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Ohio v. American Express

posted by Adam Levitin

The Supreme Court handed down a disastrous antitrust opinion in Ohio v. American Express.  In a 5-4 opinion the Court's conservative majority held that the district court failed to properly define the relevant market because it looked only at the merchant-side of Amex's business, not the also the consumer side.  The case has far-reaching implications for any so-called "two-sided" markets--basically platform markets that connect buyers and sellers.  Justice Breyer wrote a lengthy and very lucid dissent that tries furiously to cabin the scope of the majority's opinion (explicitly arguing that most of it is dicta).

I'm not going to try to parse through the analysis in the case here, but suffice it to say Justice Thomas's opinion reads like the sort of just-so arm-chair law-and-economic analysis that the academy has largely moved beyond. Justice Breyer scores a lot of points in his dissent.  Damningly, he points out some findings of fact by the District Court that the majority simply wouldn't address, most notably that Amex was able to raise prices 20 times over 5 years without losing appreciable market share and that most of the price increases were retained by Amex, not passed through to its cardholders.  Under any market definition, that should be pretty convincing evidence of an exercise of market power. 

There is also a pretty embarrassing factual mistake in Justice Thomas's opinion.  He writes "Visa and MasterCard earn half of their revenue by collecting interest from their cardholders, Amex does not.”  Visa and MasterCard don’t make ANY money from interest. Their issuer banks do, but their issuer banks are not the networks. If the Court can't get this level of factual description right, it doesn't leave me with much confidence in its ability to parse the economics.

I don't think this ruling completely shuts the door on credit card antitrust litigation, but it makes it harder--plaintiffs will have to plead facts about the consumer half of the card market.  Given that only a fraction of interchange fees actually get passed through to consumers in the form of rewards, I think it's still possible for plaintiffs challenging anti-steering rules to make a case—indeed, I don't see what prevents the state plaintiffs in the case from simply repleading their case, as the decision that now stands is simply that they did not prove their case because they didn't prove market power.  There's no double-jeopardy issue in civil suits, and res judicata here only covers the question of market definition. 

Comments

These five have issued a series of opinions this year that will ultimately make the Four Horsemen look like enlightened champions of the common man, and it's just getting worse. And don't expect factual accuracy, either. They follow Reagan's 180-degree misquote of John Adams, "Facts are stupid things."

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