Priceless? The economic costs of credit card merchant restraints

UCLA Law Review

Volumn 55, Issue 5, 2008, Pages 1321-1405

  Levitin, Adam J ^a,b,c,d  

^a GEORGETOWN UNIVERSITY LAW CENTER   (United States)

^b HARVARD LAW SCHOOL   (United States)

^c Columbia University ^*

^d HARVARD COLLEGE   (United States)

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[No Author keywords available]

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EID: 49449099735     PISSN: 00415650     EISSN: None     Source Type: Journal    
DOI: None     Document Type: Review

References (357)

1. Slate's Ad Report Card: The End of "Priceless" (NPR radio broadcast Mar. 16, 2006).
2. David Humphrey et al., What Does It Cost to Make a Payment?, 2 REV. NETWORK ECON. 159, 162-63 (2003). These numbers likely understate the cost discrepancies among payment systems because the U.S. data is from 2000 and the cost of accepting credit cards for merchants rose 23 percent just between 2000 and 2006, while other payment system costs have declined or remained static. See infra text accompanying notes 71-72.
3. Humphrey et al., supra note 2. These figures include fees paid by merchants to banks, as well as costs such as handling, theft, counterfeit, float, deposit preparation, insurance, armored cars, and labor. For different calculations, see Daniel D. Garcia-Swartz et al., The Move Toward a Cashless Society: A Closer Look at Payment Instrument Economics, 5 REV. NETWORK ECON. 175 (2006);
4. Daniel D. Garcia-Swartz et al., The Move Toward a Cashless Society: Calculating the Costs and Benefits, 5 REV. NETWORK ECON. 199 (2006).
5. Unfortunately, both the Humphrey et al. study and the Garcia-Swartz et al. studies are based on data at least a decade old. Cf. Allan Shampine, Another Look at Payment Instrument Economics, 6 REV. NETWORK ECON. 495 (2007) (critiquing Garcia-Swartz et al.'s methodology).
6. But cf. Daniel D. Garcia-Swartz et al., Further Thoughts on the Cashless Society: A Reply to Dr. Shampine, 6 REV. NETWORK ECON. 509 (2007) (responding to Shampine's criticisms).
7. Merchant Processing Fees, NILSON REP., Apr. 2007, at 7.
8. Aneace's Blog, http://aneace.blogspot.com (May 12, 2006).
9. Cf. Paul Heidhues & Botond Köszegi, Exploiting Naivete About Self-Control in the Credit Market 1 (Feb. 23, 2008) (unpublished manuscript), available at http://elsa.berkeley.edu/~botond/credit.pdf (modeling exploitation of consumers' time-inconsistent tastes).
10. The term "merchant restraints" is not used by credit card networks. It is a shorthand term created by plaintiffs' attorneys in antitrust litigation against credit card networks. Credit card networks have hundreds of rules, only a handful of which create competitive problems. I adopt the term "merchant restraints" solely for the sake of convenience.
11. DAVID S. EVANS & RICHARD SCHMALENSEE, PAYING WITH PLASTIC: THE DIGITAL REVOLUTION IN BUYING AND BORROWING 25 (1999).
12. Consumer Payment Systems, NILSON REP., Oct. 2007, at 10.
13. Consumer Payment Systems, NILSON REP., Dec. 2006, at 1, 9.
14. Consumer Payment Systems, NILSON REP., Oct. 2007, at 9 (2006 and 2001 data);
15. Consumer Payment Systems, NILSON REP., Dec. 2006, at 7 (2000 and 2005 data, as well as the 2010 prediction);
16. Consumer Payment Systems, NILSON REP., Dec. 2005, at 6 (2004 data);
17. Consumer Payment Systems, NILSON REP., Dec. 2004, at 6 (2003 data);
18. Consumer Payment Systems, NILSON REP., NOV. 2003, at 6 (2002 data);
19. The Future of Consumer Payment Systems in the United States, NILSON REP., Apr. 2002, at 6 (1990-1999 data).
20. CardData, U.S. Quarterly Payment Card Charge Volume by Brand - 2006, http://www.cardweb.com/carddata/charts/quartervolume/2006.html (last visited Jan. 31, 2008). This data includes network credit cards and offline debit cards. It does not include PIN-based debit cards, prepaid cards, or private label credit cards.
21. See Adam J. Levitin, Payment Wars: The Merchant-Bank Struggle for Control of Payment Systems, 12 STAN. J.L. BUS. & FIN. 425, 463-67 (2007), for an analysis of MasterCard's new ownership structure. Visa's IPO was the largest in U.S. history.
22. See Anuj Gangahar, Visa Stages Largest Ever US IPO, FIN. TIMES (London), Mar. 18, 2008.
23. In all networks there is often an additional party, the merchant service provider or independent sales organization, which links the merchant and the acquirer. Acquirers frequently outsource all but the financing element of their operations to merchant service providers. See Ramon P. DeGennaro, Merchant Acquirers and Payment Card Processors: A Look Inside the Black Box, 91 FED. RES. BANK ATLANTA ECON. REV. 27, 31 (2006). A separate processor and/or gateway provider may also be involved in linking the merchant and the acquirer.
24. In re Visa Check/MasterMoney Antitrust Litig., 280 F.3d 124, 130 (2d Cir. 2001) (citing a 95 percent overlap in membership).
25. E.g., Visa USA Changes Board, NILSON REP., Nov. 2005, at 1, 10 (Visa voting).
26. MerchantSeek, Merchant Account Rates, http://www.merchantseek.com/ merchant_accounts_rates.htm (last visited Feb. 4, 2008).
27. See Adult Card Processing.com, https://secure.gowebs.net/ adultcardprocessing/index.html (last visited Feb. 4, 2008); Guardian Financial Services, Inc., http://www.guardianfinance.com/high_risk_merchant_account.htm (last visited Feb. 4, 2008).
28. This description of credit card network economics differs from the Ninth Circuit's recent confused (and incorrect) description in Kendall v. Visa U.S.A., Inc., 518 F.3d 1042, at 1045-46 (9th Cir. 2008). The Ninth Circuit incorrectly believed diat the network, rather than the issuer, retained the interchange fee. See id. In fairness to the Ninth Circuit, a 12(b)(6) motion is based on the assumption that all facts pled by the plaintiff are true, and the plaintiffs' complaint never explained who received the interchange fee. Still, given the existence of the Eleventh Circuit's ruling in National Bancard Corp. (NaBanco) v. VISA U.S.A., Inc., 779 F.2d 592, 594 (11th Cir. 1986), and the district court's finding that interchange is paid to the issuer, Kendall, 518 F.3d at 1046, it is unclear why the Ninth Circuit would reach a different conclusion. The Ninth Circuit's inability to master the economic structure of credit card networks makes its cursory antitrust analysis suspect. In Kendall, the plaintiffs alleged that the defendant banks and networks had conspired to fix the interchange fee. Id. at 1048-49. The Ninth Circuit held that the plaintiffs in Kendall had failed to plead sufficient facts against the banks to overcome the rule that allegations of parallel conduct and a bare assertion of conspiracy alone are insufficient to overcome a 12(b)(6) motion to dismiss. See id. at 1046-47 (citing Bell Atl. Corp. v. Twombly, 127 S. Ct. 1955, 1964 (2007)); id. at 1051-52. Notably, Twombly dealt with a situation involving only parallel pricing; no mechanism for the conspiracy to set prices was alleged. See 127 S. Ct. at 1962. Kendall, however, alleged such a mechanism - the card associations. 518 F.3d at 1048. The Ninth Circuit greatly overread Twombley to support the proposition that "merely charging, adopting or following the fees set by a Consortium is insufficient as a matter of law to constitute a violation of Section 1 of the Sherman Act." Id. Simply put, Twombly does not support such a proposition. Twombly dealt with parallelism without a consortium; Twombly had nothing to say about parallel pricing by members of a consortium or cartel. The Ninth Circuit also relied on one of its own precedents, Kline v. Coldwell, Banker & Co., 508 F.2d 226 (9th Cir. 1974), for the point that "membership in an association does not render an association's members automatically liable for antitrust violations committed by the association." Kendall, 518 F.3d at 1048. Notably, Kline involved a suggested fee schedule for Los Angeles area realtors. 508 F.2d at 228. It is not clear from Kline if these were inter-broker fees or fees charged to clients. If the latter, it is quite different from interchange; most consortiums do not set the fees paid by one member to another. Consortium membership (and serving on the board) is quite different when one is setting the consortium's own fees (which in the credit card context would be the network's authorization, clearing, and settlement fees, about which the Ninth Circuit did not know in Kendall) versus when one is setting the fees to be paid to members of the consortium (like interchange actually is). Thus, the Ninth Circuit's misunderstanding of the interchange fee might well have impacted the outcome of Kendall despite the Ninth Circuit's insistence that the economics of the fee were irrelevant to the ruling.
29. Visa's switch fee was 0.0925 percent of the transaction value in August 2007; MasterCard's was 0.0950 percent of the transaction value.
30. MasterCard's ACS costs appear to be around 13 cents per transaction. Dennis W. Carlton & Alan S. Frankel, Transaction Costs, Externalities, and "Two-Sided" Payment Markets, 2005 COLUM. BUS. L. REV. 617, 633.
31. William W. Shaw, A Question of Integrity, CREDIT CARD MGMT., Feb. 2005, at 48. The earliest court decision on interchange found that it was a fee for the costs of transferring transactional paper from the acquirer to the issuer. Nat'l Bancard Corp. (NaBanco) v. VISA U.S.A., Inc., 596 F. Supp. 1231, 1238 (S.D. Fla. 1984). Some commentators argue that the interchange fee is a function of credit card networks' need to allocate costs between merchants and consumers in order to maximize the size and value of the network and that it is necessary for a credit card system with multiple issuers and acquirers "to operate effectively in the presence of an 'honor-all-cards' rule."
32. Benjamin Klein et al., Competition in Two-Sided Markets: The Antitrust Economics of Payment Card Interchange Fees, 73 ANTITRUST L.J. 571, 574 (2006);
33. see also Hearing on Credit Card Interchange Fees, Hearing before the H. Comm. on the Judiciary Antitrust Task Force, 110th Cong. 11 (July 19, 2007) (statement of Timothy J. Muris, Professor, George Mason University School of Law);
34. DAVID S. EVANS & RICHARD L. SCHMALENSEE, PAYING WITH PLASTIC: THE DIGITAL REVOLUTION IN BUYING AND BORROWING 153 (2d ed., 2005). There are several problems with this argument. First, the interchange fee is a clumsy tool for price allocation between merchants and cardholders because it is not charged directly to merchants. Both Visa and MasterCard permit acquirers to establish their own merchant discount fee. Thus, it is theoretically possible for an acquirer to have a merchant discount fee less than the interchange rate, and many acquirers offer blend flat rates for smaller businesses. While interchange is a major component of the merchant discount fee, it is not a sophisticated tool for balancing consumer demands and places MasterCard and Visa at a disadvantage vis-à-vis American Express and Discover in that regard. At best, then, the network effects argument explains the necessity of a merchant discount fee.
35. Second, the network effects argument fails to explain the absence of standardized interchange fees during the initial years of the MasterCard's and Visa's networks. See Timothy J. Muris, Payment Card Regulation and the (Mis)application of the Economics of Two-Sided Markets, 2005 COLUM. BUS. L. REV. 515, 531 (2005). Third, the network effects argument cannot explain why issuers account for the costs of rewards programs in their publicly filed financials as reductions in interchange income.
36. E.g., Capital One Fin. Corp., Annual Report (Form 10-K), at 32, 79 (Mar. 2, 2006);
37. MBNA Corp., Annual Report (Ex-13), at 42 (Mar. 15, 2005). Whatever underlying theoretical basis now might be concocted in defense of the interchange fee, the credit card issuers themselves see it as a method of funding rewards programs (and other costs), as well as an independent profit center.
38. AMY DAWSON & CARL HUGENER, A NEW BUSINESS MODEL FOR CARD PAYMENTS 9 (Oct. 19, 2006); see also EVANS & SCHMALENSEE, supra note 22, at 154, for a discussion of the first formal methodology of setting the interchange fee.
39. See infra text accompanying notes 180-186.
40. DAWSON & HUGENER, supra note 23.
41. Press Release, Visa USA, Visa USA Updates Interchange Rates (Apr. 12, 2007), http://corporate.visa.com/md/nf/press695.jsp.
42. Visa U.S.A. Interchange Reimbursement Fees (Rates Effective Apr. 2007) (on file with author).
43. MasterCard, MasterCard US and Interregional Interchange Rate Programs, April 2008, at 44, available at http://www.mastercard.com/us/wce/PDF/ MasterCard%20Interchange%20Rates%20and%20Criteria%20-%20April%202008.pdf.
44. Some very large merchants are able to negotiate their own interchange fee categories or rebates on interchange from the networks.
45. EVANS & SCHMALENSEE, supra note 8, at 199.
46. See, e.g., North American Credit Card Association, Our Rates, http://www.naccadirect.com/nacca/rates.aspx?id=2 (last visited Mar. 24, 2008).
47. DeGennaro, supra note 14, at 37. Major factors detailed in a merchant's risk profile are its past volume of transactions, fraud rate, chargeback rate, and industry. What's at Stake in the Interchange Wars, GREEN SHEET, Nov. 28, 2005, at 70;
48. New Interchange Rate Highlights, GREEN SHEET, Mar. 27, 2006, at 56.
49. See Levitin, supra note 13, at 470-71.
50. See Howard H. Chang, Payment Card Industry Primer, 2 PAYMENT CARD ECON. REV. 29, 45-46 (2004).
51. See id.
52. EVANS & SCHMALENSEE, supra note 22, at 261-63.
53. MasterCard, supra note 28, at 20.
54. See Credit Card Interchange Fees: Antitrust Concerns? Hearing Before the S. Comm. on the Judiciary, 109th Cong. 118-20 (2006) (statement of Bill Douglass, CEO, Douglass Distributing). An abbreviated version of MasterCard's rules are available online. In response to merchant criticism, Visa has made an abbreviated version of its merchant rules available to large merchants who sign a nondisclosure agreement.
55. Visa to Disclose Regs, With Strings Attached, GREEN SHEET, Aug. 14, 2006, at 57. On May 15, 2008, the date of the first House Judiciary Committee hearing on the Credit Card Fair Fee Act, which proposes to regulate interchange fees and merchant restraints, see infra note 291, Visa finally made its operating regulations available online, at Visa Rules, http://corporate.visa.com/pd/rules/main.jsp (last visited May 15, 2008).
56. None of the rules have official names and the terminology used to reference particular rules is not standardized.
57. Originally, there was an additional merchant restraint on pricing, the no-discount rule, which prohibited merchants from offering discounts for non-credit-card payments. See infra Part III.B.2.
58. See MASTERCARD INT'L, MERCHANT RULES MANUAL 2-4 (2006), available at http://www.mastercard.com/us/wce/PDF/MERC_Entire_Manual.pdf. No-surcharge rules are sometimes also referred to as no-discrimination rules.
59. See id. at 2-15, 2-22; DISCOVER NETWORK, DISCOVER NETWORK MERCHANT OPERATING REGULATIONS 4 (2004) (on file with the author).
60. MASTERCARD INT'L, supra note 41, at 2-22 ("A merchant must not directly or indirectly require any MasterCard cardholder to pay a surcharge or any part of any merchant discount or any contemporaneous finance charge in connection with a MasterCard card transaction. A merchant may provide a discount to its customers for cash payments. A merchant is permitted to charge a fee (such as a bona fide commission, postage, expedited service or convenience fees, and the like) if the fee is imposed on all like transactions regardless of the form of payment used. A surcharge is any fee charged in connection with a MasterCard transaction that is not charged if another payment method is used."); id. at 6-16 ("Unless permitted by local laws or regulations, Acquirers must ensure that their Merchants do not require Cardholders to pay a surcharge or any part of any Merchant discount, or any contemporaneous finance charge in connection with a Transaction. A Merchant may provide a discount fee to its customers for cash payments."); VISA, RULES OF VISA MERCHANTS 10 (2007), available at http://usa.visa.com/download/ merchants/rules_for_visa_merchants.pdf;
61. Visa, Operating Regulation 5.2.F (May 15, 2008) [hereinafter Visa Operating Reg.], available at http://corporate.visa.com/pd/rules/pdf/ visa-usa-operating-regulations1.pdf (forbidding surcharges); id. at 5.2.D (requiring that any discount given to cardholders of other brands be given to Visa cardholders).
62. American Express has a piggy-back no-surcharge rule that requires that its card be treated like a MasterCard or Visa. The absence of an explicit no-surcharge rule appears to stem from a legal settlement. See infra text accompanying notes 197-198. AMERICAN EXPRESS, TERMS AND CONDITIONS FOR AMERICAN EXPRESS CARD ACCEPTANCE § 1 (2001) ("You will honour the Card, and will not attempt to . . . persuade the Cardmember to use any other credit, charge, debit or smart card, account access device or service or impose any restrictions or conditions on the use or acceptance of the Card that are not imposed equally on the use or acceptance of other cards."). See also DISCOVER NETWORK, supra note 42, at 4 ("Unless otherwise agreed upon by us in writing, you may not impose any surcharge, levy or fee of any kind for any transaction where a Cardmember desires to use a Card for any purchase of goods or services."). Discover has agreed to drop its no-surcharge rule as part of a settlement in merchant-initiated lawsuits. Interchange/Surcharge Litigation Update, NILSON REP., Feb. 2006, at 6. It appears, though, that Discover has dropped its no-surcharge rule in name only, as it has agreed to allow merchants to surcharge, only if they surcharge for other brands of cards. Id. Thus, Discover has only changed its no-surcharge rule from a direct one to one like American Express that piggy-backs on those of MasterCard and Visa. Regardless, because Discover cards are the least expensive for merchants to accept, merchants are unlikely to surcharge for Discover, as doing so would push transactions to more expensive brands.
63. MASTERCARD INT'L, supra note 41, at 2-21; Visa Operating Reg., supra note 43, at 5.2.B.3. MasterCard and Visa originally applied the honor-all-cards rule to both their credit and debit products. Thus, a merchant who accepted MasterCard or Visa credit cards would also have to accept MasterCard or Visa debit cards. In the United States, MasterCard and Visa now apply the honor-all-cards rule to credit cards and debit cards separately as the result of a settlement with Wal-Mart, Sears, and other retailers in 2003. In re Visa Check/Mastermoney Antitrust Litig., 297 F. Supp. 2d 503 (E.D.N.Y. 2003), settlement aff'd sub nom. Wal-Mart Stores, Inc. v. Visa U.S.A. Inc., 396 F.3d 96 (2d Cir. 2005); MASTERC ARD INT'L, supra note 41, at 2-33. Now a merchant may choose to honor all credit cards of the brand, all debit cards of the brand, or both. Id. at 2-34. Connecticut also has enacted the honor-all-cards rule in its state code. CONN. GEN. STAT. ANN. § 42-133ff(b) (West 2007).
64. See MASTERCARD INT'L, supra note 41, at 2-15; DISCOVER NETWORK, supra note 42, at 28.
65. MASTERCARD INT'L, supra note 41, at 2-22; VISA, supra note 43, at 10; Visa Operating Reg., supra note 43, at 5.2.F; DISCOVER NETWORK, supra note 42, at 4.
66. Automated Clearing House (ACH) transactions electronically debit or credit particular deposit accounts.
67. See Terri Bradford, Payment Types at the Point of Sale: Merchant Considerations, PAYMENT SYSTEMS RESEARCH BRIEFING, FED. RES. BANK OF KAN. CITY, Dec. 2004, at 2. PIN-debit transaction fees are not a flat rate, but they are capped, depending on network, at between 45 cents and 65 cents, which makes them flat rate for most transactions over $20. See id.
68. Even if these merchant restraint rules did not exist, card design currently blurs the distinction between more and less expensive cards, making it difficult for merchants to screen out pricier cards before entering a transaction.
69. Am. Express Co., Annual Report (Form 10-K), at 70 (2006).
70. Jeffrey Green, Bank Card Profitability 2007, CARDS & PAYMENTS, May 2007, at 27;
71. DISCOVER BANK, CONSOLIDATED FINANCIAL STATEMENT FOR THE YEARS ENDED NOVEMBER 30, 2006 AND 2005, at 6 (2006).
72. Kenneth A. Posner, Morgan Stanley, Keynote Address at the FMI 2006 Retail Electronic Payments Conference: Clash of Titans: Retailers, Card Issuers, and Interchange (Feb. 1, 2006), at 15 (slides available at http://www.fmi.org/ elect_pay_sys/2006conference/Posner.pdf.
73. CardData, Bank Credit Card Annual Charge Volume, http://www.cardweb.com/ carddata/charts-gold/annual_credit_charge_volume.amp (last visited Apr. 18, 2008);
74. CardData, U.S. End-of-Year Outstandings by Brand-Current & Historical, http://www.cardweb.com/carddata/charts-gold/receivables.html (last visited April 18, 2008).
75. Green, supra note 51, at 28; Jeffrey Green, Bank Card Profitability 2008, CARDS & PAYMENTS, May 2008, at 37;
76. Jeffrey Green, Bank Card Profitability 2006, CARDS & PAYMENTS, May 2006, at 32;
77. Burney Simpson, Bank Card Profitability 2005, CARDS & PAYMENTS, May 2005, at 28.
78. See sources cited supra note 54.
79. See sources cited supra note 54.
80. United States v. Visa U.S.A., Inc., 2001 U.S. Dist. LEXIS 20222 (S.D.NY. Nov. 26, 2001), aff'd 344 F.3d 229 (2d Cir. 2003), cert. denied sub nom. Visa U.S.A., Inc. v. United States 543 U.S. 811 (2004).
81. Merchant Discount Fees, NILSON REP., Aug. 2006, at 11;
82. U.S. Interchange Fees, NILSON REP., May 2003, at 10.
83. Merchant Processing Fees, supra note 4.
84. Levitin, supra note 13, at 483.
85. CardData, U.S. Fraud Losses/Gross Volume Monthly Averages - Historical, http://www.cardweb.com/carddata/charts-gold/fraudlosses_volume.amp (last visited Apr. 17, 2008);
86. CardData, U.S. Fraud Losses/Gross Outstandings Monthly Averages - Historical, http:// www.cardweb.com/carddata/charts-gold/ fraudlosses_receivables.amp (last visited Apr. 17, 2008).
87. CardData, Bank Credit Card Annual Pre-Tax Profits, http://www.cardweb. com/carddata/charts-gold/annual_credit_pre-tax_profits.amp (last visited Apr. 17, 2008).
88. Id.
89. Dawson & Hugener, supra note 23, at 9.
90. Binyamin Appelbaum, Gimmicks Galore in Glut of Credit Cards: Rewards Designed to Woo Fickle Customers, CHARLOTTE OBSERVER, June 4, 2006, at 10;
91. CardTrak.com, Card Debt (April, 2004), http://www.cardweb.com/cardtrak/ pastissues/april2004.html (last visited Jan. 27, 2008).
92. Damon Darlin, Gift Horses To Consider: Credit Cards That Reward, N.Y. TIMES, Dec. 31, 2005, at C1.
93. Appelbaum, supra note 65; CardTrak.com, supra note 65.
94. H. Michael Jalili, Rewarding Volume, AM. BANKER , Dec. 14, 2006, at 11.
95. E.g., Capital One Fin. Corp., Annual Report (Form 10-K), at 32, 79 (Mar. 2, 2006);
96. MBNA Corp., Annual Report (Ex-13), at 42 (Mar. 15, 2005).
97. Jalili, supra note 68.
98. Merchant Processing Fees, supra note 4.
99. Id.
100. Financial Services Issues: A Consumer's Perspective, Hearing Before the Subcomm. on Financial Institutions and Consumer Credit of the H. Comm. on Financial Institutions, 108th Cong. 115 (2004) (statement of John J. Motley III, Sr. Vice President, Food Marketing Institute).
101. See Posner, supra note 52, at 5-6; see also Brian Johnston & Greg Kelly, Reinvigorating Customer Rewards Programs, AM. BANKER, June 2007, at 2 (noting that in 2004, "more than 60% of affluent customers reported using reward cards as their primary credit cards").
102. Steve Mott, The Challenge of Bank Card Interchange (Dec. 2005), at 18, http://www.betterbuydesign.com/articles/The Challenge of Interchange - Mott-Dec-2005.ppt.
103. H. Michael Jalili, New Approaches Advised to Cure 'Rewards Fatigue,' AM. BANKER, May 21, 2007, at 8. Growth in rewards card use does not appear to be driven by other features of rewards cards, such as interest rates and credit limits. Id. Interest rates (APRs) do not correlate with reward levels. Gold cards have higher APRs than standard cards, which have, in turn, higher APRs than Platinum cards, and there is currently less than a 1 percent spread in APRs among all card types.
104. CardData, U.S. Gold Card Weighted, Monthly Pricing Averages - Historical, http://www.cardweb.com/carddata/charts_gold/gold_weighted_price.amp (last visited Sept. 28, 2007);
105. CardData, U.S. Platinum Card Weighted, Monthly Pricing Averages - Historical, http://www.cardweb.com/carddata/charts_gold/platinum_weighted_price. amp (last visited Sept. 28, 2007). Therefore, consumers are not purchasing more on rewards cards due to lower interest rates. It is possible that rewards cards have higher credit limits than regular cards, but the higher credit limits are unlikely to correlate with greater creditworthiness of rewards card holders, simply because almost anyone who wants a rewards card can get one. If there are higher credit limits for rewards cards, it is solely as an impetus for encouraging greater consumer spending and could just as easily be applied to regular cards.
106. The most likely explanation for the disproportionate purchase volume on rewards cards is that rewards cards tend to be held by more-affluent consumers than regular cards. This might be the result of targeted card issuer marketing. See, e.g., Burney Simpson, Merchants Tackle Credit Card Fee Policies, CARDS & PAYMENTS, Jan. 2006, at 32 (noting that "Visa and MasterCard have added richer rewards for cards targeting the valued high-earning household demographic"). Nevertheless, it is also because more affluent consumers tend to be more financially sophisticated and realize that all things being equal, a rewards card is a better deal for them economically than a nonrewards card. Thus, the higher purchase volume on rewards cards seems to be largely a reflection of the relatively greater purchasing power of rewards card consumers over regular card consumers rather than other features of the cards).
107. See Andrew Ching & Fumiko Hayashi, Payment Card Rewards Programs and Consumer Payment Choice 4 (Fed. Reserve Bank of Kansas City, Working Paper No. 06-02, 2006), available at http://www.kansascityfed. org/PUBLICAT/PSR/RWP/Ching_Hayashi_Paper.pdf.
108. Id.
109. Id.
110. Perhaps the most vivid illustration of the problem comes from merchant categories other than retailers. Insurance companies, utilities, landlords, and educational institutions have begun to accept credit cards in recent years. To wit, if I only have $80 in my wallet, I will be careful not to purchase more than $80 of goods at the grocery store. But if I have a card with a $5000 credit limit, I am less likely to be so careful about the particular amount I purchase at the grocery store. I might well spend $84 or $90 because I am not liquidity constrained. A similar story might emerge if I go out to a restaurant. But unlike groceries or a restaurant meal or gas or clothes, a consumer cannot purchase more tuition or more rent because of a credit card. The decision of whether to take out a particular insurance policy for a certain coverage level, to attend a university, or to rent a particular apartment is almost assuredly made before the consumer ever knows what payment options are available. And even if the consumer knew of the payment options in advance, how many people are going to purchase additional auto insurance coverage (which is typically done in large dollar increments) because they can get some more frequent flier miles? Likewise, how many consumers decide to leave the lights on longer or run the AC higher or keep the house warmer in winter because they can put the payment on a card? Or decide to attend a particular college based on its acceptance of credit cards for tuition payments? There may be other benefits to these types of merchants from accepting cards, but increased sales is assuredly not one of them, which means rewards cards offer no benefits to these types of merchants.
111. Whereas higher cost brands - which typically began as so-called travel and entertainment cards - like American Express, Diners Club, and Carte Blanche, arguably add value to merchants through advertising establishments that accept American Express, see Gerald P. O'Driscoll, Jr., The American Express Case: Public Good or Monopoly?, 19 J.L. & ECON. 163, 166-67 (1976), this value relates to the brand, not to level of rewards within a brand.
112. See, e.g., Visa 2006 Interchange Rates, GREEN SHEET, Mar. 27, 2006, at 58.
113. Darlin, supra note 66, at C1.
114. Id.
115. Elizabeth Olson, Holding Liev Schrieber's Tony Award? Priceless, N.Y. TIMES, Aug. 13, 2006, at BU7.
116. Robin Sidel, Moving the Market: New Tier on Visa Card to Lift Fees on Merchants, WALL ST. J., Mar. 15, 2007, at C3.
117. Id.
118. Visa U.S.A. Consumer Credit Interchange Reimbursement Fees, supra note 27.
119. Arguably, the merchant has avoided a purchase made with an even more expensive American Express card, but this just proves the point: The merchant has no marginal gain from accepting the premium bank card, just as it has no marginal gain from accepting the Amex card.
120. Cash Discount Act, Pub. L. No. 97-25, 95 Stat. 144 (1981), codified at 15 U.S.C. §§ 1602, 1666f(a) (2000).
121. Id. § 102. Several states have similar laws as well. See CAL. CIV. CODE § 1748.1(a) (Deering 2005); FLA. STAT. ANN. § 501.0117(1) (West 2006); MD CODE ANN., COM. LAW § 12-509 (LexisNexis 2005). California, Maine, and Washington also duplicate federal provisions banning card companies from restricting cash discounts. See CAL. CIV. CODE § 1748.1(a) (Deering 2005); ME. REV. STAT. ANN. TIT. 9A § 8-30(a) (2007); WASH. CODE REV. § 19.52.130 (West 1999).
122. See Elizabeth Douglass, Cash Rules at Some Pumps, L.A. TIMES, Aug. 21, 2007, at C1;
123. see also Adam J. Levitin, The Antitrust Super Bowl: America's Payment Systems, No-Surcharge Rules, and the Hidden Costs of Credit, 3 BERKELEY BUS. L.J. 265, 302 (2005).
124. See, e.g., Amos Tversky & Daniel Kahneman, The Framing of Decisions and the Psychology of Choice, 211 SCI. 453 (1981);
125. Daniel Kahneman & Amos Tversky, Prospect Theory: An Analysis of Decision Under Risk, 47 ECONOMETRICA 263 (1979);
126. Amos Tversky & Daniel Kahneman, Rational Choice and the Framing of Decisions, 59 J. BUS. 251 (1986).
127. See, e.g., Oren Bar-Gill, Seduction by Plastic, 98 NW. U. L. REV. 1373 (2004);
128. Jon D. Hanson & Douglas A. Kysar, Taking Behavioralism Seriously: Some Evidence of Market Manipulation, 112 HARV. L. REV. 1420 (1999);
129. Samuel Issacharoff, Can There Be a Behavioral Law and Economics?, 51 VAND. L. REV. 1729 (1998);
130. Christine Jolis, Cass R. Sunstein & Richard Thaler, A Behavioral Approach to Law and Economics, 50 STAN. L. REV. 1471 (1998);
131. Richard A. Posner, Rational Choice, Behavioral Economics, and the Law, 50 STAN. L. REV. 1551 (1998);
132. Jennifer Arlen, Comment, The Future of Behavioral Economic Analysis of Law, 51 VAND. L. REV. 1765, 1768-69 (1998).
133. See, e.g., RONALD J. MANN, CHARGING AHEAD: THE GROWTH AND REGULATION OF PAYMENT CARD MARKETS (2006); Bar-Gill, supra note 94 (identifying a systemic tendency of consumers to overestimate their ability to repay their credit card bills in full and on time);
134. Adam J. Levitin, Priceless? The Social Costs of Credit Card Merchant Restraints, 45 HARV. J. ON LEGIS. 1 (2008); Levitin, supra note 92, at 280 (discussing framing biases).
135. Hanson & Kysar, supra note 94, at 1441.
136. Russell Korobkin, The Endowment Effect and Legal Analysis, 97 NW. U. L. REV. 1227, 1228 (2003).
137. Richard Thaler, Toward a Positive Theory of Consumer Choice, 1 J. ECON. BEHAV. & ORG. 39, 45 (1980).
138. But see Charles Plott & Kathryn Zeiler, The Willingness to Pay-Willingness to Accept Gap, the "Endowment Effect," Subject Misconceptions, and Experimental Procedures for Eliciting Valuations, 95 AM. ECON. REV. 530 (2005).
139. See E. VIS & J. TOTH, THE ABOLITION OF THE NO-DISCRIMINATION RULE, REPORT FOR EUROPEAN COMMISSION DIRECTORATE GENERAL COMPETITION 12 (2000), available at http://ec.europa.ee/comm/competition/antitrust/cases/2973/studies/netherlands/ report.pdf.
140. Id.
141. See Levitin, supra note 95, at 310.
142. See Levitin, supra note 13, at 449-51, 458-59.
143. Of course, the issue of transaction size applies to surcharges as well. Credit card rebates escape this logic because they aggregate small transactions and are already the preferred payment method for large transactions.
144. This limitation is specific to discounts and does not apply to surcharges.
145. See Levitin, supra note 95, at 37. It is not clear whether consumer spend more when they purchase with credit cards than when they purchase with debit cards. While the credit limit on a card is not constrained by the funds in the consumers' bank account at time of purchase, some consumers might shy away from making large purchases on credit cards if they know or fear that they will end up paying interest on the purchase amount. Query, though, why merchants do not discount for PIN-debit.
146. See id. at 45-49.
147. Robin Sidel, As Card Fees Climb, Merchants Push PINs, WALL ST. J., Jan. 16, 2007, at A1;
148. see Card Forum, PIN-Debit is Second Only to Cash in Wal-Mart Stores (May 26, 2005), http://www.cardforum.com/printarticle.html?id= 20050531NJAMQ30; see also Levitin, supra note 13, at 447-51 (detailing merchant strategies for reducing payment costs, while still accepting credit cards).
149. EVANS & SCHMALANSEE, supra note 22, at 261.
150. Offline (signature) debit cards, which are operated by MasterCard and Visa have no-surcharge rules, but some independent online (PIN-based) debit card networks do not have no-surcharge rules. Often, the same physical card can access multiple debit networks. ARCO gasoline stations do not accept credit cards or offline debit cards, but they accept PIN-based debit cards on networks that allow surcharges. ARCO surcharges 45 cents per transaction on debit cards. See Herb Weisbaum, How to Avoid Getting Socked With Extra Fees, MSNBC (July 17, 2006), http://www.msnbc.msn.com/id/13905579 (last visited Jan. 27, 2008). Likewise, many Sacramento area fast food restaurants surcharge for debit. Id.
151. As of December 2007, merchant discount fees in Australia averaged 0.85 percent for MasterCard and Visa and 2.17 percent for American Express. Reserve Bank of Australia, Statistical Release C3, Merchant Fees for Credit and Charge Cards, http://www.rba.gov.au/Statistics/Bulletin/C03hist.xls (last visited Mar. 19, 2008).
152. Levitin, supra note 95, at 310; Business Plan Credit Card Surcharges, SYDNEY MORNING HERALD, Mar. 21, 2006, available at http://www.smh.com.au/news/Business/Businesses-plan-credit-
153. InfoChoice, Credit Card Surcharging More Common, Sept. 4, 2006, http://www.infochoice.com.au/banking/news/creditcards/06/09/article15501.asp (last visited Jan. 27, 2008);
154. Press Release, East & Partners, Ltd., Almost One Half of Australian Merchants Set to Surcharge (Aug. 1, 2005). Nearly half of all Australian merchants surveyed plan to institute surcharges within six months of the survey date. Id. In Denmark, nearly a fifth of merchants surcharge for debit cards.
155. David S. Evans & Richard Schmalensee, The Economics of Interchange Fees and Their Regulation: An Overview, in INTERCHANGE FEES IN CREDIT AND DEBIT CARD INDUSTRIES: WHAT ROLE FOR PUBLIC AUTHORITIES? PROCEEDINGS OF THE 2005 FEDERAL RESERVE BANK OF KANSAS CITY CONFERENCE 93 (2005). It seems that merchants will surcharge either when there is little competition within the merchant's industry or when an industry leader sets the pace and surcharging becomes standard practice.
156. Levitin, supra note 95, at 34-42.
157. Id. at 43-44.
158. Id. at 44-45.
159. Id. at 22.
160. Id. at 55-61.
161. See Alan S. Frankel, Toward a Competitive Card Payments Marketplace, PAYMENTS SYSTEM REVIEW CONFERENCE 27, 64, (Nov. 29, 2007), http://www.rba.gov.au/ PaymentsSystem/Publications/PaymentsInAustralia/PaymentsSystemReviewConference/ 2007/psr_conference_volume_2007.pdf.
162. David B. Humphrey et al., Realizing the Gains From Electronic Payments: Costs, Pricing, and Payment Choice, 33 J. MONEY, CREDIT, & BANKING 216, 217, 231 (2001) (studying Norwegian consumers).
163. Forcing consumers to bear the costs of credit cards as a transacting system might have the benefit of serving as a proxy for alerting consumers to the costs of credit cards as a borrowing system. Id. at 25-28.
164. See Joseph Farrell, Efficiency and Competition Between Payment Instruments, 5 REV. NETWORK ECON. 26, 31 (2006).
165. See Bar-Gill, supra note 94.
166. See Jean Charles Rochet & Jean Tirole, Tying in Two-Sided Markets and the Honor All Cards Rule (Institut d'Economie Industrielle, Working Paper No. 440, 2006), available at http://idei.fr/doc/by/tirole/ 2sided.pdf.
167. See Top 10 U.S. Merchant Portfolios, NILSON REP., Mar. 2008, at 12.
168. See Hearing on The Credit Cardholders' Bill of Rights: Providing New Protections for Consumers Before the Subcomm. on Financial Institutions and Consumer Credit of the H. Financial Services Comm., 110th Cong. (Mar. 13, 2008) (testimony of Adam J. Levitin).
169. Bar-Gill, supra note 94, at 1391.
170. 15 U.S.C. §§ 1601-1667f (2000).
171. Ronald J. Mann, "Contracting" for Credit, 104 MICH. L. REV. 899, 924-26 (2006).
172. Bar-Gill, supra note 94, at 1392.
173. See Christine Chandran et al., Competition in the New Zealand Credit Card Market From the Consumer Perspective, 6 J. ASIA- PAC. BUS. 59, 63 (2005);
174. see also Peter Pae, Credit Card Rates Keep Rising Despite the Competition, WALL ST. J., Sept. 6, 1991, at B1. Consumer price inelasticity toward interest rates may be partially explained by the inability of consumers to meaningfully gauge true interest rates and by hyperbolic discounting of interest rates (or more precisely, underestimating the likelihood of paying interest) when they choose cards.
175. See Todd J. Zywicki, The Economics of Credit Cards, 3 CHAP. L. REV. 79, 104-09 (2000). Zywicki argues, however, that credit card users who have large revolving balances do shop around based on interest rates. See id.; see also Chandran et al, supra note 129, at 59.
176. See Press Release, Vertis, Bonus Points and Other Incentives Attract Consumers to Credit Cards (July 20, 2005) ("Obtaining Points and Getting Money Back Are Most Appealing Reasons to Select a Credit Card").
177. See Allen C. Grommet, Economic Analysis, CAMBRIDGE CONSUMER CREDIT INDEX 2 (May 7, 2002).
178. E.g., Klein et al., supra note 22, at 574-75, 619 n.106; Jean-Charles Rochet & Jean Tirole, An Economic Analysis of the Determination of Interchange Fees in Payment Card Systems, 2 REV. NETWORK ECON. 69, 70-76 (2003) [hereinafter Economic Analysis];
179. Jean-Charles Rochet & Jean Tirole, Cooperation Among Competitors: Some Economics of Payment Card Associations, 33 RAND J. ECON. 549 (2002) [hereinafter Cooperation];
180. Joshua S. Gans & Stephen P. King, A Theoretical Analysis of Credit Cord Regulation (Melbourne Bus. Sch. Working Paper No. 2002-11, 2002).
181. See, e.g., EVANS & SCHMALENSEE, supra note 8, at 137; Richard Schmalensee, Payment Systems and Interchange Fees, 50 J. INDUS. ECON. 103, 105 (2002);
182. MASTERCARD INT'L, SUBMISSION TO THE RESERVE BANK OF AUSTRALIA 7, 11, 36 (2001);
183. William F. Baxter, Bank Interchange of Transactional Paper: Legal and Economic Perspectives, 26 J.L. & ECON. 541 (1983);
184. Howard H. Chang & David S. Evans, The Competitive Effects of the Collective Setting of Interchange Fees by Payment Card Systems, 45 ANTITRUST BULL. 641, 649-51 (2000);
185. David S. Evans & Richard Schmalensee, Economic Aspects of Payment Card Systems and Antitrust Policy Toward Joint Ventures, 63 ANTITRUST L.J. 861, 887 (1995);
186. Joshua S. Gans & Stephen P. King, Approaches to Regulating Interchange Fees in Payment Systems, 2 REV. NETWORK ECON. 125 (2003); Klein et al., supra note 22, at 572-74; Muris, supra note 22, at 532-34; Cooperation, supra note 133;
187. Jean-Charles Rochet, The Theory of Interchange Fees: A Synthesis of Recent Contributions, 2 REV. NETWORK ECON. 97, 98 (2003);
188. Economic Analysis, supra note 133, at 70-76; NETWORK ECON. CONSULTING GROUP FOR VISA INT'L SERV. ASS'N, CREDIT CARD SCHEMES IN AUSTRALIA: A RESPONSE TO THE RESERVE BANK OF AUSTRALIA AND THE AUSTRALIAN COMPETITION AND CONSUMER COMMISSION JOINT STUDY 7-12, 30 (2001);
189. see also Mark A. Lemley & David McGowan, Legal implications of Network Economic Effects, 86 CAL. L. REV. 479, 512 (1998) (discussing the impact of network effects on credit card network competition).
190. Richard Epstein has presented an additional justification for the no-surcharge rule: It is needed to prevent cash-only consumers from free-riding on credit cards' signaling of merchant reputability. Richard A. Epstein, The Regulation of Interchange Fees: Australian Fine-Tuning Gone Awry, 2005 COLUM. BUS. L. REV. 551, 583-84 (2005). Epstein is concerned that cash-only consumers will capture some of the reputational signaling value conveyed by the display of credit card logos at merchant locations. According to Epstein, these logos inform consumer of "the scope and reliability of the business' full range of operations." Id. at 583. Epstein's argument is a red herring, disconnected from the realities of modern payment systems. It takes very little for a merchant to accept credit cards - a bank account and telephone or Internet access are the basic requirements. Card networks want merchants to accept their cards. Given that fly-by-night Internet companies and corner delis accept credit cards (and the networks make their logos freely downloadable over the Internet), the idea that credit card logos impart significant reputational signaling value is preposterous. Compared to the signaling imparted by a merchant's operative lease, the reputational signaling of credit card acceptance is minimal at best. Thus, Epstein's free-riding scenario is unconvincing. Another potential concern about permitting surcharging is that it could lead to double-marginalization.
191. See Marius Schwartz & Daniel R. Vincent, The No Surcharge Rule and Card User Rebates: Vertical Control by a Payment Network, 5 REV. NETWORK ECON. 72, 75 (2006). Double-marginalization is the problem that occurs from the presence of two monopolists in a product supply chain, such as two independent toll booths on a bridge. Double-marginalization results in a larger deadweight loss than a single monopoly. Arguably if a merchant is a local monopoly (for example, the only bar in a small airport), that merchant would use the ability to surcharge and to overcharge consumers who used credit cards, thus resulting in an inefficiently low level of card usage. Several factors limit the double marginalization concern. First, the problem of double marginalization is really a problem of the existence of the local monopoly - the local monopoly will exist regardless of the ability to surcharge and most of the excess rents extracted by the local monopolist will be from the good or service being sold because that is the vast bulk of the purchase price. Moreover, there wouldn't be a double marginalization problem if surcharging was allowed because there would only be one monopolist - the local one. Surcharging would effectively eliminate the monopolist position in the card network. Additionally, the merchant's fear of limiting sales (not all consumers might have sufficient cash on hand or in a bank account) would weigh against overcharging credit consumers, and there is no reason that surcharges could not be limited to a cost-based formula that allows pass-thru pricing. Finally, even if a double-marginalization problem existed, the harm from local monopolists overcharging for credit is likely outweighed by that of the current system in which all merchants undercharge for credit.
192. But see William H. Page & John E. Lopatka, Network Externalities, ENCYCLOPEDIA L. & ECON. 952, 956 (1999) (discussing the lack of agreed definitions of "network effect" and "network externality").
193. But see Carlton & Frankel, supra note 21, at 626-31 (arguing that the concept of two-sided markets is insufficiently defined and that most markets can be described as two-sided because consumers benefit from the supply created in response to the demand of other consumers).
194. Theoretically, an additional price point could be added for consumers - a per transaction fee. A transaction fee could be taken at the point of sale or billed later. Credit card networks have avoided transaction fees, especially at the point of sale, because such fees have a much stronger impact on consumers' choice of payment method than the other, more temporally removed fees because of hyperbolic discounting.
195. Digital Transactions, MasterCard Raises Some Rates, Lowers Others for Web Retailers, (Feb. 28, 2007), http://www.digitaltransactions.net/newsstoty. cfntfnewsid=1270.
196. See sources cited supra note 134.
197. MASTERCARD INT'L, supra note 134, at 11, 36.
198. McFadden Act (Branch Banks), ch. 191, sec. 8, 35190, 44 Stat. 1229 (codified as amended at 12 U.S.C. § 81).
199. See EVANS & SCHMALENSEE, supra note 22, at 61-85 for a concise history of the industry.
200. See The Impact of Credit Cards on Small Business: Hearing on H.R. Res. 66 Before the Subcomm. on Special Small Business Problems, 91st Cong. 115, 119 (1970) [hereinafter Hearing] (statement and testimony of Karl Hinke, Chairman of the Board of Directors, InterBank Card Association).
201. See EVANS & SCHMALENSEE, supra note 22, at 65.
202. Diners Club Int'l, Company History, http://www.dinersclubus.com/ dce_content/aboutdinersclub/companyhistory (follow "1970" hyperlink; then follow "1975" hyperlink) (last visited Jan. 21, 2008).
203. David Breitkopf, New 'Pay for Play' Perks From MC for the Wealthy, AM. BANKER, Apr. 12, 2007, at 9. Platinum cards were introduced on MasterCard and Visa networks in 1996.
204. Lisa Fickenscher, Amex Sues First USA for Using 'Platinum Card' Name, AM. BANKER, Sept. 23, 1996, at 27.
205. See EVANS & SCHMALENSEE, supra note 22, at 76-77.
206. Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994, Pub. L. No. 103-328, 108 Stat. 2338 (1994) (codified as amended in scattered sections of 12 U.S.C.) (permitting federally chartered banks to open deposit-taking branches across state lines by merging with other banks).
207. Gramm-Leach-Bliley Act, Pub. L. No. 106-102, 113 Stat. 1338 (1999) (codified as amended in scattered sections of 12 and 15 U.S.C).
208. See Levitin, supra note 13, at 467-76.
209. VIS & TOTH, supra note 99, at 11-12.
210. THE IMPACT OF CREDIT CARDS ON SMALL BUSINESS, SUBCOMM. NO. 5, SELECT COMM. ON SMALL BUS., H.R. REP. NO. 91-1500, at 3 (1970).
211. Hearing, supra note 143, at 218.
212. Id. at 223.
213. Id.
214. Id. at 238-46.
215. Id. at 224-37. While the question was phrased in terms of discounts, many of the responses were phrased in terms of surcharges. It is possible, however, that some respondent banks had only no-surcharge rules, not no-discount rules or vice versa.
216. Id.
217. Id.
218. Author's calculations based on Hearing, supra note 143, at app.
219. Id. at 238-46.
220. Id. at 119.
221. Id. at 232.
222. Id. at 224-37.
223. Id. at 227, 234.
224. Network effects as such were first identified in Jeffrey Rohlfs, A Theory of Interdependent Demand for a Communications Service, 5 BELL J. ECON. & MGMT. SCI. 16 (1974).
225. Hearing, supra note 143.
226. Muris, supra note 22, at 531; see also EVANS & SCHMALENSEE, supra note 22, at 155. Other sources indicate that from 1966 to 1971, there was not a uniform interchange fee schedule, but a fee schedule for payments from acquirer to issuer that varied by issuer and acquirer that was eventually replaced with a uniform fee schedule because individual negotiations were too cumbersome as the number of banks in networks grew and because of concerns that acquirers were not remitting the agreed-upon fee to issuers. See Nat'l Bancard Corp. (NaBanco) v. VISA U.S.A., Inc., 596 F. Supp. 1231, 1238 (S.D. Fla. 1984), aff'd, 779 F.2d 592, 595 (11th Cir. 1986).
227. Hearing, supra note 143, at 224, 232; Muris, supra note 22, at 531.
228. Hearing, supra note 143, at 200 (statement of Joseph N. Tilem, Vice President and General Counsel of Carte Blanche).
229. Id. at 200-01.
230. Id. at 201-02.
231. Realistically, the APR is actually higher because consumers would rarely use the full float. If only half the float were used, the effective APR would be 168 percent!
232. Hearing, supra note 143, at 193.
233. See Smiley v. Citibank (S.D.), N.A. 517 U.S. 735, 744-47 (1996) (equating fees and interest).
234. State usury laws were not eviscerated until the U.S. Supreme Court's 1978 decision in Marquette Nat'l Bank of Minneapolis v. First of Omaha Serv. Corp., 439 U.S. 299, 308-10 (1978), which held that the applicable interest rate for a national bank is that of the state in which it is located, as determined by its certificate of organization. Marquette started a regulatory race to the bottom, with most national banks moving their credit card operations to states like Delaware or South Dakota with either no or minimal usury laws. Donald C. Langevoort, Statutory Obsolescence and the Judicial Process: The Revisionist Role of the Courts in Federal Banking Regulation, 85 MICH. L. REV. 672, 685-86(1987).
235. Hearing, supra note 143, at 193.
236. See supra note 170.
237. Id. at 108.
238. Id. at 49 (statements of Donald E. Cielewich, senior vice president, Marine Midland Trust Co. of Western New York and William J. O'Connor, Jr., attorney for the Marine Midland Trust Co. of Western New York).
239. Id. at 49-50; see 12 C.F.R. § 226.4(a) (2007).
240. Truth in Lending Act, Pub. L. No. 90-321, § 101-09, 82 Stat. 146-150 (1968) (codified at 15 U.S.C. §§ 1601-1667f (2000)).
241. It is odd, therefore, that Marine Midland Bank only had a no-surcharge, not a no-discount rule. See 15 U.S.C. § 1605(a) (excluding "charges of a type payable in a comparable cash transaction" from the definition of finance charge).
242. Hearing, supra note 143, at 193 (statement of John Murray, Assistant General Counsel of American Express). Of course, given diat merchants raise their prices to all consumers, including credit card consumers, as a result of accepting credit cards, there is still a disguised finance charge, arguably in violation of the Truth-in-Lending Act.
243. COMM. ON BANKING, HOUS, & URBAN AFFAIRS, CASH DISCOUNT ACT, S. REP. NO. 97-23, at 1 (1981).
244. See S. REP. No. 97-23, at 1 (1981); Edmund W. Kitch, The Framing Hypothesis: Is It Supported by Credit Card Issuer Opposition to a Surcharge on a Cash Price?, 6 J.L. ECON. & ORG. 217, 221 (1990);
245. Carl D. Lobell & Joseph W. Gelb, The Cash Discount Act, N.Y.L.J., Dec. 31, 1981, at 1 (expressing concerns over the usury ceiling).
246. 15 U.S.C. § 1605(a) (2000) ("[T]he amount of the finance charge in connection with any consumer credit transaction shall be determined as the sum of all charges, payable directly or indirectly by the person to whom the credit is extended, and imposed directly or indirectly by the creditor as an incident to the extension of credit. The finance charge does not include charges of a type payable in a comparable cash transaction.").
247. See supra note 22.
248. Nat'l Bancard Corp. (NaBanco) v. VISA U.S.A., Inc., 596 F. Supp. 1231, 1238 (S.D. Fla. 1984).
249. Timothy Wolters, "Carry Your Credit in Your Pocket": An Early History of the Credit Card at Bank of America and Chase Manhattan, 1 ENTERP. & SOC'Y 315, 321 (2000).
250. Id.
251. See id. at 331, 342.
252. Id. at 324, 346.
253. Cf. Steven Semeraro, Credit Card Interchange Fees: Debunking Six Myths, BANKING AND FIN. SERV. POL'Y REP. (forthcoming 2008) (arguing that the interchange fee might have been "a hedge against the risks attendant to an entirely new form of unsecured lending," and, if so, that the need for this hedge has been outgrown) (draft on file with the author).
254. See supra note 176.
255. See supra text accompanying notes 170-187.
256. Complaint at 1, Blitz v. Am. Express Co., No. 74-314 (D.D.C. Feb. 20, 1974).
257. Kitch, supra note 186, at 220; see also Gerald P. O'Driscoll, Jr., The American Express Case: Public Good or Monopoly?, 19 J.L. & ECON., 163, 164 (1976);
258. Discounts for Cash?, TIME, Apr. 29, 1974, at 93, 93;
259. Suit for Consumers Says Credit Cards Hurt Cash Buyers, N.Y. TIMES, Feb. 21, 1974, at A29.
260. THE IMPACT OF CREDIT CARDS ON SMALL BUSINESS, SUBCOMM. NO. 5, SELECT COMM. ON SMALL BUS., H.R. REP. NO. 91-1500, at 56 (1970) ("If the requirements operate only in a manner that precludes discrimination against all credit customers, there may be [an] easily understandable and legally defensible basis for such clauses... [I]f, in fact, these clauses preclude the merchant from granting discounts on cash sales, then this would appear to constitute price-fixing in violation of the antitrust laws.").
261. Kitch, supra note 186, at 220 n.5.
262. 15 U.S.C. § 1602(f) (2000).
263. Kitch, supra note 186, at 224.
264. See Richard Thaler, Toward a Positive Theory of Consumer Choice, 1 J. ECON. BEHAV. & ORG. 39, 45 (1980).
265. Fair Credit Billing Act of 1974, Pub. L No. 93-495, sec. 306, § 167(b), 88 Stat. 1515 (1975) (codified as amended at 15 U.S.C. § 1666f(b) (2000)); see also 12 C.F.R. § 2264(c)(8) (2006).
266. Id.
267. FCBA Two-Tier Pricing and Procedures for Federal Reserve Board Regulation Writing: Hearing Before the Subcomm. on Consumer Affairs, 94th Cong. 2-3 (1975) (statement of Jeffrey M. Bucher, Board of Governors of the Federal Reserve System);
268. see also COMM. ON BANKING, HOUSING, & URBAN AFFAIRS, CASH DISCOUNT ACT, S. REP. NO. 97-23, at 2 (1981); Kitch, supra note 186, at 225.
269. Act of Feb. 27, 1976, Pub. L. No. 94-222, § 3(c), 90 Stat. 197 (1976).
270. Id. at § 3(d); S. REP. NO. 97-23, at 2. The surcharge prohibition had a sunset provision, which was renewed twice. See Financial Institutions Regulatory and Interest Rate Control Act of 1978, Pub. L. No. 95-630, § 1501, 92 Stat. 3713 (1978) (enacting a two-year extension); Cash Discount Act, Pub. L. No. 97-25, § 201, 95 Stat. 144 (1981) (enacting a three-year extension). The prohibition lapsed in 1984. Id.
271. The ban lapsed on Feb. 27, 1981. It was renewed as of July 27, 1981. See 92 Stat. 713.
272. BD. OF GOVERNORS OF THE FED. RESERVE SYS., CREDIT CARDS IN THE U.S. ECONOMY: THEIR IMPACT ON COSTS, PRICES, AND RETAIL SALES 4 (1983).
273. Cash Discount Act, § 101.
274. Id. § 201.
275. Id.
276. 15 U.S.C. § 1666f(a) (2000); see also 12 C.F.R. § 226.12 (f)(1) (2006).
277. Ten states forbid surcharging outright. CAL. CIV. CODE § 1748.1(a) (Deering 2005); 5 COLO. REV. STAT. § 2-212(1) (2007); 42 CONN. GEN. STAT. ANN. § 133ff(a) (West 2007); FLA. STAT. ANN. § 501.0117 (West 2006) (second degree misdemeanor to surcharge); KAN. STAT. ANN. § 16a-2-403 (1995); ME. REV. STAT. ANN. tit. 9A, § 8-303.2 (1997); MASS. ANN. LAWS ch. 140D, § 28A(a)(2) (LexisNexis 2007); N.Y. GEN. BUS. LAW § 518 (McKinney 1996); OKLA. STAT. ANN. tit. 14A, § 2-417 (West 1996); TEX. FIN. CODE ANN. § 339.001(a) (Vernon 2006). In addition, Minnesota permits a surcharge, but limits it to 5 percent, 20D MINN. STAT. ANN. § 325G.051(a) (West 2004), and New Hampshire bans surcharges by travel agencies, 31 N.H. REV. STAT. ANN. 358-N:2 (1996).
278. The legislative history of state no-surcharge rules indicates that most were the result of credit card industry lobbying in the 1980s. Nine states adopted their no-surcharge rules in the early 1980s, either when it appeared that the federal no-surcharge ban would not be renewed (in 1981) or after the federal ban had lapsed (in 1984). Thus, Massachusetts enacted its no-surcharge rule in 1981, Act effective Dec. 24, 1981, ch. 733, § 28A(a)(2), 1981 Mass. Acts 1143, 1167, as did Maine, Maine Consumer Credit Truth-in-Lending Act, ch. 243, § 8-303(2), 1981 Me. Laws 328, 353, and Oklahoma updated its no-surcharge rule in 1982 to remove a 5 percent discount limitation and preclude surcharges. Act of June 1, 1982, ch. 14A, § 2-211, Okla. Sess. Laws 118, 121. New York adopted its no-surcharge rule in 1984. Act of June 5, 1984, ch. 160, 1984 N.Y. LAWS 1707, 1707. California, which in 1974 adopted a law requiring that merchants have an option of giving cash discounts, 1974 Cal. Stat. 3402, adopted its no-surcharge rule in 1985. Act of Sept. 23, 1985, ch. 913, 1985 Cal. Stat. 2907, 2908 (to be codified at CAL. CIV. CODE § 1748.1). Connecticut adopted its no-surcharge rule in 1986, Credit Card Surcharges and Acceptance of Bank Credit Cards Act, No. 86-222, 1986 Conn. Acts 434, 434 (Reg. Sess.), as did Kansas, Act of Apr. 22, 1986, ch. 90, sec. 2, 1986 Kan. Sess. Laws 455, 456 (codified as amending KAN. U.C.C. ANN. § 16a-2-401 (1985)). Florida's no-surcharge rule dates from 1987, Act effective Oct. 1, 1987, ch. 87-42, § 1, 1987 Fla. Laws 178, 178, as does Minnesota's 5 percent surcharge limit. Act of May 20, 1987, ch. 172, § 1(1), 1987 Minn. Laws 360, 360. Three states enacted their laws somewhat later. New Hampshire's no-surcharge rule dates to 1992. Act of May 13, 1992, ch. 233, § 358-N:2, 1992 N.H. Laws 309, 309. Texas enacted its no-surcharge rule in 1997, Act effective Sept. 1, 1997, ch. 1008, tit. 4, sub. ch. 339, § 339.001(a), 1997 Tex. Gen. Laws 3091, 3439, and Colorado enacted its rule in 1999, Act of Apr. 30, 1999, ch. 146, § 5-3-10, 1999 Colo. Sess. Laws 426, 431, then repealed it and reenacted it in a substantially similar form in 2000. Consumer and Commercial Transactions Act, ch. 265, § 5-2-212, 2000 Colo. Sess. Laws 1178, 1206. There is no readily apparent explanation for the timing of these later enactments.
279. COMM. ON BANKING, HOUSING, & URBAN AFFAIRS, CASH DISCOUNT ACT, S. REP. NO. 97-23, at 3-4 (1981).
280. Id. at 16. The surcharge ban was also opposed by several government agencies, including the Federal Reserve Board (FRB), the Federal Trade Commission, the Office of Comptroller of the Currency, the Federal Home Loan Bank Board, and the Credit Union Administration. See id.; see also The Cash Discount Act: Hearing Before the Subcomm. on Consumer Affairs, 98th Cong. 5-6 (1984) (statement of Nancy H. Teeters, Governor, Federal Reserve System). The FRB has been consistent in its questioning of the surcharge restriction.
281. See Cash Discount Act: Hearing on S. Res. 414 Before the Subcomm. on Consumer Affairs, 97th Cong. 10 (1981) (statement of Nancy H. Teeters, Board of Governors, Federal Reserve System).
282. S. REP. NO. 97-23, at 3-4.
283. Id. at 4.
284. Id.
285. See Bar-Gill, supra note 94, at 1381.
286. See Gary B. Nallan et al., Adult Humans Perform Better on Addition Than Deletion Problems, 44 PSYCHOL. REC. 489, 497 (1994).
287. S. REP. NO. 97-23, at 11-12 (1981) (letter from Federal Trade Commission (FTC) Chairman Michael Pertschuk to Senator William Proxmire).
288. Id. at 11; cf. Council Directive 98/6, art. 3, 1998 O.J. (L 80) 28 (EC) (directing member states to adopt regulations requiring merchants to indicate both selling price and unit price for all covered products).
289. For an indirect empirical examination of no-surcharge rules, see Levitin, supra note 95, at 36-44.
290. Sujit Chakravorti & Roberto Roson, Platform Competition in Two-Sided Markets: The Case of Payment Networks, 5 REV. NETWORK ECON. 118, 139 (2006) (citing the limited modeling of competing two-sided networks).
291. Of course, a numerically equivalent gain or loss for either network will not have the same effect on the networks' values. If a network with one million participants loses one participant, the negative externality on the remaining participants is de minimis, but if a network with ten participants gains one, the positive externality on the original participants is significant.
292. E.g., Alan S. Frankel & Allan L. Shampine, The Economic Effects of Interchange Fees, 73 ANTITRUST L.J. 627, 655 (2006).
293. See Evans & Schmalensee, supra note 111, at 91-92.
294. See id. at 85.
295. See Klein et al., supra note 22, at 584.
296. Brown Shoe Co. v. United States, 370 U.S. 294, 320 (1962).
297. See Jonathan Zinman, Debit or Credit? 4 (Aug. 2007) (unpublished manuscript), available at http://www.dartmouth.edu/~jzinman/Papers/ zinman_DebitorCredit_aug07.pdf (stating that debit is a strong substitute for credit).
298. Neelie Kroes, Eur. Comm'r for Competition Policy, Commission Prohibits MasterCard's Intra-EEA Multilateral Interchange Fees (Dec. 19, 2007) (emphasis in original), available at http://europa.eu/rapid/pressReleasesAction.do? reference=SPEECH/08/9&format=HTML&aged=0&language= EN&guiLanguage=en.
299. Similarly, the sole study of honor-all-card rules, Rochet & Tirole, supra note 122, does not attempt to determine the effect of multiple networks all having honor-all-card rules on competition; it only considers the possibility of one network that competes with competitors who do not similarly bundle products. Nor does the study attempt to account for the use of honor-all-card rules to bundle identical products of different price.
300. RESERVE BANK OF AUSTRALIA, COMMON BENCHMARK FOR THE SETTING OF CREDIT CARD INTERCHARGE FEES 10 (2005), available at http://www.rba.gov.au/PaymentsSystem/Reforms/CCSchemes/ common_benchmark_cci_fees.pdf.
301. Reserve Bank of Australia, Credit Card and Charge Card Statistics, http://www.rba.gov.au/Statistics/Bulletin/CO1hist.xls (last visited Jan. 21, 2008).
302. RESERVE BANK OF AUSTRALIA, DEBIT AND CREDIT CARD SCHEMES IN AUSTRALIA: A STUDY OF INTERCHANGE FEES AND ACCESS 43 (2000) (providing a 0.95 percent average interchange fee in 1999);
303. Press Release, Reserve Bank of Australia, Credit Card Benchmark Calculation (Sept. 29, 2006), available at http://www.rba.gov.au/ MediaReleases/2006/PDF/mr_06_08_benchmark_calc_credit_card.pdf (setting the cost-based interchange rate to 0.5 percent from its previous level of 0.55 percent).
304. Reserve Bank of Australia, Merchant Fees for Credit and Charge Cards, http://www.rba.gov.au/Statistics/Bulletin/CO3hist.xls. Total merchant fees on MasterCard and Visa have declined from 1.45 percent of purchase price in March 2003 to 0.85 percent of purchase value in December 2007. Id.
305. Finland, the Netherlands, Portugal, and Sweden all ban surcharge restrictions for credit and debit cards. Surcharging in Europe, NILSON REP., Sept. 2004, at 1, 6. The UK bans surcharge restrictions only for credit cards. The Credit Cards (Price Discrimination) Order 1990, Statutory Instrument 1990 No. 2159, art. 3, para. 1, http://www.opsi.gov.uk/si/si1990/Uksi_19902159_en_1.htm.
306. In 2006, Switzerland reached a settlement with MasterCard and Visa issuers that included a four-year rescission of the no-surcharge rule (referred to as a nondiscrimination rule in Switzerland). Press Release, Wettbewerbskommission, Credit Card Interchange Fees: Information for the Media 3.
307. MasterCard rescinded, without comment, its no-surcharge rule for all of Europe effective as of January 1, 2005, but has retained the rule for other regions. Surcharging in Europe, supra note 241, at 6-7; MASTERCARD INT'L, supra note 41, at 2-32.
308. Klein et al., supra note 22, at 592; see also Hearing on Credit Card Interchange Fees Before the House Committee on the Judiciary Antitrust Task Force, 110th Cong. 11 (2007) (statement of Timothy J. Muris, Professor, George Mason School of Law); Klein et al., supra note 22, at 574.
309. See Top 10 U.S. Merchant Portfolios, supra note 123.
310. Notably, while interchange fees have been held not to violate antitrust laws, National Bancard Corp. (NaBanco) v. Visa U.S.A., Inc., 779 F.2d 592, 601-05 (11th Cir. 1986); Kendall v. Visa U.S.A., 518 F.3d 1042 (9th Cir. 2008). No court has yet ruled on merchant restraints. The relevance is questionable since NaBanco predated the widespread use of cards. See supra note 18, for a discussion of Kendall. No-surcharge rules are also arguably a violation of the Cash Discount Act, Pub. L. No. 97-25, § 201, 95 Stat. 144 (1981), but it is hard to read too much into the Cash Discount Act given the twists and turns in the Act's history. See supra Part III.B.4. Merchant restraints might also violate section 2 of the Sherman Antitrust Act, 15 U.S.C. § 2 (2000). Section 2 of the Sherman Act provides that "Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce . . . shall be deemed guilty of a felony . . . ." As defined by the Supreme Court: The offense of monopoly under § 2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident. United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966). Monopoly power is "the power to control prices or exclude competition." Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 481 (1992) (quoting United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377,391 (1956)). Attempted monopolization requires a specific intent to monopolize and a "dangerous probability" of success. United States v. Am. Airlines, Inc., 743 F.2d 1114, 1118 (5th Cir. 1984). Arguably, merchant restraints are the device by which credit card networks jointly monopolize or attempt to monopolize the payments industry. The gravamen of such charges is that merchant restraints expand credit cards' share of the total payment system's market share at the expense of other payment systems. This charge, of course, depends on payment systems forming the relevant market, as opposed to solely credit cards being the relevant market. See infra Part IV.A. If the relevant market is payment systems, not just credit cards (and arguably even if it is just credit cards), it appears that credit card networks do have the power to control prices, even if they only make up under 30 percent of the payment systems market, the usual threshold for monopolization analysis. Merchant restraints set the relative level of all payment systems at point of sale by equalizing them, and then through rewards programs, credit card networks actually offer consumers the cheapest transacting system. This system has the same effect as being able to set absolute prices. In doing so, credit card networks manage to exclude or at least limit their competition. Card networks' ability to control prices in this manner is hardly the result of a superior product, business acumen, or historic accident, but instead the result of calculated business decisions.
311. 15 U.S.C. § 1 (2000).
312. Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006) (citing State Oil Co. v. Khan, 522 U.S. 3, 10 (1997)).
313. 596 F. Supp. 1231 (S.D. Fla. 1984).
314. Id. at 1257.
315. United States v. Visa U.S.A. Inc., 163 F. Supp. 2d 322, 335 (S.D.N.Y. 2001).
316. In re Visa Check/MasterMoney Antitrust Litig., No. 96-CV-5238, 2003 WL 1712568, at *2 (E.D.N.Y. Apr. 1, 2003).
317. United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 404 (1956).
318. Rothery Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d 210, 218 (D.C. Cir. 1986).
319. See Renata B. Hesse & Joshua H. Soven, Defining Relevant Product Markets in Electronic Payment Network Antitrust Cases, 73 ANTITRUST L.J. 709 (2006).
320. Eric Emch & T. Scott Thompson, Market Definition and Market Power in Payment Card Networks, 5 REV. NETWORK ECON. 45, 59 (2006); Hesse & Soven, supra note 254, at 738.
321. See Hesse & Soven, supra note 254.
322. U.S. DEP'T OF JUSTICE & FED. TRADE COMM'N, HORIZONTAL MERGER GUDELINES 6 (1992).
323. See Hesse & Soven, supra note 254.
324. See supra charts 1 & 5.
325. Merchant Processing Fees, supra note 4; see also Lee Manfred, The Kansas City Fed Conference: Another Skirmish in the Interchange Controversy, FIRST ANNAPOLIS NAVIGATOR, May 2005, at 2 (estimating that "credit card issuers' absolute interchange revenue has increased 27% from 2002 to 2004").
326. Consumer Payment Systems, supra note 9.
327. United States v. Visa U.S.A. Inc., 163 F. Supp. 2d 322, 335 (S.D.N.Y. 2001).
328. CardData, supra note 12.
329. Geneva Pharms. Tech. Corp. v. Barr Labs., Inc., 386 F.3d 485, 496-500 (2d Cir. 2004). Notably, pharmaceuticals have two-sided market characteristics, with doctors and patients both as consumers.
330. Id. at 496-97.
331. Id. at 497-98.
332. Id. at 496-97.
333. There may be minor differences in the chargeback process and other rules, but these are incidental to the central function of payment.
334. EVANS & SCHMALANSEE, supra note 22, at 190-201 (discussing network advertising campaigns).
335. Until recently there was no distinction between the issuer and the network for American Express or Discover. See supra text accompanying note 57. Now that both networks have third-party issuers, it is apparent that the features that differentiate cards for consumers are in fact issuer, and not network, specific. For example, American Express generally offers a superior level of services to cardholders, but many of these services are limited to cards issued by American Express bank, and not by third-party issuers.
336. It is unclear whether market power is a requirement of a Sherman Act section 1 claim. See United States v. Visa U.S.A. Inc., 344 F.3d 229, 238 n.4 (2d Cir. 2003).
337. United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391 (1956) (footnote omitted).
338. In 2003, the Second Circuit upheld a finding of joint and several market power for Visa and MasterCard in the payment card network services market based on figures of then 47 percent and 26 percent of payment card network market share respectively. Visa, 344 F.3d at 240.
339. See 15 U.S.C. § 1 (2000).
340. See Jefferson Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 15-18
341. See, e.g., Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332, 348 (1982); Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643, 647 (1980).
342. See, e.g., Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 227 (1993) ("Tacit collusion . . . sometimes called conscious parallelism . . . [is] not in itself unlawful."); see also Donald F. Turner, The Definition of Agreement Under the Sherman Act: Conscious Parallelism and Refusals to Deal, 75 HARV. L. REV. 655 (1962).
343. See In re High Fructose Corn Syrup Antitrust Litig., 295 F.3d 651, 654-55 (7th Qr. 2002) (holding parallel pricing changes by competitors is prima facie evidence sufficient to survive a motion for summary judgment in the case of an oligopoly market in which five sellers controlled 90 percent of the market). But see Williamson Oil Co. v. Philip Morris USA, 346 F.3d 1287 (11th Qr. 2003) ("Evidence that does not support the existence of a price fixing conspiracy any more strongly than it supports conscious parallelism is insufficient to survive a defendant's summary judgment motion."). Judge Posner, however, has long advocated viewing conscious parallel pricing by an oligopoly as a violation of the Sherman Act. Richard A. Posner, Oligopoly and the Antitrust Laws: A Suggested Approach, 21 STAN. L. REV. 1562 (1969).
344. See Matthew M. Bunda, Note, Monsanto, Matsushita, and "Conscious Parallelism": Towards a Judicial Resolution of the "Oligopoly Problem," 84 WASH. U. L. REV. 179 (2006), for a recent attempt to reconcile the Posner and Turner positions.
345. Merchants Seek Structural Changes to Interchange in Amended Suit, GREEN SHEET, May 22, 2006, at 34, available at http://www.greensheet.com/gsonline_pdfs/060502.pdf.
346. See sources cited supra note 43, for text of rules.
347. See, e.g., Leegin Creative Leather Products, Inc. v. PSKS, Inc., 127 S. Ct. 2705, 2720 (2007) (reversing the 96-year-old precedent that minimum resale price restrictions were per se antitrust violations, and instead holding them to be subject to rule of reason review); Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28, 31 (2006) (reversing an older doctrine that the possessor of a patent was deemed to have market power).
348. Alternatively, no-surcharge rules can be seen, from a consumer perspective, as a vertical arrangement between the networks' members and the merchants to fix the price of credit cards (and all payments) at the point of sale.
349. Leegin, 127 S. Ct. at 2720 (stating that the rule of reason standard governs the legality of vertical minimum resale price restrictions); State Oil Co. v. Khan, 522 U.S. 3, 10-19 (1997) (finding that rule of reason governs the legality of vertical maximum resale price restrictions).
350. Joseph J. Simons, Fixing Price With Your Victim: Efficiency and Collusion With Competitor-Based Formula Pricing Clauses, 17 HOFSTRA L. REV. 599, 608-10 (1989).
351. Id. at 601.
352. See Jonathan B. Baker, Vertical Restraints With Horizontal Consequences: Competitive Effects of "Most-Favored Customer" Clauses, 64 ANTITRUST L.J. 517, 519 (1996).
353. Press Release, Fed. Trade Comm'n, FTC Challenges "Most Favored Nation" Clause in Tennessee Pharmacy Network Contract (Jan. 19, 1996), available at http://www.ftc.gov/opa/1996/01/rxcare.htm.
354. RICHARD A. POSNER, ANTITRUST LAW: AN ECONOMIC PERSPECTIVE 71-75 (1976).
355. See, e.g., Blue Cross & Blue Shield United of Wis. v. Marshfield Clinic, 65 F.3d 1406, 1415 (7th Cir. 1995) (holding that the use of the MFN clause by a lawful monopolist was not price-fixing "in this case"); Ocean State Physicians Health Plan v. Blue Cross & Blue Shield of R.I., 883 F.2d 1101 (1st Cir. 1989); Kartell v. Blue Shield of Mass., Inc., 749 F.2d 922 (1st Cir. 1984); E.I. du Pont de Nemours & Co. v. F.T.C., 729 F.2d 128 (2d Cir. 1984). Yet courts have also declined to hold CBPPs to be per se legal, and have denied motions to dismiss complaints based on competitor-based pricing clauses. See, e.g., Blue Cross & Blue Shield of Ohio v. Bingaman, No. 1:94 CV 2297, 1996 U.S. Dist. LEXIS 17091, at *9-*10 (N.D. Ohio, June 24, 1996); United States v. Delta Dental of R.I., 943 F. Supp. 172, 192 (D.R.I. 1996).
356. See Levitin, supra note 13, at 478-85.
357. In March, 2008, bipartisan legislation was introduced that would require merchants and large card networks to negotiate with each other, with discovery, over interchange and merchant restraint rules and, if an agreement cannot be reached, to have a special administrative law judge panel decide which party's position is closer to what would prevail in a perfectly efficient competitive market. The proposal of the party that is closest to the judges' determination of perfectly efficient market terms will then govern for the next three years. See The Credit Card Fair Fee Act of 2008, H.R. 5546, 110th Cong. 2d Sess., Mar. 6, 2008, available at http://frwebgate.access.gpo.gov/cgibin/ getdoc.cgi?dbname=110_cong_bills&docid=f:h5546ih.txt.pdf.