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Antitrust and credit cards


Capital One now says it wants to buy Discover. No actual cash will change hands, according to the proposal, but the all-stock transaction will be worth more than $35 billion.

Visa, Mastercard, and American Express are the Bigfoot types in the credit card market. But both Capital One and Discover are important enough that their merger will require a lot of regulatory review, and there is a good deal of suspicion that they will never get the necessary sign-offs.  

Specifically, the Office of the Comptroller will have to approve. So will the Federal Reserve. Even if they both do, the Justice Department could bring an antitrust action to block the merger.  

The two parties to the contemplated transaction have begun a PR campaign to persuade us that this merger would actually be GOOD for competition.  "The three giants have it all locked up. By uniting, us two outsiders will be able to crash their club force down the rates that cardholders pay!" 

It is a familiar argument. In this case, it can be spruced up a bit by facts about the nature of the sort of competition involved. Creditcard companies compete for holders on the one hand (you and me, dear reader) as well as for merchants on the other. Most of us know the annoyance of presenting a Discover card at a cash register and hearing 'sorry, we don't accept that one.' 

The relative paucity of merchants to accept a card is of course a barrier in the competition for cardholder loyalty.  Who the heck wants a card if you have to work so hard to find a place where you can use it? 

If Discover and CapOne were at present accepted at largely the same places, the merger would not help them much as a competitive matter. They will still be declined at the same places, too!  The deal appears to have synergy only to the extent that now have different merchants, so the combined card will have a much broader platform of acceptance points that either of the individual cards.  

I don't have the numbers of that but I will be following.... 




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  1. Paul D. Van PeltMarch 4, 2024 at 8:48 AM

    I think there was a bottom line to antitrust law that the average citizen, unschooled in the finer art of economics, would not have considered, nor could have even known about. A friend and I have thought about this, to the point of theorizing cooperation and competition as loggerheads in the economics of a modern world. As economies grew and capital gains became goal over outcome, the two Cs drew further apart: competition morphed into economic warfare. I guess that is better than guns and bombs. But, not much.

    ReplyDelete
    Replies
    1. ChristopherMarch 10, 2024 at 10:08 AM

      In a couple of days I expect to add something that touches on these issues from another direction -- mergers and acquisitions in the telecomm world. Thanks for your thoughts!

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