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Page Number: 8

4 

OHIO v. AMERICAN EXPRESS CO. 

Opinion of the Court 

Noel 680–681.1 

Sometimes  indirect  network  effects  require  two-sided
platforms  to  charge  one  side  much  more  than  the  other.
See Evans & Schmalensee 667, 675, 681, 690–691; Evans 
&  Noel  668,  691;  Klein  585;  Filistrucchi  300.    For  two-
sided  platforms,  “ ‘the  [relative]  price  structure  matters,
and platforms must design it so as to bring both sides on
board.’ ”    Evans  &  Schmalensee  669  (quoting  Rochet  & 
Tirole,  Two-Sided  Markets:  A  Progress  Report,  37  RAND 
J. Econ. 645, 646 (2006)).  The optimal price might require 
charging  the  side  with  more  elastic  demand  a  below-cost 
(or  even  negative)  price.    See  Muris  519,  550;  Klein  579; 
Evans & Schmalensee 675; Evans & Noel 681.  With credit 
cards,  for  example,  networks  often  charge  cardholders  a
lower  fee  than  merchants  because  cardholders  are  more 
price sensitive.2  See Muris 522; Klein 573–574, 585, 595. 
In  fact,  the  network  might  well  lose  money  on  the  card-
holder side by offering rewards such as cash back, airline 
miles, or gift cards.  See Klein 587; Evans & Schmalensee 
672.  The  network  can  do  this  because  increasing  the 
number of cardholders increases the value of accepting the
card  to  merchants  and,  thus,  increases  the  number  of 

—————— 

1 In  a  competitive  market,  indirect  network  effects  also  encourage
companies to take increased profits from a price increase on side A and 
spend them on side B to ensure more robust participation on that side
and  to  stem  the  impact  of  indirect  network  effects.  See  Evans  & 
Schmalensee 688; Evans & Noel 670–671, 695.  Indirect network effects 
thus  limit  the  platform’s  ability  to  raise  overall  prices  and  impose  a
check  on  its  market  power.    See  Evans  &  Schmalensee  688;  Evans  & 
Noel 695. 

2 “Cardholders  are  more  price-sensitive  because  many  consumers 
have  multiple  payment  methods,  including  alternative  payment  cards.
Most merchants, by contrast, cannot accept just one major card because 
they  are  likely  to  lose  profitable  incremental  sales  if  they  do  not  take
[all]  the  major  payment  cards.    Because  most  consumers  do  not  carry 
all  of  the  major  payment  cards,  refusing  to  accept  a  major  card  may 
cost the merchant substantial sales.”  Muris 522.