“Free market capitalism is the most successful economic system the world has ever witnessed. Bedrock principles of that system include transparency and competition.”
Yes it is.
And the idea that government regulation can improve on market-oriented solutions that evolve naturally in the free enterprise system are as appealing, mythical and realistic as unicorns.
From the link:
“The facts:
• The courts have decided that Visa and MasterCard have market power. In fact, a report from the Kansas City Federal Reserve has concluded that merchants cannot realistically refuse to accept Visa and MasterCard.
• Bargaining power is so overwhelmingly tilted to Visa and MasterCard that they will not negotiate with merchants. Theirs are “take-it-or-leave-it” offers. Merchants can talk directly with American Express and Discover to negotiate, but Visa and MasterCard will not talk to merchants.
Summary
Both the Second Circuit Court of Appeals and the U.S. District Court for the Eastern District of New York have in the last few years found that Visa and MasterCard have market power. The Second Circuit (United States v. Visa U.S.A., Inc., 344 F.3d 229 (2d Cir. 2003)) found that Visa and MasterCard had illegally prohibited their banks from issuing American Express and Discover cards in violation of the antitrust laws. This illegal behavior demonstrated the dominance of Visa and MasterCard over their member banks and showed that American Express and Discover do not have a sufficient portion of the market to counter this dominance. Faced with this dominant market position, merchants are given no opportunity to bargain with Visa and MasterCard. This is consistent with the finding in a recent report by the Kansas City Federal Reserve that concluded merchants cannot realistically refuse to accept Visa and MasterCard. F. Hayashi, “A Puzzle of Payment Card Pricing: Why Are Merchants Still Accepting Card Payments?” Review of Network Economics at 172 (March 2006) http://www.rnejournal.com/articles/hayashi_march06.pdf. It is also consistent with the result in the merchants’ litigation against Visa and MasterCard in the Eastern District of New York which resulted in one of the largest antitrust settlements in U.S. history based upon Visa and MasterCard using their market power to tie credit and debit products. See In re Visa Check/Mastermoney Antitrust Litigation, 2003 WL 1712568 at *3 (E.D.N.Y. April 1, 2003).
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American Express provides a useful contrast to Visa and MasterCard. American Express does not have market power in most merchant categories and two things happen – first, retailers do have some negotiating power and secondly, if they do not like the rates, in many markets, they can choose not to accept the card. In contrast, the market power of Visa and MasterCard prevent them from allowing merchants the ability to negotiate and it also effectively forces merchants to accept the card at any price if they wish to remain in business.”