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Carl Hittinger and Tyson Herrold. Carl Hittinger and Tyson Herrold.

On Oct. 16, the U.S. Supreme Court granted certiorari in United States v. American Express, the court’s first antitrust case of the 2017 term and the first antitrust case they have reviewed since 2015. The American Express case presents complex questions about the legality of anti-steering provisions in agreements between credit card companies and the merchants that agree to accept their cards. It also presents the Supreme Court with an opportunity to provide real guidance for the first time on the application of the rule of reason, which is used to assess the anticompetitive effects of a “contract, combination … or conspiracy in restraint of trade” under the Sherman Act. This case will also be the first antitrust case which antitrust expert Justice Neil Gorsuch will join.

The Credit Card Business Model

The success of a credit card companies depends on their ability to attract a critical mass of merchants and cardholders. “That is, cardholders benefit from holding a card only if that card is accepted by a wide range of merchants, and merchants benefit from accepting a card only if a sufficient number of cardholders use it.” This market structure is often referred to as a “two-sided market” because credit card companies must serve two different customer groups to be successful. Because cardholders are empirically more sensitive to credit card fees than merchants, as a practical matter credit card companies charge most of their fees to, and therefore derive most of their revenue from, merchants, usually calculated as a fixed fee per transaction and/or as a variable fee calculated as a percentage of the price of the good or served purchased.

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