well your argument next in case sixteen fourteen fifty four ohio it all versus american express company mr murphy mr chief justice that may please the court the government met its initial burden to show anti competitive  harm in this case under the rule of reason by proving that american express's anti steering provisions have stifled into brand price competition and raise the prices that all four credit card companies charge merchants restraints have these horizontal effects because they bar merchants from accurately informing their retail customers about the different costs of credit cards and from offering them incentives such as price discounts to use cheaper cards as a result  retail customers make decisions about which card to use in the dark about their relative costs and merchants cannot reward credit card companies with greater market share by the learning of their prices as a result that eliminates any incentive for credit card companies to do so as discovers president testified about its failed price cutting strategy in the late one nine hundred ninety s price cuts simply gave away money in the form of a lower priced we're not here to protect competitors right mr murphy correct or or necessarily even merchants any trust laws are aimed at protecting consumers would agree to that correct although in this ok so given that had there's no evidence of restricted output in this case correct i would agree that it's there's it's ambiguous there's no one way or the other about what or whether it has restricted and that's normally what the new trust laws care about is dead weight loss that's the primary concern of any trust activity wouldn't you agree correct although i think the right so you're left with this price question and you have an increase in price to merchants but do we have any evidence that consumers the end of the day including the rewards aspect of what they get back increase price that american express extracts gets to the consumer that's not my question however my question is do you have any evidence that on a net basis consumers pay more and i don't believe you have well if we're  or or restriction that no merchant can offer a consumer in five or ten other discount for using these nasa corridor discover correct absolutely correct that has restricted competition on that side of the market in the sense that they have less options amex card holder who would prefer to have a one percent discount if the amex card holder uses a discover card merchants aren't allowed to offer that any time i say i'm only going to service cadillacs at a cadillac dealership i can't buy a volvo at a cadillac dealership all vertical restraints have the impact of restricting inter g competition in that respect we learned through painful experience and many many years that they're generally pretty competitive right so i it's not all and your brand restrained so the classic manufacturer distributor restrictions only affect intra brand competition in order to promote interbrand competition your hypothetical is about exclusive dealing which i would admit affects into brand competition it's why the court has suggested generally speaking there they are problematic if they tie up too many  buyers or sellers we have a wonderful e q spree that explains that when you have exclusive dealing the competition doesn't become a competition for selling that product for selling all the competing products correct correct so that if this car dealership raises its prices too high other car manufacturers are going to be able to give you a lower priced car perhaps a quality correct absolutely correct that's why this is so fundamentally different from the manufacturer distributors restraints that the court addressed and region those restraints the court made quite clear that resell price movements for example interbrand competition acted as a critical check to make sure that the additional services being provided by resell price made answer worth their cost that's the problem with this restraint most vertical restraints only affect intra brand so you just have a signal or the fact that  and master card have seventy four percent of the market no i think they exercise no restraint in this marketplace i do think that this marketplace is entirely a highly concentrated where all the main competitors were using these types of restraints as the court said the regent if that's gone though right i mean any notion of horizontal agreement in this case is out of the case so i agree that there's no there's no allegations of horizontal agreement but there there's clear evidence of horizontal effect and when of a vertical restraint has a horizontal effect that is when the horror of vertical restraint becomes problematic and here it's just conclusive that the purpose and effect of this provision i to cut off price discounts from american express as competitors and to raise the speed don't let me interrupt i was going to say and to raise the prices that all four credit card companies charge which i think makes it problematic because it's market could could you comment on the brief of the any trust law and economic scholars in favor of respondents they said for us to focus on put i know you disagree with their conclusion do you agree with their starting analysis that we should think of this in terms of put which is the most places but i generally think that output is very significant but in this case i think the higher prices go hand in hand with the restricted output the court has said in the california dental case that research higher prices reduced output divided markets all have the same anti competitive effect and i want to make something clear and it's not that we're all of their conclusion was that the point that this is the this is a market that's frankly phenomenal in terms of its of its size that's one that's what to make clear that we have clear evidence of direct causation that the restraints cause higher market prices with respect to have the restraints affect our output there's just no evidence one way or the other output has been expanding but that doesn't control for three factors in this huge economy such as g d p growth inflation or any other thing that's going to drive transactions and those output include premiums to earn rewards the customers would include quality considerations as well but so we're talking about just the government's initial case here and as this court said higher prices restrict output in any any market with downward sloping demand curves that's why all the circuit courts say that the government can prove its initial burden under the rules reason by showing either higher prices or restricted up their flip sides of the same coin and that respect and i still think that the discourse of vertical restraint vertical restraint case i think just kennedy's question was given the meekness of this market where you don't approve of greed or output does that make the price increase irrelevant no i don't i think that that was the nature i think he can correct me if i'm wrong i don't i don't think it does whatsoever because i think this court's cases caught a long narrow national professional society of engineers all suggest that a competitor cannot impose a price restraint or restraint on one product attribute in order to channel it to other product attributes here would be merchant fees and card holder rewards the court the court's cases clearly suggest that competition itself should determine the appropriate ratio between quality involved is a credit card transaction and that includes both services to merchants and services to cloud motors and you can't just deal with one and knowing the other so i still think that even if under the a taking the second circuit's premise as a given which is this is just one market we disagree we think that the market analysis should be divided separately but even taking their argument as a print premise their argument is that they can restrict competition with respect to one product attribute in order to channel it to other product attributes and i think that's fundamentally inconsistent with this court's cases under section one which say that competition should provide what is the appropriate ratio between these things i'll give you an example in the indiana dental case a dentist refused to provide x rays to insurers and the dentist argument was that this restriction on the provision of x rays would improve quality of patient care the court rejected that argument that said you cannot restrict competition with respect to that cap category because competition should provide what is the appropriate balance between these competing things that's our central point even if this is one market competition should decide what is the appropriate ratio between merchant fees and part holder rewards amex's perfectly we have no problem with m x his approach of having a high reward high cost card the problem is that they're trying to insulate that product because they think under the full spectrum of competition it could not survive from a competing arguments such as low cost reward cards and so that's simply inconsistent with the basic policies of the sherman act which is that not just price but quality considerations and all other considerations are best satisfied through competition and i still think that it's fundamentally inconsistent with this court rule reason cases in the vertical context in the recent press maintenance context the court made quite clear that even though resell price movements might lead to higher prices for the higher services being imposed if consumers didn't like those higher services you could always switch to cheaper goods the cheaper it manufactures get that is the fundamental problem that we have with this restraint unlike resell price meat once it has restricted interbrand competition and so it's affected all stewart mr chief justice and may it please the court the purpose in effect of amex is and is steering rules is to eliminate price competition across an entire market yet the second circuit held that the plaintiffs had not even established a prim anticompetitive effect in over our view the court of appeals made two fundamental errors the first was that for purposes of the plaintiff prime aphasia case the court collapsed into one of what should have been regarded as distinct markets and at the first stage of the analysis the court should have focused entirely on the effects on the market for provision of network services to merchants the second and i think perhaps the more fundamental layer and goes to some of the questions that the court has been asking is that even when looking at the card holder side of the market the second circuit erred by conflating the question have reward have cardholder rewards become more generous with the the appropriate question has competition on the cardholder side been enhanced and i'd like to echo one of the things that mr murphy was saying that from our point of view it's entirely legitimate for amex to pursue a strategy where it produces higher rewards for card holders and charges a premium and it's fully free to attempt to persuade its card holders that the extra value is worth the extra cost and in all sorts of martha stewart what would you say though you argue to us that this is a very unique situation and new new to any trust law the two sided market issue and assuming all that's true i'm not sure it is but taking it as true why should we take judge easterbrook said mission seriously that judicial errors are a lot harder to correct than an occasional monopoly where you can hope and assume that the market will eventually corrected judicial errors are very difficult to correct and we've had a long and painful experience with vertical restraints in this court going back to  brief in opposition arguing that the court shouldn't grant cert because these issues were fairly new they were just these reasons but i think given that the court has taken the case we certainly would take the point that the court should not speak more broadly than is necessary it shouldn't attempt to articulate a sort of unified field theory and that would cover all two sided markets it should approach the case cautiously we do think that there are a couple of principles that the court can articulate that would be very deeply rooted in precedent and in established ways of looking at the at the any trust world the first is that for purposes of market definition for the first step of the analysis has that the defendant impeded competition in the relevant market the market has always been defined by reference to substitute ability what alternative sources of goods or services out you in mid as does general murphy that at the second stage it's appropriate for the courts to take into account how this plays out on the card holders side of the market that's correct if that's the case why doesn't that enter into the question of how you define the market in the first instance well i think it's it would be hard to determine for instance or really conceptually impossible to term to determine whether amex had market power in a hypothetical market consisting of both the merchant side in the card holder side on the merchant side and mix competes with three other networks on the cardholder side at least with respect to the issuance of cards it competes with thousands of issuing banks and the point of using substitutability as a criterion for defining the market and ascertaining market power is to answer the question if somebody who was dealing with the defendant was dissatisfied with the bargain it was being it's at step one the value to the card holder shouldn't be part of the analysis i think you would still say he has cut yes competition has been that that that's a very dangerous step for this court to take to enrage the market that way th two sided market to say that we're going to at step one look just one side that that's where i need help well i think it's i think it's kind of inherent in the in the three step approach that the court has taken to resolving rule of reason cases where first the plaintiff attempts to establish an anticompetitive effect then the defendant attempts to establish a pro competitive justification and then the third step is the plate can show either that that the justification could have been achieved in a different way or that it wasn't really necessary it's inherent in that formula that practices that can alternately be justified at the second step may still have a have to competitive effects and those can be isolated and analyze separately from the pro competitive of the biggest sided market i mean i've never seen such jargon in my own mind i can think of joint costs oil and gas in a well i can think of complementary products nuts and bolts can't have been not without a boat and i can think of combining the two nuts and bolts made out of the special thing called like a name uranium ok now there we are and i can think of different uses for the notion that you have two different products some people might say that shows  this agreement had no effect ah is that so use i wonder why they entered into it ok then second i can imagine them saying the reason that we have this agreement is because it creates a new wonderful titanium uranium boat that never would have been produced otherwise that's like the manufacturers getting together and say we have price fixing in order to stop boys and toys ok it's never really used as an anti trust buy a good justification that i guess it could be and then maybe there's three and four and five that just that i can't find any of them relevant here at least not yet well this market is and we take the point that's made on by some of the briefs on the other side this market is distinct in the sense that at the time that a transaction is accomplished at a merchant location services are simultaneously being provided both to the merchant and to the card holder and that we do the same thing don't we with nuts and bolts we give the people nuts and we give them bolt but and  maybe it's a good i mean you know there are loads of the lot of products like that i guess what i would say for from the standpoint is mr murphy the federal government and the respondents all agree that benefit two card holders should be considered as part of the antitrust unallocated really because you and you agree with that wood in for example we have an agreement among toy manufacturers that we won't sell poisoned toys that's always been an absolute mystery to put to the class from pill because they want to stop the poison toys but you say hey that isn't the job of the n t trust law that's the job of the consumer protection agency and so we have the debate and i didn't know that that issue had been solved in this call i take your point that perhaps i was imprecise when i said benefits to card holders because the court has made clear in different sure of an act context that in kind of balancing pro competitive and i have to do competitive justifications you're not just looking at anything that could be characterized as beneficial or harmful you're looking at harms too or benefits to competition and our point about the cardholder side is that the second circuit may have been right when it said the effect of this  the number one that was fundamental was the second principle that you think is important and number three borrowing from justice or going to justice briar's point  i can understand the argument why in this case on step one the two markets should not be joined but i think it's possible that in some other two sided market that it might be a step one two we have to remove and say that in no market this is no no to take to take that part of the question first i think the court should proceed cautiously about announcing categorical rules or you can say that for purposes of this case it is sufficient to the fact that there is four way competition on the merchant side and thousands way competition on the cardholder side is by itself  sufficient grounds for treating these as distinct markets but to take the other part of your question and just of course it shows question that the reason that we think that the court of appeals analyzed benefits to cardholders incorrectly was that it doesn't focus on benefits to competition that is if you imagine master card executives strategizing how can we get more people to use their master cards more often one thing that they might say is let's be fair rewards program but the other thing that they might say is let's cut our merchant fees because if the merchants come in a world where there was no steering they could say let's cut our merchant fees because if the merchant comes to regard our card as its preferred power and they're free to do that right i mean american express is agreement still in effect master card of these opportunity to cut their fees their own fees or to advertise that american express's are higher there's room for all of that kind of competition here it's just the difference between cadillacs and key is people can choose they want a high cost high reward low cost cheaper alternative and the two sides can compete with one another that's exactly right except that as long as the and that that is the type of environment that we believe the anti trust laws are intended to encourage and then absent a horizontal agreement we have that only usually we would and this is a rare vertical agreement in the sense that it was a vertical agreement that ultimately had affects that would more commonly be associated with horizontal that was part of the case originally but that's cool and now right because those agreements have been dropped by by visa master card i completely understand and accept that if that were part of the case we'd have a very different case  even without the visa and master card having their own anti steering provisions so long as american express imposes the anti steering rules on the merchants that are part of its network and so lander sten the merchants can but the competitor w can advertise all of these issues and they can point out there were merchant fees to consumers as they do the vision master card could advertise in that respect now the ad the advertisements that they might be run would probably be taken with more of a grain of salt if the merchant was telling her own customers these actually does charge me less than american express but even even leaving that aside these and i mean i'm sorry these and master card can the argument then is that the consumer welfare here is measured by the relative effectiveness of advertising by merchants as compared to by visa and master card no it's i mean it's the it's the in your mercedes and she example it is the difference between she is saying running advertisements and saying buy our cars because they have been produced in a more responsible way and you should contribute to the public good by encouraging these practices even though you will pay no less for a key had them for emerge sadie's it's one way of advertising it's one way of trying to compete but it's obviously a lot more effective if he can say yes our cars are not as good but you pay a lot less for them and similarly mastercard and visa would like to be able would like consumers to feel that maybe they're really if they wanted to compete in on the basis of price they would want consumers to feel yes maybe the rewards will not be extensive but you will get a discount at the cash register or you will get some other tangible benefit from using our card and discover for instance when it was trying to implement its low cost strategy didn't just propose to lower its merchant fees in the hopes that would it would cause this strain reaction chain reaction discover when to individual merchants and was trying to negotiate agreements where discover would tell the particular merchant we will give you the following discount on your merchant fee in return for your a commitment to engage in the following steering practices and that is a form of competition on the card holder side in which the networks could otherwise have engaged and at least so long as the large american merchants feel that dropping amex entirely isn't an economically feasible alternative that form of competition is entirely foreclosed yes visa and master card can cut their own merchant rates unilaterally but if the merchants can't give their own customers any advantage for using a card that has that effect then it's a shot in the dark it's unlikely to be a competitive a successful competitive strategy and so so i guess those i'm sorry what was the second general principle that is the second general principle that not only should the court of appeals not have collapsed the two sides of the markets but that in asking whether the in deep the nondiscrimination provisions the n t steering rules were beneficial or harmful to consumers it should have focused specifically on the effects on competition it shouldn't warrant below didn't do stand to hear that's correct you're saying do we have to accept that it's always looking at both sides of the market is always appropriate or is it only in this case that it might be appropriate and how would it be appropriate if we looked at it in the step two i guess i would with respect to two sided platforms generally i would simply say i guess the only rule we would urge the court to adopt is the fact that two interrelated markets are distinct for purposes of the first side of the analysis the market power inquiry should not preclude the court from considering benefits on the other interrelated market at the second stage of the analysis thank you counsel a chief justice and may please the court the district court described competition for credit card transactions as fierce there is no transaction without a car holder and a merchant simultaneously executing one to compete for that business against ubiquitous and frankly larger rivals amex offers consumers what they want and transaction volume has  fact increased dramatically and accordingly amex requires merchants not to undermine its cardholder relationship and its investment not to work against amex if it's going to be amex representative to consumers the people involved in the transaction of something better your honor that you had or or that they may not know they want but that they might want i have to say if i go to a cash register and the merchant says to me i'll give you a one percent discount today if you don't use amex i sit there and thinks of myself do i need the airplane rewards or the trade rewards or do i want the one percent and i do and i choose differently each time depending on the nature of the transaction but you this anti steering removes that competition your honor the product here we need to start the analysis with the question of what is the you how to tell me why it doesn't win the competition because in fact it in a hansom is competition between the brands and that's what happened here the competition between i don't wear about the brands i care about my price that's what price competition is about exactly or about whether today i want to pay the one percent more or not and your honor and this girder cool restrain is stopping horizontal competition your i disagree with that in fact the district court here said no one had proved what the price of the product is so we can in fact can i don't really care all i know is that the merchant is offering me this at ninety dollars or one hundred and i have a choice between paying one hundred or ninety nine at this moment i'm paying a higher price to use american express than i want to pay but what you don't know your honor in that hypothetical and what the district court found was never proven is what the effect on the other side of the same price is every time your rewards are reduced that's a price increase to you collected fuel rewards you've paid a price increase and the disk reports from my choice for me you're not giving me that choice and that's what price competition is about my choice not your choice about what's more valuable to me your honor i think one some people it's hard to believe but there are credit card users who will never use their reward points your system depends on that and there are your honor i agree with you they may not choose to use the rewards but when you look at the market market aggregated here the fact is there was no proof at the end of the day of what the price for the product at issue is the product at issue here are credit card transactions you cannot have a credit card transaction less a consumer and a merchant come together and the question is what's happened to the output of those transactions what's happened to the quality of those transactions and what's happened to the it's one question now i beginning to understand this i do sometimes learn something as i just did for mr stewart you know in this oral argument and my problem is that i grew up in and he trusted a time when people didn't use phrases like platforms and two sided markets so i have to translate things into a language that i've been using for forty years but ok so now as i see your argument did i start out not seeing  used to be correct that you couldn't tell the dealer you had to fix his prices because that stopped in trouble rand competition and you couldn't tell the dealer you had to divide market you couldn't divide them and that changed because sometimes those are justified and usually the argument they are justified is that by fixing the dealers prices among themselves or giving him exclusive territories we will encourage him to work harder to sell our brand and that sometimes is a justification and it seems to me you are simply making a variation on that theme you are saying by engaging in this agreement among dealers which is after all agreement that does not directly but indirectly has a tendency to fix to to raise prices therefore in a sense there is an anti competitive aspect but by doing that by doing that we are better able to get a product through to the consumer that in fact they will prefer more now have i correctly stated at least in general terms the form of your argument in general terms you have your honor may i add and by our providing those rewards to consumers these and master card who can took control seventy odd percent of the market were required to respond kind and the result is that has really increased output has increased person says who let me tell the dealer of the car that he has to fix prices with the others resale price maintenance because i'll get my new gizmo car through and that'll improve everybody's life ok now if that's the form of the org then isn't the way i can be a little traditional say  is there an anti competitive aspect then we go to step two what is the justification and does it out of balance itself or ok so far  there an anti competitive aspect of course it seems to me obvious of course there is when you tell the dealer that he can't tell because of them or that he's charging the lower price that in three competitive right then and there and i don't see any other argument i mean what could how could that be broken petted i mean maybe there's a justification for it in terms of what you're going to do eventually but how can that not be anticompetitive because your honor you must ask that question with respect to the product at issue and with respect your hypothetical only related to part of the product the product is the transaction indeed the government contended a trial that american express had twenty six percent of the market that's twenty six percent of the dollar volume of transactions and if i change your honour's hypothetical to ask is there an anti competitive prime aphasia case with respect to the product the transaction the answer is absolutely not output of the product has soared quality which the government admitted in front of the second circuit if their argument has improved dramatically and as the district court found the price of that product was never approved and so no one can say it was super competitive output of the product has increased there has so many factors that go into that besides that the truth of the particular product right i mean if the economy grows then the output of your product credit card transactions grows right it could your honor but the evidence here was that what was driving it was the fierce competition that the district court found between the card providers which was driven by the rewards that visa and master card were forced to match because  american express was reward there could be exogamous reasons why put increases but the government speculation that it had to do with other factors is just that it's speculation when you say the product what are you talking about the number of credit card transactions or the dollar volume dollar volume and that's what the government and the district court both said was the best metric then what worries me about that i have a good just to say look you you both have put your finger it seems to me on one of the most as you know i think last changed one of the most difficult problems in antitrust law how to define a market and by and large the answer to that differs in depending on a lot of different circumstances and what you're up to and so with an agreement that has an anti competitive impact of some kind it's easier and you know get away from this if you can identify an anticompetitive impact think of the new gizmo car which has eighteen dealers we give each an exclusive area and for analysis purposes i don't think you have to worry about a market you say look that fact of exclusive areas stops these dealers from competing with each other end of the matter right then and there you have an anti competitive impact and then we go on to question t is it nonetheless worthwhile now maybe you i read the second circuit i know some of those judges know any drugs law pretty well and so forth and and but i just don't see something that improves on that basic thing and unless you want to come in and say oh this had no impact you know because he only had two percent of the relevant mark in which case why do you enter into it you know i mean i can imagine variations but you see how i'm thinking i do your honor and if i may the point in your hypothetical which i wan because it really does make the point i'm trying to make is the product was the new car with these gizmos on it and you found in your hypothetical i believe that there was an anti competitive effect in the first stage with respect to that product and what i'm here to tell you is with respect to the product at issue here which is credit card transactions the government did not prove that there was an anti competitive effect because output was up quality was up and they didn't prove what the price of that product was so you couldn't possibly conclude that the price was super competitive if they had a competitive in one way why do you play mr cannot get through to the dealer to the customer the fact that these different companies some charge lower some charge higher prices the product you're buying some will be lowered some will be higher that is a fairly key element which we buy this prevents you from getting through in terms of information to the person who's going to be by respectfully running it is not the credit card companies are perfectly free as just of course such questions asked before to tell the consumers what are you the merchant is not and indeed were we to start down that road and say don't worry when you get a promise among merchants not to tell people what prices are because after all the person who sells through you could always advertise that i think would have a pretty anti competitive impact across the country it would be one sorry the advertising mechanism failed completely discover tried it and said i'm just leaving money on the table  because the restrictions are now just don't tell them of the price difference but don't steer them away from american express by giving them a better deal in some other way so you're not talking about a restriction just on what you tell them but it's a restriction on what you do and so that anti competitive effect is broader than just don't talk no your honor in fact i was discovered couldn't tell them  they try very hard to have the merchant agree to try to pass off the price even to the customer they couldn't do it under american express's conditions your honor discover had five percent give or take of the market before these provisions were forced that five percent after these provisions weren't forced and when i asked the president to discover what about the millions and millions of murchison america which do not accept american express cards and therefore have none of these provisions have you in fact the dop the debt strategy at those merchants who said no so what we're talking about with respect to discover is the issue of protecting a particular competitor not protecting cop and i don't think that that's right mr chester i mean i think that the discovery issue is about protecting low cost products because the reason that we've that we've said vertical restraints are often perfectly fine india is better for competition is because it allows us to have some high cost products and some low cost products high cost high service low cost low service the problem here is that the effect of these anti steering provisions means a market where we will only have high cost high service products and any competitor that wants to come in and says you know what we want to compete in a different way we want to compete in terms of cost is going to find itself unable to do so and that's the thing that makes this vertical restraint it seems to me different different from others your honor in fact there are many low cost low reward options on the market today there are advertised all the time i saw an ad for one on v this morning as i was putting my tire out there is no inability to offer a wide range of mistress or if i'm a consumer i mean it might be that i'm very interested in i just care about my local coffee shop and the kind of deal that the proprietors are getting but more to the point what i really care about is if that local coffee shop can past pass on its decrease in price to being and that's exactly what the anti steering provisions prevent it prevents the vendor from passing on the lower merchant fees to the consumer and as long as that's the case you're just not going to be able to construct a business strategy based on a low cost card you're on again and th is exactly i mean this is not me making this up there was a seven week trial and that's exactly what the district court found and these are findings of fact about to discover about the effect of of of  s anti steering provision on the actual state of competition in the market meaning on the ability of low cost cards to compete if i may respond or the district court also found that this two sided market was as he said different from virtually all others because here the two sides were inextricably linked and intertwined and here your honor i would submit the product which is the  transaction is a product that has a cost and a price associated with both of the parties to it the consumer and the merchant and underwriters hypothetical if in fact that price is lowered the merchant cost is lowered the rewards are lowered and that's a price increase to the consumer we which was never proved on this record but we don't know that because we don't know and american express is the only one who does and we do know that the entire price increase is not passed on to consumers so there is a profit margin in there that can be distributed or one profit margin lowered to the benefit of the customers or or not but that's what competition is about every competitor will decide what makes a profit what mix will go to the consumer won't go to the consumer and the consumer finding a fact where the seven week trial judge will benefit with lower prices your honor in fact as that as the court of appeals pointed out the fact that not every penny of the merchant fee is passed on and rewards to the consumer tells you nothing about the other costs that the card company is incurring and the government did not prove what those costs are it could well be that in fact the isn't that what the rule of reason does by putting this is that two governments never going in and that it doesn't know your business model in the main market and i've never heard of such a thing if you think there is pro competitive the thanks you prove it your honor it is the it is the defendant's obligation a burden to prove pro competitive the facts when the plaintiff proves a prime step one but i would have thought under under section one you might have responded yes if there is market power but market power absent market power i can green it with a merchant to do anything that restricts anything is not in the cognizance of the any trust laws and a twenty six percent player absent some proof other proof is not does not have market power your honor i could and should have added that to my answer and it's more than that here it we had to quit approving market power direct and indirect you need to show a certain control of the market and interact but i think case after case of said if you can control prices you have market power if i may respond let me talk about the indirect first twenty six percent of the market never been a decision in this court that i'm aware of that's found market power in that case one out of every ten cards in america only one out of ten is an american express card three million merchants do not accept american express cards they chose not to do business with us they all do business with visa and master card this company has no power and the district court of appeals found it had no power and the market power to control the merchant market respectfully ron i don't think that's what happened here the increases by the card companies were as the district court found to fuel the intense competition for card holders without whom there will be no transactions that's what the findings are and if prices go up because the costs of providing a competitive option to consumers go up that's not anti competitive that's  that point you know looks to me like market power is a grandma and that you are going to throw if we accept that throw into the into the gears of antitrust law as it has been under section one  across the country everywhere i mean i thought perhaps there have been changes but i haven't seen them in this court i thought that if in fact three people agree upon their prices or forget price fixing three people who are competitors agreed that they will have a convention where they will hire mr smith who will lecture to them about the benefit of all charging the same price i would have thought you just said that's anticompetitive that's anti competitive there's no need to look at this gizmo called market power which is a nightmare if the defendant wants to come along and says i'll tell you something judge because nobody had any market power this couldn't do anything then you would wonder why they did it but i would leave you that option you know if you're the defendant so we're is this thing you have to prove in every section one case market power i've not seen it is it in a case i haven't read which is quite possible that your honor if we were talking about a horizontal restraint which was what your comment was directed at i would be in complete agreement with you because the error costs of a horizontal restraint are very low it's almost always to get people to charge more for less what's the vertical case even league and didn't say that i mean you know i say even because i descended but nonetheless i recall that you are a  the last i've not seen a section one case now i'm not saying there couldn't be one but i but i am saying i don't think it's a universal requirement and i think if you have an anti competitive agreement which looks and competitive seems anti competitive at cetera why go into market because your honor in a vertical restraint as this court has said repeatedly over the last forty years the error costs are very low because when it when it company particularly  company without power imposes a vertical restraint it is to enhance its ability to compete against other brands and as justice kennedy said in the book case a price increase in the face of increasing demand tells the trier of fact nothing about whether it's anti competitive one needs to determine if excess profits are being extracted monopoly rents are being extracted and the plaintiffs here didn't even prove what our costs were let alone our margins amy if this if the standard that this court articulate your hon is a standard in which a price increase without proof of restriction of output without proof of a harm to quote quality without proof that excess profits have been extracted if that's enough to satisfy a primal facie case then what will happen in the lower courts and i speak from forty two years of experience of trying antitrust cases there will be a wave a tsunami of false positives in the lower courts i only have forty two years of teaching any drugs and i would say in that in that experience which is not as good as yours actually because you actually have practical experience but it seems to me there been a lot of cases where you wouldn't get when you would not see price increases the main one being alcoa i mean alcoa which used to be thought to be the best case  ever written in an address learned and it has no price increase it was it there was only market power i know you say that but that's a different point if i was about to say that's a different point i think i heard that from someplace of the time but you're your hon vertical restraint case if output is going up if costs are going up because they're investing in rewards that are benefiting the consumer that's the way a competitive market is supposed to act and all i'm saying to your honor is if the test that this court articulate is the test that suggested by the folks to my right then we are going to have a wave of positives that are false where real competition is taking place because price increases occur for all sorts of reasons many of which are perfectly benign which is exactly what happened here with respect to the merchant fees because they were fueling price decreases to the consumers everywhere ward every seat on a plane to aruba every ticket to a billy joel concert every cash  reward that's given is a price discount to the consumer and that what the district court found here is nobody proved to me what that price is for the product at issue so the result that we're trying to avoid here is a situation in which a plaintiff can fail to prove what the price of the product is merely that there's been an increase to part of that price and that that's enough to satisfy the first leg of the rule of reason and the burden then falls to the defendant to disprove what the plaintiff has failed to prove that will create mischief professor katz the government's only expert here from berkeley testified that in a two sided platform if you don't completely and accurately assess the impact on both sides of the platform you will get misleading conclusions and with respect your honor that's what will happen if this court only looks at the activity viz a viz the merchant when there is a consumer standing opposite her without whom the product doesn't exist  no your honor that's step one there is no case that i'm aware of in which a plaintiff has satisfied its burden on step one by proving an impact on competition on something other than the product that is that is at issue here and they didn't prove what the markets we've had two sided markets and that we've looked at an antitrust law and justice briar just mentioned how about the newspaper advertisers and the newspaper readers and we take that one  have like to take that one that's the pick picayune the transaction in that case again my request to this court is always start with the same question what's the product at issue the product at issue in times picayune was advertising sales between the advertisers in the newspapers while there were subscribers to those newspapers they had nothing to do with that trends that only yes they did because the number of subscribers affected the price that the advertisers were going to use and their inducements to use that to subsidize both morning and afternoon advertisers and that distinction is exactly why this court need not the side in this case a rule for all time for every two sided platform in this case is a situation in which there is no transaction unless those two parties the consumer and the merchant come together at the same moment in time and complete the transaction that was not true in times ultimately over the course of time if the if the advertisers didn't put their ads in the paper maybe you would have an impact on consumers and vice versa but you could have a completed transaction in times picayune without the consumer of the subscriber being involved in that transaction mr kessler and i don't have forty two years of antitrust experience teaching or practice and it just requires a little time so i just think a this in sort of simple minded ways here's what the district court found the district found that merchants cannot steer customers to cheaper forms of payment the district court found that all of the credit card for ems have consistently raised their prices even when you look at these two sided prices the district court found that these price increases were not being passed on to consumers and the district court found that it was impossible for a credit card company that wanted to offer a low cost low price product to enter the market so you put all of those things together that sounds like a market that is not working in the way it's supposed to at least sufficiently to get on to the second step where you can make all your arguments about why it is that a market where the prices only go up and where no low price competition can emerge is nonetheless a good market your honor my answer to that is that every one of those findings dealt only with the merchant a relationship they had nothing to do with the consumers and again here without that consumer presenting her card to the merchant the transactions that were being debated in this case wouldn't even exist the district court itself found that there was no proof of the actual price to the two sides of that transaction the government had failed to prove that the government had failed to prove what the costs were for the for the services provided to the merchant and it failed to prove what the what the consumer side of the price was so every we didn't challenge any of those findings in the court of appeals nor do we challenge them here because they are all clapping with one hand they're only talking about what happens on one side of the counter when you present your card for that to buy  it's the one hand where the government has the burden and now if you want to come in and you can say look there are all these great benefits that go beyond me some of your benefits sort of seem to me to be benefits for american express only but if you want to say no th are a great benefits for the markets generally that's what step two is about then you only get to step to respectfully your honor if the government proves that competition for the product has been impaired at step one and what i've said over and over again here is the product is the transaction and none of those findings related to the transaction thank you counsel thank you mr murphy you have three minutes remaining chief justice just a few points in rebuttal the first of those is i think the most important point for this court to take from this case is that certainly the court has lessened the scrutiny with respect to vertical restraints and leasing recent years but this particular vertical restraint the one at issue here has the same effects that we would anticipate happening with the horizontal cartel if all the credit card companies got together and said we're going to go last year in i would cut off price competition on the merchant side it would still allow for quality reward competition on the other side but that rule would be percy illegal that rule be percy illegal despite the alleged benefits on the card holder side just as this court said and engineers case the engineers can't get together to fix prices and then justify that on the basis of the allegedly improved quality it's per se illegal we're not in the personnel legal ruled here because this is a rule reason case but what the evidence shows under the rule the reason the full market analysis is that it has the same exact facts preserved they can present to the second circuit and then with respect to price we would readily agree that higher price can oftentimes you arise from different reasons that's why the court and brook roof said that the government should prove that the higher prices are rise from market forces here the district court found as a fact that higher prices weren't being a rising because of the cardholder rewards they were rising because of these restraints and the discover example of that phenomenon is quite powerful discover solve the higher prices the discontent in the merchants and responded with its cutting offer price cutting option and all the merchants came to discover and said sorry we'd love to ship share to you but there's nothing we can do about it because of these restraints that quite powerfully shows  horizontal facts with respect to market power and i think that we would be fine with the rule that market power needed to be shown we just think that the evidence overwhelmingly shows just what pulls within you you except that to show any competitive effect you have to show not just of the gr ninety percent of the market and nobody without market power could actually affect industrywide prices and that's what we have going on if there were no market power an agreement would have no any