Amex’s Loss in Court May Not Help Consumers

[insider]

http://www.nytimes.com/2015/02/24/business/dealbook/amexs-loss-in-court-may-not-help-consumers.html?_r=0

The court ruled that a part of American Express’ contract with merchants known as a “nondiscrimination provision” had led to less competition, not more, and pushed consumer prices higher. That clause was intended to make merchants treat all credit cardholders similarly without favoring one card company over another.

“Most large retailers have seen significant cost reductions as a result of the Durbin Amendment, yet to date there is no evidence that those cost savings have been passed through to consumers,” a study by the George Mason University School of Law said. Other academic research has come to the same conclusion.

[noturbizniss]

This judge is taking a beating...
"Judge Garaufis takes issue with that idea. He seems to think that American Express has such a strong position in the marketplace that virtually all retailers need to accept American Express. He cites a situation in 2004 in which Walgreen considered dropping American Express but ultimately chose to keep it, as well as another instance when Murphy Oil dropped American Express only to return to it later.

Those examples are real. But here’s another: Just last week, a day before the judge’s decision was published, the discount-retail behemoth Costco dropped its American Express co-branded card. The retailer won’t accept regular American Express cards at its stores either. The card company lost its partnership with JetBlue last week, too. So much for the theory that merchants can’t leave American Express.

Finally, Judge Garaufis assumes that if merchants who voluntarily accept American Express and its nondiscrimination policy were allowed to steer customers to lower-priced cards, those merchants would create special deals for consumers. The judge posits the possibility of “offering a 10 percent discount off the posted purchase price, free shipping, free checked bags, gift cards or any other monetary incentive for using their Discover card” over American Express.

That sounds great in theory, but if you think about it a little longer, you will realize quite quickly that no retailer is going to be offering 10 percent off to use a credit card with lower merchant costs. That’s because the difference in fees is less than 1 percent."

[noturbizniss]

http://www.forbes.com/sites/danielfisher/2015/02/19/american-express-loses-antitrust-case/2/

HOLY COW!!! TALK ABOUT HYPOCRISY!!!
Quote below from the ruling Judge.

Even if American Express passed through every cent of its premium or the incremental revenue realized from its …price increases to cardholders— which it does not—customers who do not carry or qualify for an Amex card are nonetheless subject to higher retail prices at the merchant, but do not receive any of the premium rewards or other benefits conferred by American Express on the cardholder side of its platform.
Thus, in the most extreme case, a lower-income shopper who pays for his or her groceries with cash or through Electronic Benefit Transfer—and the same is true of any consumer who does not use an Amex card or comparable high-rewards product from Visa, MasterCard, or Discover—is subsidizing, for example, the cost of the premium rewards conferred by American Express on its relatively small, affluent cardholder base in the form of higher retail prices.

So A. the fact that stores often offer (legally I might add) discounts for cash does not matter, and B. So is welfare therefore not fair either?

I mean essentially what he is saying is that if you have some money and can afford the hefty AF (or lack thereof for some AMEX), then you have to subsidize the poor low income people with your taxes, AND you cannot benefit from shopping at stores with your amex if they shop there.

Rereading that, it doesn't flow well, but I think most on the board will get my point. I hope.

[aygart]

Those examples are real. But here’s another: Just last week, a day before the judge’s decision was published, the discount-retail behemoth Costco dropped its American Express co-branded card. The retailer won’t accept regular American Express cards at its stores either. The card company lost its partnership with JetBlue last week, too. So much for the theory that merchants can’t leave American Express.

These examples are stupidity as any DDFer knows. That they ended their cobranding and reward relationship has nothing to do with their being accepted by merchants. Regarding being accepted by Costco, AFAIK it still remains to be seen what will be accepted. What ended is their using Amex as processor and accepting only Amex. Either way it is a poor example as can be seen by this that they did not accept MC or Visa until now.