The US Department of Justice and seven states filed an antitrust lawsuit against American Express, Mastercard, and Visa, alleging that their merchant restraints violated antitrust law. The complaint argued that credit card networks have substantial market power over merchants in the general purpose card network services market. Mastercard and Visa settled, agreeing to allow merchants to steer customers to less expensive payment methods. American Express did not settle and argued at trial that the plaintiffs failed to prove their claims. Ultimately, the court found the conduct violated antitrust law but encouraged the parties to settle on remedies.

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DOJ v Amex et al.
On October 4th, 2010, the United States Department of Justice, by its attorneys under the
leadership of the Attorney General; the State of Connecticut, by its Attorney General Richard
Blumenthal; the State of Iowa, by its Attorney General Thomas J. Miller; the State of Maryland,
by its Attorney General Douglas F. Gansler; the State of Michigan, by its Attorney General
Michael A. Cox; the State of Missouri, by its Attorney General Chris Koster; the State of Ohio,
by its Attorney General Richard Cordray; and the State of Texas, by its Attorney General Greg
Abbott (henceforth called Plaintiffs) filed a civil antitrust claim against the American Express
company along with its subsidiary American Express Travel Related Services Company Inc.,
Mastercard and Visa (henceforth called Defendants).
There are two specific product markets relevant to this complaint: the General Purpose
Card network services market and the General Purpose Card services network market for
merchants in travel and entertainment (T&E) industries. General Purpose Card network services
enable merchants to obtain authorization for, settle and clear transactions for customers who pay
with General Purpose Cards. Merchant acceptance of General Purpose Cards is defined and
retrained at the network level, with prices to merchants established by the networks. Merchants
accept General Purpose Cards because millions of consumers prefer the use of General Purpose
Cards to any other form of payment. High numbers of consumers use General Purpose Cards
because of security, convenience and widespread acceptance. Each Defendant’s network
provides services only for its own General Purpose Cards, and any merchant wishing to accept
General Purchase Cards must purchase network services. While other forms of payment are
available outside this relevant market, there is no reasonable substitute for these network services
from the viewpoint of merchants. Within this relevant market there is a separate price

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discrimination market for merchants in the T&E businesses. The Defendants charge different
customers different prices for the same service even though these price differences are not a
result of differing costs. Defendants recognize T&E businesses as its own distinct market
because almost all consumers of T&E services find it more convenient to use General Purpose
Cards to complete purchases. American Express for example has had a T&E Industries Business
Unit for many years. This shows that network services for T&E merchants is treated as a distinct
market with clear price discrimination. The United States is the relevant geographic market for
both General Purpose card network services and network services for T&E merchants.
The Defendants possess substantial market power by maintaining the three largest
transaction networks in the credit and charge card industry within the United States. The
Department of Justice found that 16% of American Express cardholders use only American
Express and no other General Purpose Cards, this high cardholder persistence on using American
Express gives American Express significant market power over merchants, essentially forcing
them to support American Express or lose customers. In most cases, for merchants to remain
competitive with other merchants they have no choice but to accept all Defendants’ General
Purpose Cards. The Department of Justice also found that Defendants are able to discriminate in
prices between different types of merchants, another reflection of their substantial market power.
Merchants in industries that rely more heavily on General Purpose Cards, such as T&E
merchants, are charged a higher price because Defendants know they have no other choice if
they wish to keep their business. Defendants’ market share, which is a commonly accepted way
to measure market power, was 94% of the dollar volume of General Purpose Cards issued in the
United States in 2009. In 2009 alone cardholders made purchases with American Express credit
and charge cards totalling $419.8 billion, a market share of 24%; purchases with Mastercard

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credit and charge cards totalling $476.9 billion, accounting for a 27% share of the market; and
purchases with Visa credit and charge cards totalling $764.2 billion with a market share of 43%
according to Nilson data. In total $1.6 trillion flowed through the Defendant’s networks, this is a
substantial amount of interstate commerce.
With each purchase made by consumers using one of the Defendants’ credit or charge
cards, the merchant from whom the purchase is made must pay a “swipe fee”, significantly
raising costs for merchants. Defendant’s fees ultimately get passed on to consumers in the form
of higher retail prices, in 2009 the fees collected by Defendants and their affiliated banks from
merchants totalled $35 billion. By imposing certain Merchant Restraints the Defendants insulate
themselves from competition and harm consumers in the process. Merchants are deterred from
promoting competing credit and charge cards with lower fees, so merchants and consumers have
little choice but to pay out substantial fees to Defendants. Merchant Restraints prevent merchants
from offering discounts to customers who use credit or charge cards from a competing network
that are less costly for the merchant. This further hinders merchants from stimulating competition
among credit and charge card networks at the point of sale, where consumers interact directly
with the merchant. By enforcing these Merchant Restraints, each Defendant deliberately stifles
competition, violating Section 1 of the Sherman Antitrust Act.
The United States delivers this action in accordance with Section 4 of the Sherman Act in
order to secure equitable relief and bring an end to violations of Section 1 of the Sherman Act.
Connecticut, Iowa, Maryland, Michigan, Missouri, Ohio, and Texas delivers this action on behalf
of their citizen’s general welfare and respective State economies in accordance with Section 16
of the Clayton Act to prevent violations of Section 1 of the Sherman Act. Under Section 16 of
the Clayton act "any person, firm, corporation, or association" may seek injunctive relief against

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the threat of losses or damages caused by violation of the antitrust laws. (Gulledge) By seeking a
civil suit rather than a criminal suit the Plaintiffs do not need proof beyond a reasonable doubt, if
Defendants are found guilty it opens the door for private class action lawsuit whereby
Defendants would be forced to pay reparations to consumers who have suffered injuries as a
result of the alleged violations.
MasterCard and Visa agreed to a settlement with the Department of Justice. The
Defendants MasterCard and Visa have not admitted and do not admit the participating in the
prohibited conduct brought up by the Plaintiffs, or any liability or wrongdoing. In the settlement
section IV describes the prohibited conduct that the defendants are subject to after agreeing with
the settlement. The purpose of this section is to allow merchants to attempt to influence the form
of method of payment that a customer selects by providing choice and information in a
competitive market. Section IV.A prevents MasterCard and Visa from doing anything that will
either directly or indirectly prevent any merchant in the United States from any of the following:
● Offering the customer a discount or rebate at the point of sale if the customer
chooses to change the initial form of payment to use another card or form of
payment;
● Offering free or discounted product if a customer uses a specific method of
payment differing from the initial form;
● Giving consumers free, discounted, or enhanced service if they choose to use
another form of payment that differs from the original form;
● Offering incentive, encouragement, or benefit for using specific forms of
payments that aren’t the original;
● Showing a preference for a specific general purpose card or form of payment;

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● Promoting particular brand of type of general card or method of payment through
posting information, or the advertising payment choices or any other form of
communication with the customer:
● Giving the customer a reasonable guess or actual costs of the merchant when the
customer chooses to use specific method of payments;
● Participating in any other form substantially similar to the practices described
above.
Section IV.B details what the defendants are not prohibited from doing, provided that
there is compliance with antitrust laws, the Dodd-Frank Wall Street Reform, the Consumer
Protection Act of 2010, and any other applicable state or federal law. The Defendants are
permitted to:
● Enforce existing agreements or enter into agreements in which a merchant
chooses cards with the Defendants brand as the only method of payment that they
accept for goods and services;
● Enter or enforcing agreements where a merchant agrees to encourage customers
to use co-branded cards with both the Defendants brand and the co-brand as
payments for goods and services and not promote other general purpose cards of
any other competitor;
● Entering or enforcing agreements where the merchant can encourage customers to
use their specific brand through the practices outlined in section IV.A and to not
do the same for another brand if and only if the agreement is individually
negotiated and isn’t part of a standard agreement generally offered to multiple
merchants, and the merchant’s acceptance of the defendants payment service for

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goods is unrelated to and not required upon of the merchant to enter into the
agreement;
● Creating and enforcing rules that prohibit merchants from coaxing customers to
pay for goods or services with its general purpose card issued by one specific
issuing bank rather than another issued by any other issuing bank
Along with these allowances MasterCard and Visa will not be prohibited from creating
and enforcing rules that stop merchants from belittling their brands. The last restriction placed
upon the Defendants is that they may not make or enforce any rule or agreements that prevent
the customers, using the defendant’s card service, from detailing costs or fees the merchant
incurs if they accept the form of payment.
In order for the DOJ to monitor the firms’ compliance with the settlement they are
permitted to inspect, copy, or require the defendant to provide hard and electronic copies of all
books, ledgers, accounts, records, data, and documents that are relevant to the settlement. They
also have the right to interview the defendant’s officers, employees, or agents about relative
information. The DOJ also has reserves the right to request written reports from the defendants
that require them to get an independent audit related to the settlement at the expense of the
Defendant. The Defendants could also be required to answer questions under oath.
American Express did not settle with the DOJ. They brought forth many economic
arguments during the trial. The plaintiffs claimed that its adverse effect test for non-
discriminatory provision showed a disruption in price setting mechanisms. According to Amex
they never really showed the actual effect on Amex’s two sided price level, or any other price.
The stance the plaintiffs took was a “quick look” analysis which is flawed because it was meant
to be used for markets in which anyone with a basic understanding of economies would conclude

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that the actions in question would have anticompetitive effects on customers and markets. The
government claimed that the analysis of the second side of the market was not necessary; this
went against their own economic expert Professor Katz who said that in a two sided market you
must analyze both sides because changes in price cannot adequately be assessed by only looking
at one side.
The DOJ also failed to prove that the anti-discriminatory practices employed by Amex
had an adverse effect, even if they only looked at one side of the market. Again Professor Katz
said that merchant discount fees could increase; this increase is seen in the 3 million locations
where Amex is not accepted and MasterCard and Visa are. At these 3 million locations merchant
discount fees increased for 4 years and retail prices at these locations haven’t decreased which
shows that the DOJ’s theory is flawed. The DOJ is also flawed in their theory that low cost to
merchant strategy works. Discover is proof of the flawed theory. Discover which has more
cardholders that Amex but substantially less than MasterCard and Visa would not have any
success trying to convince merchants to “steer” toward its card because the merchants risk
alienating the two larger competitors. Visa’s “we prefer” campaign also demonstrates that
discount fees did not drop instead they went even higher. Amex has many more economic
arguments including the fact that non-discrimination provisions have significant pro-competitive
advantages by driving competition in markets, and the fact that the DOJ failed to establish less
restrictive alternatives to non-discriminatory prices. Amex also had a broader definition of the
relevant market which included debit cards. The last argument was that the DOJ failed to
establish evidence that Amex had significant market power to the point where it had the ability to
price above competitive level. The conclusion that the courts concluded was that the Plaintiffs
proved with evidence that the conduct in question was a violation on trade under Section 1 of the

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Sherman Act. The court encouraged the remedies of the decision to be settled out of court
because the court thinks that the parties would be better off determining how Amex will change
its merchant regulations so that it can satisfy both Amex’s interest and still be in line with the
Sherman Act.
In efforts to calculate the damages to society caused by this conspiracy, the main focus is
to figure out how the consumer’s were affected. Economically, how would card user’s lives
differed had these credit card companies not conspired against them? A viable way to estimate
the amount lost by consumers would be to look at the profits these companies made through their
rule not allowing merchants to prefer a different card at a point of sale. Merchants pass these fees
on to the consumers by charging higher prices, causing damage to the consumer economically. In
2009 these card companies and their banks amassed $35 billion from merchants. It would be safe
to say the amount made off consumers was even more considering the merchants can charge
even more. In addition, assumptions have to be made about future losses, which starts with the
base year being accurate. In many cases the courts tend to overcharge the defendant which is
huge problem in the calculations. There are a great amount of uncertainties when dealing with
civil compensations for consumers. A fair calculation for the damage to society would be to
multiply the total profits made in this conspiracy by 1.5. The extra amount of compensation can
be attributed to inflation, potential investments, and a loss of income for each consumer who lost
money due to the conspiracy at hand. There is no set in stone way to calculate the damages to
society by these credit card companies, but with economic analysis a more accurate estimation of
the damage caused to society can be done.
References:

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<Injunctive Relief Under Federal Antitrust Laws; Law Office of Cathleen A. Gulledge, LLC;
accessed 3/6/15 at: http://www.estateplan4u.com/articles/injunctive-relief-under-federal-
antitrust-laws/>
"Antitrust Case Filings." USDOJ: Antitrust Division U.S. and Plaintiff States v. American
Express Company, Et Al. Web. 7 Mar. 2015.
<http://www.justice.gov/atr/cases/americanexpress.html>.
Pitts, David. "Calculating Economic Damages: In Plain English." Calculating Economic
Damages: In Plain English. N.p., 31 Mar. 2012. Web. 06 Mar. 2015.