Counterparties: The largest antitrust settlement in US history?
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In a week full of scandals and financial restatements, MasterCard, Visa and a handful of the country’s biggest banks nonetheless managed to stand out: in the largest antitrust settlement in US history, they have agreed to pay $7.25 billion.
The case centered on the “swipe fees” charged by card companies each time consumers pay with credit or debit. Those fees had been fixed, and passed along by stores to consumers. Now, retailers will get to negotiate the fees. The settlement is a coup for retailers.
For consumers, the result is much more ambiguous. Swipe fees may come down, but retailers can now add surcharges for paying with plastic. That practice was previously banned by Visa and MasterCard. A discount could be given for cash, as some gas stations did, but up-charging to cover the swipe fee wasn’t allowed. However, Karen Weise notes that surcharges could help consumers by giving retailers newfound leverage: The “threat of the extra fee could be a new weapon for big retailers as they negotiate” with the card companies.
Kevin Drum isn’t too excited about those negotiations. “Frankly,” he writes, “in a war between Visa and Walmart, I can’t get very excited about who wins”. He is, however, enthused by what we might learn from retailers’ experience implementing surcharges:
If they end up doing it, it’s pretty good evidence that fees were too high and were being paid at least partly by unwitting consumers, many of whom prefer the option of switching to cash once they realize the real price of using plastic. If they don’t, and things stay pretty much the same as they are today, it’s pretty good implicit evidence that everyone was getting a tolerably reasonable deal already.
And that’s how the largest antitrust settlement in US history turns into a massive microeconomics study. – Ben Walsh
On to today’s links:
A tour of the magical mystery behind Mitt Romney’s IRA – Bloomberg
Did Romney put Bain Capital shares in his IRA? – Felix
And now the Democrats are threatening to push the US economy over the “fiscal cliff” – WaPo