Business Law Ch.24 Case Essay

829 Words Aug 30th, 2012 4 Pages
To answer the question of whether the networks’ (Visa and MasterCard) rules barring member banks from issuing cards on the rival networks were illegal restraints of trade under the Sherman Act, and in what way these rules harmed competition, we need to pay attention to several details. First, under Section 1 of the Sherman Act “every contract, combination in the form of trust or otherwise, or conspiracy, in restraints of trade or commerce among the several States, or wit foreign nations, is hereby declared to be illegal and is felony punishable by a fine and/or imprisonment”. On one hand, Visa, MasterCard, American Express and Discovery are the four major credit- and charge-card networks in the United States. This makes the credit card …show more content…
On the other hand, analyzing the anticompetitive agreement, the court may conclude that the rules are vertical restraints and violate Section 1 of the Sherman act. Even though there is a slight functional difference between these credit card companies, they still compete in the same market. Therefore, the rules harm competition and have a negative effect on the consumers in general. For example, as long as this agreement exists and banks can issue only Visa and MasterCard’s cards, Visa and MasterCard have a great amount of market power. This means that they have a great impact on prices. In other words, if they decided to increase their fees, in this situation the vast majority of consumers would still use their cards and, as a result, merchants would still have to accept them. So, what kind of competition is that, if one/two companies have the ability to set the price at any point they want without losing any customers? Also, the rules reduce consumer choice, taking away the opportunity to enjoy different features of American Express and Discovery. Another negative effect of these restraints is the lack of innovation. Visa and MasterCard have no initiative to offer better service or improve the quality of their product. Obviously, greater competition will make these companies innovate and, therefore, will benefit the consumers. Therefore, to stop any anticompetitiveness, the court should order to eliminate restraints that Visa and MasterCard

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