We live in an increasingly post-cash world, but cashless comes at a cost. Merchants – the stores we rely on for everything from groceries to oil changes – pay more than $50 billion in fees to the credit card companies that finance consumer purchases. As a result, merchants have a considerable incentive to persuade customers using high-fee credit cards like AmEx to switch to fee-free cash or lower fee cards. Litigation over when and how merchants can attempt to do this has been going on for decades, but a little-reported piece in Bloomberg’s business law blog last week provides some cause for optimism. The Bloomberg piece describes how 11 state attorneys general have banded together, without the support of the federal DOJ antitrust division, to appeal a Second Circuit court decision that came down in favor of American Express. It is a small piece of news with enormous implications for antitrust policy in the Trump era.
The case concerns whether AmEx can use “anti-steering” language in its agreements in order to prevent merchants from, for example, offering discounts to customers using cards with lower fees or posting “Visa preferred” signs by registers. The DOJ argued, and originally won, that this language prevented honest competition and transparency on the (sometimes hidden) cost of credit. This latest ruling overturned that decision in favor of AmEx, which argued that this ruling did not take into account rewards programs and other benefits on the consumer’s end.
From a very general progressive viewpoint, informing customers of comparative fees hardly seems anti-competitive. If anything, communication would improve parity in the credit market by combatting information asymmetries (fancy talk for when one side of a trade knows more than the other) that are generally bad for markets. But the specifics of the case are only part of what is important about the story.
Aggressive, coordinated action by state AGs, independent of the DOJ, raises the possibility of a reinvigorated debate on antitrust. As the Bloomberg article does well to point out, a more aggressive stance by state AGs was a hallmark of the Reagan years when conservative “Chicago School” antitrust policy first came to prominence, promising that larger, more powerful corporations would lower prices and generate consumer savings. In the absence of strong federal leadership, states stepped up to protect their residents from predatory practices and harmful mergers. These efforts were not enough to counteract the momentum of the conservative antitrust movement but provided an important backstop to conservative regulators at the federal level.
Today, laissez-faire antitrust enforcement rules the land, but many – including the oft-Chicago-minded Economist – have pointed out that the results have been disastrous. Growing corporate consolidation and anticompetitive practices, of which AmEx’s anti-steering language is a relatively benign example, has led to the unproductive pairing of high profits with low investment and stagnant wages. Meanwhile promised consumer savings have failed to materialize. With no competition, firms have little incentive to invest in product development or other innovations that would lower prices; in this environment it’s easier to raise prices and scale back investment, and to erect barriers to entry to keep out potential competitors. That, in turn, stunts growth and the prospects for middle class success along with it. Not since the Gilded Age has a revolution in antitrust been so sorely needed.
Trump paid lip service to the corrosive impact of powerful corporations during his campaign, but was quick to roll back net neutrality, and although DOJ Antitrust nominee Makan Delrahim isn’t Jeff Sessions-level bad, he is not the scion of healthy competition that the American economy so badly needs. That, if we are lucky, will come from the states.