Market Definition and Market Power in Payment Card Networks

Erich Emch and T. Scott Thompson
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Erich Emch: Economic Analysis Group, Antitrust Division, U.S. Department of Justice
T. Scott Thompson: Bates White, LLC

No 200609, EAG Discussions Papers from Department of Justice, Antitrust Division

Abstract: We discuss competition among payment card networks, and in particular how antitrust practitioners might approach questions or market definition and market power in these markets. Application of the hypothetical monopolist test to define markets, and the use of traditional metrics to measure market power, may be less straightforward for card networks than for many markets. The interrelationships between network pricing to merchants, to bank issuers of payment cards and indirectly, to final consumers, complicates the analysis. The "two-sidedness" of the market does not, however, overturn the basic logic of the hypothetical monopolist test or traditional measurements of market power. We demonstrate some practical ways to apply these antitrust principles to competition among payment card networks.

Date: 2006-03
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