Restraint of Trade. Visa U.S.A., Inc, MasterCard International, Inc, American Express (Amex), and Discover are the four major credit-and charge-card networks in the United States. Visa and MasterCard are joint ventures, owned by the thousands of banks

Question

that are their mem-bers. The banks issue the cards, clear transactions, and collect fees from the merchants who accept the cards. By contrast, Amex and Discover themselves issue cards to customers, pro-cess transactions, and collect fees. Since 1995, Amex has asked banks to issue its cards. No bank has been willing to do so, however, because it would have to stop issuing Visa and Mas-terCard cards under those networks' rules barring member banks from issuing cards on rival networks. The U.S. Department of Justice filed a suit in a federal district court against Visa and MasterCard, alleging in part that the rules were illegal restraints of trade under the Sherman Act. Do the rules harm competition? If so, how? What relief might the court order to stop any anticompetitiveness?

Answer 1

Restraint of trade
The court concluded that Visa and MasterCard's exclusionary rules were anticompetitive, in violation of the Sherman Act, because they restricted the ability of Amex and Discover to compete in marketing their services to banks. The court ordered the rules revoked and permanently enjoined the issuance of similar rules in the future. The defendants appealed to the U.S. Court of Appeals for the Second Circuit, which affirmed the lower court's judgment and order. The appellate court agreed that the rules "harmed competition by reducing overall card output and available card features, as well as by decreasing network services output and stunting price competition." The court emphasized "the total exclusion of American Express and Discover from a segment of the market for network services." Because Visa and MasterCard are owned and operated as joint ventures by their members, the court characterized the rules as "a horizontal restraint adopted by 20,000 competitors. * * * [S]uch ar-rangements are exemplars of the type of anticompetitive behavior prohibited by the Sherman Act."