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An economic analysis of the 2010 proposed settlement between the Department of Justice and credit card networks

Author

Listed:
  • Scott Schuh
  • Oz Shy
  • Joanna Stavins
  • Robert K. 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 proposed settlement between the DOJ and Visa and MasterCard (henceforth, \"Proposed 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 Proposed 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 Proposed 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 K. Triest, 2011. "An economic analysis of the 2010 proposed settlement between the Department of Justice and credit card networks," Public Policy Discussion Paper 11-4, Federal Reserve Bank of Boston.
    • Handle: RePEc:fip:fedbpp:11-4
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    References listed on IDEAS

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    1. How monetary systems cope with a multitude of dollars
      by JP Koning in Moneyness on 2015-06-25 19:34:00

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    Cited by:

    1. Stavins, Joanna & Shy, Oz, 2015. "Merchant steering of consumer payment choice: Evidence from a 2012 diary survey," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 55(C), pages 1-9.
    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. Frans Saxén, 2014. "The No Surcharge Rule and Merchant Competition," Journal of Industry, Competition and Trade, Springer, vol. 14(1), pages 39-66, March.
    4. Shy Oz, 2012. "Account-to-Account Electronic Money Transfers: Recent Developments in the United States," Review of Network Economics, De Gruyter, vol. 11(1), pages 1-25, March.

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