Governance, Issuance Restrictions, and Competition in Payment Card Networks
Robert S. Pindyck
Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)
MIT Sloan Research Paper No. 4651-07
I discuss the antitrust suit brought by the U.S. Department of Justice against Visa and MasterCard in 1998. Banks that issue Visa cards are free to also issue MasterCard cards, and vice versa, and many banks issue the cards of both networks. However, both Visa and MasterCard had rules prohibiting member banks from also issuing the cards of other networks, in particular American Express and Discover. In addition, most banks are members of both the Visa and MasterCard networks, so governance is to some extent shared. The DOJ claimed that restrictions on issuance and shared governance were anticompetitive and should be prohibited. Visa and MasterCard argued that these practices were procompetitive. The case raised important questions: Given that many banks issue both Visa and MasterCard, and that most merchants that accept one also accept the other, do the two networks really compete, and if so, how? And do Visa and/or MasterCard have market power, if so, in what market, and how is it exercised?
Number of Pages in PDF File: 28
Keywords: payment cards, credit cards, debit, card networks, membership restrictions, network competition, network governance
JEL Classification: L40, L44, G20working papers series
Date posted: June 29, 2007
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