Counterparties: The largest antitrust settlement in US history?

July 16, 2012

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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:

Google’s Marissa Mayer named CEO of Yahoo – Dealbook

Data Points
“Increasingly clear that the US economy is slowing” – retail sales drop for third month in a row – Reuters

Mapping stop-and-frisks and gun seizures in New York City – WNYC

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

Level Playing Fields
The nation’s biggest brokerage firms give hedge funds an early look at analysts’ stock views – NYT

Plutocracy Now
196 Americans – 0.000063% of the population – have given more than 80% of super PAC dollars spent on the presidential election – Lawrence Lessig

Austerity Bites
Madrid’s “shoestring Olympics” proposal calls for using bullrings as basketball courts for the 2020 games – WSJ

EU Mess
ECB now open to imposing haircuts on senior creditors of European banks – WSJ
IMF lowers global growth forecast – IMF

Treasury’s 2008 recommendations for fixing Libor were basically verbatim banking industry suggestions – Huffington Post
“As a company, we now avoid London. It’s tarnished” – Bloomberg

US banks sitting on three times more cash globally than the Fed reports – David Cay Johnston

Good News
Africa’s mobile banking boom – CFR

Odd But True
“If it looks like a duck and smells like a duck, it could well be a delicious peanut butter sandwich” – Gary King and Margaret Roberts

Margaret Sullivan is the new NYT public editor – NYT

Be Afraid
The “best hope for an egalitarian future may well be a democratising, skill-premium-erasing technological revolution” – Economist

Ed Ruschas, the last artist on the board of MOCA, leaves – LAT


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