Visa, MasterCard, American Express, and Discover control practically all credit card transactions in the United States. The credit card industry is a two-sided market; 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. The four credit card companies support themselves and this market by taking a transaction fee from each sale a merchant makes involving each card. Visa and MasterCard have been around the longest, and American Express developed a unique system to give its users rewards for spending money with its card. But to maintain this reward system, American Express charges higher fees to merchants who accept the card. To avoid these high fees, merchants sometimes attempt to dissuade cardholders from using American Express cards to make purchases—a practice known as

“steering.” American Express began including anti-steering provisions in its contracts with merchants to prevent this practice, and Visa and MasterCard soon followed suit.

In this case, the United States and several states sued American Express (as well as Visa and MasterCard, but these disputes were settled out of court), claiming that its anti-steering provisions violate §1 of the Sherman Antitrust Act. The district court agreed, finding that the credit card market should be treated as two separate markets—one for merchants and one for cardholders—and that American Express’s anti-steering provisions are anticompetitive because they result in higher merchant fees. The Second Circuit reversed. It determined that the credit card market is one market, not two. And it concluded that American Express’s anti-steering provisions did not violate §1. The states appealed to the Supreme Court.

Credit card transaction fees total about $50 billion a year in the United States, according to the government. Do you think American Express’s anti-steering provisions are anticompetitive under the antitrust laws? How did the Supreme Court rule?