Priceless: The Case that Brought Down the Visa/MasterCard Bank Cartel
Summary
Lloyd Constantine led the antitrust litigation brought by Wal-Mart and other retailers against Visa and MasterCard over the honour-all-cards rule, and this is his account of the case, which settled in 2003 for more than three billion dollars, the largest antitrust settlement in American history at the time.
The legal substance concerns tying. Visa and MasterCard required any merchant accepting their credit cards to also accept their debit cards, which carried interchange fees set at credit card levels despite debit transactions carrying no credit risk and lower processing cost. The retailers argued this was an illegal tie that used the market power of a product merchants could not refuse, credit cards, to force acceptance of a product on terms they would never have negotiated.
The economics of the case matter beyond it. The networks were owned by the banks that issued the cards, so interchange revenue flowed to the owners, and the associations' governance meant the fee level was set by the parties receiving it. Merchants had no ability to negotiate individually and were prohibited from steering customers toward cheaper payment methods.
Constantine's account is by the winning lawyer and is a litigation narrative rather than an economic analysis. The reference has not verified its specific claims. Evans and Schmalensee's Paying with Plastic covers the same industry from the network side and reaches different conclusions about interchange, and reading the two together is more useful than either alone.
Key takeaways 7
- The honour-all-cards rule required merchants accepting credit cards to also accept debit cards at interchange fees set at credit card levels.
- Debit transactions carry no credit risk and lower processing cost, which meant the fee bore no relation to the service provided.
- The card networks were owned by the banks receiving interchange revenue, so the fee level was set by the parties collecting it.
- Merchants could not negotiate individually and were prohibited from steering customers toward cheaper payment methods, which removed every competitive check.
- Tying a product merchants can refuse to one they cannot is the antitrust theory that succeeded, and the settlement exceeded three billion dollars.
- Governance structures in which the parties setting a price are the parties receiving it produce prices no market would sustain.
- The reference has not verified this account's specific claims, and Evans and Schmalensee present the opposing economic case.
Who should read it
Fintech operators and investors interested in interchange economics and network governance, read alongside the opposing economic account.
Where it sits in the reference 2
Who recommended it 1 · 1 direct
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