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Presentations & Interviews In the episode Blockchain antitrust old wine, new bottles? ICLE Academic Affiliate Thibault Schrepel and Caron Beaton-Wells discuss anti-competition practices (collusions & abuses of dominance). . . .
In the episode Blockchain antitrust old wine, new bottles? ICLE Academic Affiliate Thibault Schrepel and Caron Beaton-Wells discuss anti-competition practices (collusions & abuses of dominance). The answer… “Old wine is good.” The full episode is embedded below.
Amicus Brief To establish antitrust standing, Pulse must show not only “injury causally linked to an illegal presence in the market” but also antitrust injury “attributable to an anti-competitive aspect of the practice under scrutiny.”
To establish antitrust standing, Pulse must show not only “injury causally linked to an illegal presence in the market” but also antitrust injury “attributable to an anti-competitive aspect of the practice under scrutiny.” Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 334 (1990) (quoting Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 488-89 (1977)). Put differently, Pulse must prove the existence of an injury “of the type the antitrust laws were intended to prevent and that flows from that which makes defendants’ acts unlawful.” Id. (quoting Brunswick Corp., 429 U.S. at 489). As the district court rightly decided, Pulse has failed to meet its burden.
Antitrust law does not punish firms for succeeding even if they become dominant. Congress enacted the Sherman Act for “the protection of competition, not competitors.” Id. at 338 (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962)). Yet Pulse’s injury flows from increased competition due to Visa’s innovation in the debit- network industry. Pulse freely admits that it lacks the “scale and market relevance” needed to compete with Visa’s challenged business strategies. (Appellant’s Br. 34) That Pulse’s PIN product has (so far, anyway) failed to gain traction in the marketplace, however, is not proof of antitrust injury. On the contrary, mere injury to a competitor, rather than to competition, is not an injury “of the type the antitrust laws were intended to prevent.” Phototron Corp. v. Eastman Kodak Co., 842 F.2d 95, 99 (5th Cir. 1988) (quoting Brunswick Corp., 429 U.S. at 489).
What’s more, Pulse has sued Visa for conduct that Pulse admits lowered merchants’ per-transaction fees, contending that those lower fees caused Pulse to obtain fewer transactions and generate less revenue. Pulse complains that it cannot “undercut” Visa’s new pricing structure. (Appellant’s Br. 40) But non-predatory price competition is no basis for antitrust injury. “When a firm … lowers prices but maintains them above predatory levels, the business lost by rivals cannot be viewed as an ‘anticompetitive’ consequence of the claimed violation.” Atl. Richfield, 495 U.S. at 337. So even if it harms Pulse, Visa’s charging low, but not below-cost, per-transaction fees to win market share is not harm to competition. Instead, both Visa’s conduct and its effects are “fully consistent with competition on the merits.” Taylor Publ’g Co. v. Jostens, Inc., 216 F.3d 465, 477 (5th Cir. 2000).
True, when assessing standing, this Court will assume that an antitrust violation exists. Doctor’s Hosp. of Jefferson, Inc. v. Se. Med. All., Inc., 123 F.3d 301, 306 (5th Cir. 1997). But that is not enough. “[P]roof of a[n antitrust] violation and of antitrust injury are distinct matters that must be shown independently.” Atl. Richfield, 495 U.S. at 344 (quoting Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 334.2c, at 330 (1989 Supp.)). Unable to show how Visa’s conduct harmed competition in any way, Pulse seeks to wag the dog of antitrust injury with the tail of an assumed violation. But a competitor has standing only if it proves that its “loss stems from a competition- reducing aspect or effect of the defendant’s behavior.” Atl. Richfield, 495 U.S. at 344. Pulse has proven nothing of the sort.
Antitrust is about unleashing the forces of competition, not throttling them. Accepting Pulse’s watered-down approach to antitrust injury, however, would have just the opposite effect. It would invite struggling firms to use antitrust law as a sword rather than a shield. It would deter innovation in highly competitive markets. And it would permit competitors to seek treble damages for pro-competitive harms that antitrust law does not reach. Rather than ensure vigorous competition, reversing the judgment below would harm competition and consumers alike.
Click here to read the full brief.
Presentations & Interviews A tripartite conversation between Glen Weyl, Caron Beaton-Wells, and ICLE affiliate Thibault Schrepel about blockchain, but also free markets, state power and the (absence of) . . .
A tripartite conversation between Glen Weyl, Caron Beaton-Wells, and ICLE affiliate Thibault Schrepel about blockchain, but also free markets, state power and the (absence of) need for antitrust laws. Description taken from the Competition Lore podcast below. The full episode is embedded below.
Presentations & Interviews Blockchain technology and smart contracts hold some promise for reinvigorating competition, providing more efficient and secure ways of doing business on the internet, while at . . .
Blockchain technology and smart contracts hold some promise for reinvigorating competition, providing more efficient and secure ways of doing business on the internet, while at the same time lifting the bar in data protection and privacy.
But is this new general purpose technology all that it’s made out to be? Will it challenge the power of the major digital platforms? And what are the risks that blockchain itself will become concentrated and fall prey to anti-competitive conduct?
ICLE Academic Affiliate Thibault Schrepel joins the Competition Lore Podcast to take on these challenging questions. The full episode is embedded below.
Presentations & Interviews Blockchain is not just bitcoin. It’s a general purpose technology that some say has the potential to revolutionise swathes of the economy, creating a new, . . .
Blockchain is not just bitcoin. It’s a general purpose technology that some say has the potential to revolutionise swathes of the economy, creating a new, more efficient, more secure way to exchange information and value.
But just as was true of the early days of the internet, a real understanding of blockchain technology eludes many of us, making it difficult to think meaningfully about its promise and its pitfalls.
ICLE Academic Affiliate Thibault Schrepels joins this episode of the Competition Lore Podcast. Thibault has made blockchain and its antitrust implications his specialty and in this episode, he walks us through the nuts and bolts of the technology. The full episode is embedded below.
TOTM Excess is unflattering, no less when claiming that every evolution in legal doctrine is a slippery slope leading to damnation. In Friday’s New York Times, . . .
Excess is unflattering, no less when claiming that every evolution in legal doctrine is a slippery slope leading to damnation. In Friday’s New York Times, Lina Khan trots down this alarmist path while considering the implications for the pending Supreme Court case of Ohio v. American Express. One of the core issues in the case is the proper mode of antitrust analysis for credit card networks as two-sided markets. The Second Circuit Court of Appeals agreed with arguments, such as those that we have made, that it is important to consider the costs and benefits to both sides of a two-sided market when conducting an antitrust analysis. The Second Circuit’s opinion is under review in the American Express case.
Read the full piece here.
Scholarship Over the past 20 years, credit cards have become an increasingly popular means of paying for goods and services in Canada. Today nearly 90 percent of Canadian adults own a credit card and approximately 65 percent of all point of sale payments are made using credit cards.
Over the past 20 years, credit cards have become an increasingly popular means of paying for goods and services in Canada. Today nearly 90 percent of Canadian adults own a credit card and approximately 65 percent of all point of sale payments are made using credit cards.
The rise of credit cards has been driven by the benefits that accompany their use, including convenience, security, insurance, and warranties on purchases. But arguably the biggest driver has been the rewards that cards offer, such as cash back, Air Miles or Aeroplan rewards, or merchant-specific rewards. About 80 percent of Canadians with credit cards have at least one card that offers rewards for use, and owners of credit cards with rewards say that the rewards are the primary reason they use their rewards card for purchases.
The benefits provided by credit cards are paid for by the issuing bank through a combination of annual fees charged to cardholders and transaction fees charged to merchants. In closed-loop three-party card systems (primarily American Express, as well as international cards issued by Discover), the payment card provider charges both merchants and consumers directly. In four-party card systems (Visa and Mastercard), card issuers charge cardholders directly but the fees from merchants come via the acquirer (such as a merchant’s bank), which charges merchants a service charge. The largest portion of the merchant service charge is the interchange fee, which is passed on to issuing banks.
In spite of the higher annual fees on cards with more benefits, the vast majority of consumers report that they receive more benefits from their cards than the cost of the fees they carry. Middle class consumers are the major beneficiaries of credit card rewards. A consumer or household earning $40k might expect annual rewards valued at $450, while paying fees of $75, providing a net bene t of $375. Meanwhile, a consumer or household earning $90k might expect benefits of about $1350 while paying $225 in fees, providing a net bene t of around $1125.
Merchants, however, are less happy with the higher interchange fees. Apparently assuming that all of the bene t of rewards cards accrues to users, while merchants bear the added interchange cost, these merchants say that the increase has negatively affected their profitability. Of note, however, the number of merchants who accept credit cards, after falling in the early 2000s, has increased in the past decade – and appears to have risen more rapidly following the introduction of more generous rewards cards, in spite of a rise in accompanying interchange fees.
Some merchant groups have, in fact, called for the government to impose caps on interchange fees; in February 2016, a private member’s bill was introduced in Parliament seeking to do just that.
Interchange fee caps, like other price controls, tend to have predictable effects: as a rule, they result in other prices increasing, leading to a redistribution, but not a reduction, in overall costs. Several other countries have introduced caps on interchange fees, including, of particular relevance, the caps introduced in Australia in 2003. These caps resulted in a significant increase in the annual fees charged to cardholders and a substantial reduction in the rate at which card use earned rewards.
Using data on and analysis of the effect of Australia’s interchange fee caps, combined with publicly available and proprietary data on Canadian credit card use, household income and expenditure, and other economic variables, the authors of this report modelled the likely effects of introducing a cap on interchange fees in Canada. They estimate that, were an interchange fee cap imposed here, it would have significant negative consequences for Canadian consumers and the Canadian economy as a whole. Specifically, they estimate that if interchange fees were forcibly reduced by 40 percent:
The authors estimate that a tighter cap on interchange fees would have a more dramatic negative effect on middle class households and the economy as a whole.
They also provide specific case studies for three typical middle class households, showing how a cap on interchange fees, along the lines of those imposed in Australia, would affect their household income and expenditure.
Continue reading at Macdonald-Laurier Institute
ICLE White Paper During the past decade, academics—predominantly scholars of behavioral law and economics—have increasingly turned to the claimed insights of behavioral economics in order to craft novel policy proposals in many fields, most significantly consumer credit regulation.
During the past decade, academics—predominantly scholars of behavioral law and economics—have increasingly turned to the claimed insights of behavioral economics in order to craft novel policy proposals in many fields, most significantly consumer credit regulation. Over the same period, these ideas have also gained traction with policymakers, resulting in a variety of legislative efforts, such as the creation of the Consumer Financial Protection Bureau.
In 2016 the issue reached the Supreme Court, which granted certiorari in Expressions Hair Design v. New York for the October 2016 term. The case, which centers on a decades-old New York state law that prohibits merchants from imposing surcharge fees for credit card purchases, represents the first major effort to ground constitutional law (here, First Amendment law) in the claims of behavioral economics.
In this article we examine the merits of that effort. Claims about the real-world application of behavioral economic theories should not be uncritically accepted— especially when advanced to challenge a state’s commercial regulation on constitutional grounds. And courts should be especially careful before relying on such claims where the available evidence fails to support them, where the underlying theories are so poorly developed that they have actually been employed elsewhere to support precisely opposite arguments, and where alternative theories grounded in more traditional economic reasoning are consistent with both the history of the challenged laws and the evidence of actual consumer behavior. The Petitioners in the case (five New York businesses) and their amici (scholars of both behavioral law and economics and First Amendment law) argue that New York’s ban on surcharge fees but not discounts for cash payments violates the free speech clause of the First Amendment. The argument relies on a claim derived from behavioral economics: namely, that a surcharge and a discount are mathematically equivalent, but that, because of behavioral biases, a price adjustment framed as a surcharge is more effective than one framed as a discount in inducing customers to pay with cash in lieu of credit. Because, Petitioners and amici claim, the only difference between the two is how they are labeled, the prohibition on surcharging is an impermissible restriction on commercial speech (and not a permissible regulation of conduct). Assessing the merits of the underlying economic arguments (but not the ultimate First Amendment claim), we conclude that, in this case, neither the behavioral economic
The Petitioners in the case (five New York businesses) and their amici (scholars of both behavioral law and economics and First Amendment law) argue that New York’s ban on surcharge fees but not discounts for cash payments violates the free speech clause of the First Amendment. The argument relies on a claim derived from behavioral economics: namely, that a surcharge and a discount are mathematically equivalent, but that, because of behavioral biases, a price adjustment framed as a surcharge is more effective than one framed as a discount in inducing customers to pay with cash in lieu of credit. Because, Petitioners and amici claim, the only difference between the two is how they are labeled, the prohibition on surcharging is an impermissible restriction on commercial speech (and not a permissible regulation of conduct). Assessing the merits of the underlying economic arguments (but not the ultimate First Amendment claim), we conclude that, in this case, neither the behavioral economic
Assessing the merits of the underlying economic arguments (but not the ultimate First Amendment claim), we conclude that, in this case, neither the behavioral economic theory, nor the evidence adduced to support it, justifies the Petitioners’ claims. The indeterminacy of the behavioral economics underlying the claims makes for a behavioral law and economics “just-so story”—an unsupported hypothesis about the relative effect of surcharges and discounts on consumer behavior adduced to achieve a desired legal result, but that happens to lack any empirical support. And not only does the evidence not support the contention that consumer welfare is increased by permitting card surcharge fees, it strongly suggests that, in fact, consumer welfare would be harmed by such fees, as they expose consumers to potential opportunistic holdup and rent extraction.
As far as we know, this is the first time the Supreme Court has been expressly asked to consider arguments rooted in behavioral law and economics in reaching its decision. It should decline the offer.
Presentations & Interviews WATCH: Video
Geoffrey Manne joined CNBC to discuss the removal of the border-adjustment tax from Republicans’ tax-reform proposal.
