Tuesday, April 01, 2003

Antitrust news

The Associated Press reports that a federal judge has ordered a trial in a class action case against Visa and Mastercard:

A federal judge has denied a request by Visa USA and MasterCard International to throw out an antitrust lawsuit against the credit card giants, clearing the way for a trial later this month.

In a ruling issued Tuesday in Brooklyn, U.S. District Judge John Gleeson rejected defense arguments that Wal-Mart Stores Inc. and other plaintiffs failed to produce evidence that Visa and MasterCard conspired to monopolize the lucrative debit-card market.

"There is evidence, direct and circumstantial, from which a jury could find a conspiracy," Gleeson wrote in a 16-page decision.

The judge also denied MasterCard's demand for a separate trial. He set jury selection for April 21.

Wal-Mart, Sears Roebuck and Co. and other merchants across the nation are seeking billions of dollars in damages in a class-action suit brought in 1996.

The retailers allege the defendants secretly schemed to extend their dominance to debit cards by mandating an "honor all cards" policy, meaning any merchant who accepts their credit cards must accept their look-alike debit cards as well.

The plaintiffs claim excessive transaction fees have cost them more than $15 billion in the past decade - costs ultimately passed on to the consumer. The credit card companies argue that the "honor all cards" rule is necessary to protect consumer choice.
Visa and MasterCard have been a favorite antitrust whipping boy in recent years. Their well-earned dominance of the credit card market (and now the debit card market) has only benefitted consumers by expanding the availability of credit to millions of Americans. This success, however, inevitably makes Visa and MasterCard guilty of antitrust violations.

If a merchant is fazed by the "honor all cards" rule, they have an adequate market remedy: stop accepting cards. Amazing as it seems, businesses can refuse to accept credit cards. I know many local merchants that accept cash-only. Of course, this was force the class action plaintiffs in this case, such as Wal-Mart, to admit that Visa and MasterCard's market dominance—high fees and all—actually benefits retailers, by giving them access to a gigantic credit market.

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