Cagey Consumer

An Anti-Trust Lawsuit Without Villains

When the U.S. Department of Justice charged Microsoft with violating anti-trust law, there were numerous instances to be cited of situations in which Microsoft had abused its power in the marketplace to effectively stifle competition. For instance, Microsoft created licensing agreements with computer vendors requiring them to pay for Windows licenses for every computer sold, even if it was being sold without a Windows operating system.

To be sure, there are people unhappy with the providers of their Visa's and MasterCard's... but those are the banks that issue the cards, and not Visa and MasterCard themselves. There's nothing comparable Microsoft's abusive practices.

What Are Visa and MasterCard?

What few people realize is that Visa and MasterCard are not businesses at all, in the usual sense of the word, but are really co-ops. A bank or other financial institution that wants to offer Visa or MasterCard to its customers must first become a member-owner of the corresponding consortium, and of course, agree to its rules.

Those rules used to forbid members of the Visa consortium from offering MasterCard and vice versa. Each bank offered one card or the other. But the Justice Department put a stop to that back in the 1970s and now virtually every bank in the U.S. that offers one also offers the other.

What's the Charge?

The Justice Department points out in its lawsuit that the same group of banks controls both Visa and MasterCard, which is a direct result of the Justice Department action from two decades ago.

But while each of the two credit card consortiums allowed banks to be members of the other association, they maintained the rule preventing banks from offering products from other competitors.

Such restraints of trade can be legal, providing they enhance competition. For instance, when smaller competitors create such partnership agreements, it gives them leverage against larger competitors who benefit from economies of scale.

Visa, MasterCard in Denial

With a combined 75% of the U.S. credit card market, Visa and MasterCard can't claim that they need to use leverage against larger competitors, which is why they don't have a prayer of prevailing against the Justice Department. If the executives at Visa and MasterCard say otherwise, it's either because they're in denial or they're just hoping to delay the outcome.
MasterCard response
Visa response

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June 12, 2000