences for the subsequent test of substitutability and thus the scope of the relevant market. Determining that a single relevant market needs to be defined for the platform means that all the alternatives that will be considered as potential substitutes for the concerned platform must be able meet the demand of all the customer groups of the platform. Consequently, the potential alternatives for the platform must also be platforms. By contrast, if separate relevant markets are defined with regard to the various customer groups of the platform, substitutability is tested separately with regard to each of these groups. Therefore, in this second scenario the potential alternatives for the platform with regard to each of the customer groups of the platform may also include non-platform undertakings.

The difference between the two types of findings cannot be overstated. Defining a single market is likely to result in narrower markets where greater market power and/or more significant anti-competitive effects are likely to be found. By contrast, defining separate markets may lead to opposite findings. Furthermore, evidence of efficiencies in both scenarios will be evaluated differently as dealing with more than a single relevant market will involve looking into out-of-market efficiencies as part of the assessment. Consequently, determining the number of relevant markets that need to be defined in each case is very important for the correct application of (EU) competition law to any type of platform. In the case of online platforms, the matter of market definition entails another layer of complexity as online platforms may often be (or evolve into) multisided markets. Thus, while online platforms share many characteristics with the more traditional offline platforms, getting the answer to the “how many markets” question will be more complex than choosing between one market for the platform or two separate ones for each customer group. Accordingly, before defining the market in the case of an online platform one must first identify the customer groups of the platform that are relevant for the purpose of the case. For example, if LinkedIn were accused of imposing excessive pricing on advertisers, it is not evident that defining the relevant market for recruiters would be needed since there is no demand interdependency between these two customer groups and the LinkedIn platform. However, despite this additional complexity and the differences that may exist among traditional (offline) platforms and online ones, the steps that need to be taken in the process of the market definition are very similar.

Reaching the right conclusion in this matter depends firstly on the correct identification and assessment of the demand interdependency between the various customer groups of the concerned platform in each case.

Understanding demand Inter-dependence

Demand interdependency in the context of platforms refers to the relation between the participation of the platforms’ customer groups on the platform and their mutual demand for the service(s) provided by the platforms. Saying that there is demand interdependence between two-or more customer groups of the platform means, essentially, that the service provided by the platform can only exist when it is provided simultaneously to all such customer groups. In other words, demand interdependency exists when the service provided by the platform to its customer groups depends on having all these groups ‘get on board’. For example open-air markets, similar to online marketplaces, must have both sellers and buyers. Not being able to get one of these groups on board will make such platforms useless for the other customer group(s); a market without buyers or sellers cannot exist offline nor online.

While all platforms will exhibit some degree of demand interdependency, such interdependency will not always be mutual. This (mostly) unilateral demand interdependency relation can been seen in the case of newspapers. The demand of readers for newspapers does not depend on having ads published in them, however, the demand of advertisers for newspapers is evidently dependent on having a large number of readers. Similar conditions also apply to online platforms that use non-search/ display advertising like YouTube. Understanding what kind of demand relations exist among the various customer groups of a platform requires in practice looking at the value the platform wishes to create for its customer groups, the business model behind it and the legal framework which regulates it.

Interdependence and number of relevant markets

When defining the relevant market for a platform with regard to some or all of its customer groups, identifying a unilateral demand interdependency relation between two or more of such groups means that these do no belong to the same relevant market. This is because the demand of one or more of the customer groups could have been met in the absence some of the other customer groups. By contrast, identifying a mutual demand interdependency relation between two or more customer groups means these may be part of a single relevant market. In other words, such customers may consider that the competition of the concerned platform consists solely out of other (online or offline) platforms. The importance of demand interdependency for the purpose of the market definition is also reflected in the distinction between transaction and non-transaction markets for such purpose. Accordingly, when a platform facilitates a transaction between two of more customer groups, the existence of the transaction is an indication that there is a significant degree of mutual demand interdependence between the transacting customer groups.  Such finding in turn increases the chances that the respective customer groups form part of the same relevant market as can be seen in the recent judgment of Ohio v. Amex. However, not every finding of mutual demand interdependence between two or more customer groups, even when it relates to the processing of a transaction, will automatically lead to the conclusion that such customer groups form part of a single relevant market. Markets and online marketplaces both exhibit mutual demand interdependency with regard to their buyers and sellers. However, saying that buyers and sellers are part of the same market in such cases can rarely be said. The reason behind this reality is that buyers will often consider non-platform alternatives, such as groceries stores or online retailers, to be interchangeable with such platforms.

Therefore, in addition to establishing the demand interdependency relation between the platform and its various groups, determining the number of relevant markets that need to be defined is each case requires an elementary substitutability assessment.

Obvious substitution

Once a relation of mutual interdependence between multiple customer groups has been found the next question that needs to be asked is whether the demand of such customers can easily be met by other non-platform undertakings. When the answer to this question is positive, the respective customer groups require the definition of separate relevant markets. For example, the demand of buyers for the services of online marketplaces can usually be met by online retailers.  By contrast the demand for consumers and merchants for the services of a payment platform designed to process transactions such as PayPal, cannot be met by a non-platform undertaking for either consumers or merchants. Therefore, in the case of PayPal a single relevant market could be defined for both customer groups, while defining the relevant market in the case of an online marketplace would require separate relevant markets for its buyers and sellers.  Similar to identifying demand interdependency, establishing the existence of obvious substitution in practice requires looking at the value the platform wishes to create for its customer groups, the business model behind it and the legal framework which regulates it.

Finally, it must be noted that the fact that separate relevant market may be defined in cases concerning platforms, this does not mean that such separate markets can be addressed in isolation for the purpose of the legal analysis in a given case. Two-or multi sided platforms are characterized by network effects which must be taken into account when defining the relevant market, measuring market power and evaluating the anti-competitive effects as well as efficiencies in competition cases. Identifying a demand interdependency relation between various customer groups inherently means that there are indirect network effects between such customer groups which are either unidirectional or mutual depending on the patterns of demand. Consequently, the demand relationship and network effects between the various customer groups of the platform need to be taken into account in each case regardless of the manner in which the relevant market is defined.


The definition of the relevant market in the case of platforms is not an easy process and will likely cause many more debates in ongoing as well as in future cases. Overcoming the expected difficulties in such cases however requires making some adjustments to that manner in which ‘markets’ in the context of competition law are perceived and analyzed. Accordingly, addressing the market definition in the case of platforms adequately firstly requires accepting the existence of two- or multi sided markets as such. Beyond that point an understanding of the demand relationships between the customer groups of platforms and their views on substitution can contribute greatly to reaching the correct findings in each case. Failure to accept and acknowledge such aspects will however likely lead to incorrect findings and prevent competition law from evolving in a future resilient way.



Daniel Mandrescu

Blog editor

Ph.D. Fellow, Europa Institute, Leiden University

>> Daniel’s CoRe blog posts >>

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