1. Class 24 Antitrust, Winter, 2018 Platform Industries: Payment Systems
11/19/2018
Class 24 Antitrust, Winter, Platform Industries: Payment Systems
Randal C. Picker
James Parker Hall Distinguished Service Professor of Law
The Law School
The University of Chicago
Copyright © Randal C. Picker. All Rights Reserved.

2. Understanding Jointness/Two-Sidedness
Two Hypos
The Room/The Bar
Messages between A and B
November 19, 2018

3. November 19, 2018

4. November 19, 2018

5. U.S. v Visa (CA2 2003): Key Facts
In United States
Mastercard and Visa are both non-profits
Mastercard: 20,000 member banks
Visa: 14,000 member banks
Amex started as closed-loop system but willing to be open since 1995
November 19, 2018

6. Visa By-Law 2.10(e)
Text
“The membership of any Member shall automatically terminate in the event it, or its parent, subsidiary or affiliate, issues, directly or indirectly, Discover Cards, or American Express Cards, or any other card deemed competitive by the Board of Directors.”
November 19, 2018

7. Mastercard Competitive Programs Policy
Text
“With the exception of participation in Visa, which is essentially owned by same member entities, and several pre-existing programs to the extent individual members participate … members of MasterCard may not participate either as issuers or acquirers in competitive general purpose cards.”
November 19, 2018

8. Market Power? Per the Opinion
“In addition, the court inferred market power from the defendants’ large shares of a highly concentrated market: In 1999, Visa U.S.A. members accounted for approximately 47% of the dollar volume of credit and charge card transactions,
November 19, 2018

9. Market Power? Per the Opinion
“while MasterCard members accounted for approximately 26%. (American Express accounted for 20%; Discover, for 6%.)”
November 19, 2018

10. Visa Mastercard Amex Discover B1 B2 B3 B4 BN M1 M2 MK
Network Services Market B1 B2 B3 B4 BN
Visa
Mastercard
Amex
Discover M1 M2 MK
Competing for BN: Is this Standard Fashions again?
November 19, 2018

11. SA1 Violation Per the Court
“In the market for network services, where the four networks are sellers and issuing banks and merchants are buyers, the exclusionary rules enforced by Visa U.S.A. and MasterCard have absolutely prevented Amex and Discover from selling their products at all.”
November 19, 2018

12. SA1 Violation Per the Court
“We find no fault with the district court’s finding that the exclusion of Amex and Discover from the ability to market their cards and programs to banks has harmed competition in the market for network services, and that Visa U.S.A. and.”
November 19, 2018

13. SA1 Violation Per the Court
“MasterCard would be impelled to design and market their products more competitively if the banks to which they sell their services were free to purchase network services from Amex and Discover.”
November 19, 2018

14. US v. Amex Original Complaint Amended Complaint Opening Statement
Oct 4, 2010
Amended Complaint
Dec 21, 2010
Opening Statement
July 7, 2014
November 19, 2018

15. Looking at the Opening Statement
Here
November 19, 2018

16. Network Market Shares 2013 (1999) (1990) Reactions? Visa: 45% (47%)
Amex: 26.4% (20%) (25%)
MasterCard: 23.3% (26%)
Discover: 5.3% (6%)
Reactions?
November 19, 2018

17. Amex Merchant Regulations
Section 3.2: Nondiscriminatory Provisions (NDPs). A merchant who accepts Amex cards may not engage in the following behaviors:
indicate or imply that [it] prefer[s], directly or indirectly, any Other Payment Products over [Amex’s] Card,
November 19, 2018

18. Amex Merchant Regulations
try to dissuade Cardmembers from using the Card,
criticize or mischaracterize the Card or any of [Amex’s] services or programs,
try to persuade or prompt Cardmembers to use any Other Payment Products or any other method of payment (e.g., payment by check),
November 19, 2018

19. Amex Merchant Regulations
impose any restrictions, conditions, disadvantages or fees when the Card is accepted that are not imposed equally on all Other Payment Products, except for electronic funds transfer, or cash and check,
engage in activities that harm [Amex’s] business or the American Express Brand (or both), or
November 19, 2018

20. Amex Merchant Regulations
promote any Other Payment Products (except [the merchant’s] own private label card that [it] issue[s] for use solely at [the merchant’s] Establishments) more actively than [it] promote[s] [Amex’s] Card.
November 19, 2018

21. Market Definition in Amex
Key Question
How should the existence of two-sides of the market influence the assessment of market definition and market power?
November 19, 2018

22. Yes Says CA2 Per the Opinion
“Separating the two markets here--analyzing the effect of Amex’s vertical restraints on the market for network services while ignoring their effect on the market for general purpose cards--ignores the two markets’ interdependence.”
November 19, 2018

23. Yes Says CA2 Per the Opinion
“Separating the two markets allows legitimate competitive activities in the market for general purposes to be penalized no matter how output-expanding such activities may be.”
November 19, 2018

24. Yes Says CA2 Per the Opinion
“Application of the HMT to a two-sided market must consider the feedback effects inherent on the platform by accounting for the reduction in cardholders' demand for cards (or card transactions) that would accompany any degree of merchant attrition.”
November 19, 2018

25. Burden Allocation with Two-Sided Markets
Per the Opinion
“Because the NDPs affect competition for cardholders as well as merchants, the Plaintiffs’ initial burden was to show that the NDPs made all Amex consumers on both sides of the platform — i.e., both merchants and cardholders — worse off overall.”
November 19, 2018

26. Burden Allocation with Two-Sided Markets
Per the Opinion
“Plaintiffs’ argument that the language ‘as a whole’ means only that they were required to show harm to competition in general (rather than to only a single competitor) is unavailing.”
November 19, 2018

27. Burden Allocation with Two-Sided Markets
Per the Opinion
“Whether the NDPs had pro-competitive effects on cardholders — let alone whether any alleged procompetitive effects on cardholders outweigh ‘anticompetitive effects on merchants — has no bearing on whether Plaintiffs carried their initial burden under the rule-of-reason analysis to show”
November 19, 2018

28. Burden Allocation with Two-Sided Markets
Per the Opinion
“anticompetitive effects on the relevant market ‘as a whole.’ See K.M.B., 61 F.3d at 127. It was not Amex’s burden to disprove anticompetitive effects; it was Plaintiffs’ burden to prove them.”
November 19, 2018

29. Sup Ct Oral Argument Transcript
Here
November 19, 2018

30. Ohio! v. Amex U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

31. Ohio v. Amex U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

32. Gorsuch: Output? U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

33. Kennedy: Output Again? U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

34. Output Again? U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

35. Output Again? U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

36. Gorsuch: And Deadweight Loss
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

37. Gorsuch: Prices to Consumers?
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

38. Sotomayor: Impacts on Consumers
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

39. Impacts on Consumers U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

40. Gorsuch: Vertical Restraints
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

41. Ginsburg: A Single Market and One Step or Two Steps?
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

42. A Single Market and One Step or Two Steps?
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

43. A Single Market and One Step or Two Steps?
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

44. Breyer: Understanding Two-Sided Markets
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

45. Understanding Two-Sided Markets
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

46. Understanding Two-Sided Markets
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

47. Sotomayor: A Single Market and One Step or Two Steps?
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

48. A Single Market and One Step or Two Steps?
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

49. A Single Market and One Step or Two Steps?
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

50. Amex Wants Honest Agents
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

51. Visa Mastercard Amex Discover B1 B2 B3 B4 BN M1 M2 MK
Merchant Market and Multihoming B1 B2 B3 B4 BN
Visa
Mastercard
Amex
Discover M1 M2 MK
Competing for MK: Is this Standard Fashions again?
November 19, 2018

52. Breyer: Just Normal Vertical Dealing
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

53. Just Normal Vertical Dealing
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

54. Breyer: Clearly Anticompetitive at Step 1
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

55. Breyer: Clearly Anticompetitive at Step 1
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

56. Kagan: Possible Market Equilibria with Anti-Steering Rule
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

57. Kagan: Possible Market Equilibria with Anti-Steering Rule
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

58. See Low/Low All of the Time
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

59. Understanding Merchant Steering
Why/when does merchant steering matter?
Consider three market equilibria:
Low/low
Amex: Low consumer benefits, low charges to merchants
Visa/MasterCard: Ditto
November 19, 2018

60. Understanding Merchant Steering
High/high
Amex: High consumer benefits, high charges to merchants
Visa/MasterCard: Ditto
High/low
Visa/MasterCard: Low consumer benefits, low charges to merchants
November 19, 2018

61. Understanding Merchant Steering
Impact of Steering
Irrelevant in low/low or high/high
Might matter in high/low: how would that work?
November 19, 2018

62. Sotomayor: Benefits at Step 2, not Step 1
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

63. Benefits at Step 2, not Step 1
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

64. Gov’t Has to Prove Prima Facie Case
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018

65. Breyer on Market Power U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018
November 19, 2018
U.S. Sup Ct Oral Arg Transcript, Feb 26, 2018