The European Commission’s Decision in MasterCard: Issues Facing the Payment Card Industry for the Future

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John Wotton, Apr 02, 2008

The Decision in MasterCard displays a fundamental divergence between the Commission’s and MasterCard’s approaches to the analysis of the competitive effects of open payment card schemes. MasterCard’s position is that MasterCard, together with its acquirers and issuers, provide payment card services simultaneously to cardholders and merchants. The MasterCard payment service is defined as a “co-operation enabling service” or “demand co-ordinating service” to cardholders and merchants. According to MasterCard, interchange fees are not a payment for costs incurred by issuers, but a tool to allocate revenues between issuing and acquiring banks in order to balance properly the demands of cardholders and merchants. On this basis, there is an interchange fee that maximizes system output. Consistent with this analysis, MasterCard contended that the relevant market is that in which different payment card systems’ services compete with each other and with all other forms of payment. The Commission essentially rejected MasterCard’s analysis and all of the consequences that flowed from it. Download the entire article available in the column on the left.

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