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An Economic Analysis Of The 2011 Settlement Between The Department Of Justice And Credit Card Networks

Author

Listed:
  • Scott Schuh
  • Oz Shy
  • Joanna Stavins
  • Robert Triest

Abstract

In 2010, the Department of Justice (DOJ) filed a lawsuit against the credit card networks American Express, MasterCard, and Visa for alleged antitrust violations. We evaluate the extent to which the recently approved settlement between the DOJ and Visa and MasterCard (“the Settlement”) is likely to achieve its central objective: “to allow Merchants to attempt to influence the General Purpose [Credit] Card or Form of Payment Customers select by providing choices and information in a competitive market.” In word and spirit, the Settlement represents a significant step toward promoting competition in the credit card market. However, we find that merchants are unlikely to be able to take full advantage of the Settlement's new freedoms because they currently lack comprehensible and complete information on the full and exact merchant discount fees for their customers' credit cards. We analyze the likely consequences of this information problem and consider ways in which it could be remedied. We also evaluate the probable welfare consequences of allowing merchants to impose surcharges to reflect the fees associated with the use of payment cards.

Suggested Citation

  • Scott Schuh & Oz Shy & Joanna Stavins & Robert Triest, 2012. "An Economic Analysis Of The 2011 Settlement Between The Department Of Justice And Credit Card Networks," Journal of Competition Law and Economics, Oxford University Press, vol. 8(1), pages 107-144.
    • Handle: RePEc:oup:jcomle:v:8:y:2012:i:1:p:107-144.
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    File URL: http://hdl.handle.net/10.1093/joclec/nhr020
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    Citations

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    Cited by:

    1. Laine, Liisa T. & Ma, Ching-to Albert, 2017. "Quality and competition between public and private firms," Journal of Economic Behavior & Organization, Elsevier, vol. 140(C), pages 336-353.
    2. Tamás Briglevics & Oz Shy, 2014. "Why Don’t Most Merchants Use Price Discounts to Steer Consumer Payment Choice?," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 44(4), pages 367-392, June.
    3. Andre Boik & Kenneth S. Corts, 2016. "The Effects of Platform Most-Favored-Nation Clauses on Competition and Entry," Journal of Law and Economics, University of Chicago Press, vol. 59(1), pages 105-134.

    More about this item

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance

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