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Governance, Issuance Restrictions, And Competition In Payment Card Networks

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  • Robert S. Pindyck

Abstract

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?

Suggested Citation

  • Robert S. Pindyck, 2007. "Governance, Issuance Restrictions, And Competition In Payment Card Networks," NBER Working Papers 13218, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:13218
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    Cited by:

    1. Stijn Claessens, 2009. "Competition in the Financial Sector: Overview of Competition Policies," The World Bank Research Observer, World Bank, vol. 24(1), pages 83-118, April.
    2. Bita Shabgard & Javier Asensio, 2023. "The price effects of reducing payment card interchange fees," SERIEs: Journal of the Spanish Economic Association, Springer;Spanish Economic Association, vol. 14(2), pages 189-221, June.

    More about this item

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L40 - Industrial Organization - - Antitrust Issues and Policies - - - General
    • L44 - Industrial Organization - - Antitrust Issues and Policies - - - Antitrust Policy and Public Enterprise, Nonprofit Institutions, and Professional Organizations

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