Visa and MasterCard’s

Association Potentially
Anticompetitive

Case By Michael Baye and Patrick Scholten based on a

case filed in U.S.A vs Visa in October 07, 1998
 Contents
 Background
 Topic of Discussion
 Focus Areas
 Leading Issues
 Learnings and Conclusion
Background
Brief Case History

Visa and Mastercard are joint ventures (JV) in General Purpose Card (GPC)
network product and services with a market share of 75% of all purchase
made with GPC in U.S.

What are GPC?

GPC are payment devices that a consumer can use to make Purchase.
(A)From Unrelated Merchants
(B)Without accessing or reserving the consumers fund at time of the
Purchase.

Types of GPC:

a)Credit Cards
b)Charge Cards
Key Players – Credit Card Industry

Upstream Market – Network Level

Visa / Master Card Amex / Discover (Novus) / JCB / Diner Club

Joint Venture
(75% market share)
Downstream Market – Card Level

Member Banks Amex / Discover (Novus) / JCB / Diner Club

Card Card Issuing Level

Acceptance Level

Merchant Base Consumer Base

Topic Of Discussion
 Visa and Master Card Dominate the Market

CARD % DOLLAR VOLUME TRANSACTION % OF NO. OF CARDS ISSUED

VISA 50 53
MASTERCARD 25 33
AMERICAN EXPRESS 18 5
DISCOVER/NOVUS 6 8.5
What will happen if two market leaders work
together?

Duality is achieved
Effects of Duality:

1)Lessen Competition Between Visa and Mastercard

2)Adopt Rules and policies that might restrict the ability

of all member banks to do business with American
Express ,Discover /Novus.

3)Reduction in competition hindered and delayed the

development and Implementation of improved network
products and services

4) Lessen consumer choice.

Focus Areas
 Key Product Market Structure
 Capital Intensive
 Technological Intensive
 Focus on Branding - Advertisement
 Significant Entry Barrier – Entry/Exit Difficult –
High Cost of Building Merchant/Cardholder base
 Industry Concentration Ratio is More
 Less firms and High firm size
 Demand Conditions great – Looks inelastic
 Pricing Model

 Fees from Consumers

 Interchange fee from merchant (***)
 Interest - Late Payment, EMI
 Advantage - Consumer

 Deferred Payment Option

 Security
 Convenience
 Widespread Acceptance
 Advantage - JV

 Market Power
 No Substitute for Customer
 No Anticompetitive Laws from Government
 Leading Issues
 Duality – A curse for Consumers

 Visa / MasterCard acts as one group – hence no

competition with each other
 Compete with other groups
 Impede Cash Advances of other group
 Does not allow Merchants to contracts with other
networks
 Does not allow Issuer to contract with other networks
 Create Rule and Regulation – Bylaw 2.10 (e),
Competitive Programs Policy, Exclusionary Rules
Learnings/Conclusions
 Learnings/Conclusion
 Competition is a MUST requirement
 Government should curb such practices
 Barrier to entry / Rules and Regulations is
probably due to economies of scale.
 Social Welfare is low - HurricaneNew Non-Bank
Channels can be opened for credit cards
 More fairness and openness on credit card
company part on disclosure of various charges
Thank you

Ashish Dewan (WMP2016)

Ashish Kumar Kulshreshtha (WMP2017)
Bhupinder Thakur (WMP 2019)
Jitender Kumar Arora (WMP2032)
Neeraj Sallh (WMP2043)
Nitin Jain (WMP 2045)
Sameer Mittal (WMP 2057)
Sarju Garg (WMP 2060)