Thursday, September 18, 2003

Antitrust News: Antitrust Ruling Upheld Against Visa, MC

Reuters reports Visa and MasterCard lost in court yesterday.

A federal appeals court on Wednesday upheld a lower court's antitrust ruling against Visa and MasterCard, dealing a blow to the credit card associations' efforts to prevent member banks from issuing cards from rivals American Express Co. and Discover.

Visa and MasterCard both said they would likely appeal the decision.

The decision was made by the United States Court of Appeals for the Second Circuit. The suit, which argued that a rule by Visa and MasterCard preventing banks from issuing credit cards from their rivals hurts competition and stifles innovation, had been brought by the U.S Department of Justice.

If ultimately upheld, the decision would be a major boost to American Express and Morgan Stanley's Discover, allowing them to put their cards in the hands of more consumers by striking deals with the tens of thousands of banks that Visa and MasterCard have as members.

"The defendants have failed to show that the anti-competitive effects of their exclusionary rules are outweighed by pro-competitive benefits," Judge Pierre Leval wrote in the 23-page decision by a three-judge panel.

"Today's decision means that consumers can enjoy the benefits of competition by having more choices for their credit needs," said Hewitt Pate, head of the Justice Department's antitrust division.

Visa and MasterCard have argued that even though banks do not issue the cards of American Express and Discover, those companies are not prevented from reaching consumers through their own marketing.
Visa and MasterCard's argument is true, but not primary. Why don't Visa and MasterCard enjoy a fundamental right to set terms for the use of thier products? That's the billion dollar question behind antitrust that Visa and MasterCard have yet to ask.

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