What Does Microsoft, Google and Yahoo Have in Common With Visa and MasterCard?

April 10, 2008

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No April Fool’s Day Joke: Visa and MasterCard are Set to “Adjust” Interchange Rates on Tuesday (April 1st)

March 31, 2008

Visa and MasterCard Interchange Rates Revised on April 1


Interchange Fees are Obsolete as VHS Video Tapes

November 27, 2007

During the holiday season, look around.  Can you find any VHS cassettes to record television programs on?  How about super-8mm movie film?  8-track tapes?  3 /12″ floppy discs?  Catching on?

Merchant interchange fees are one of the few holdouts from the pre technology explosion, from before TiVo, MySpace, Youtube and the iPhone.  The electronic payment network is today what computer storage devises were years ago.   With consumers increasingly relying on their computers to safe keep their valuable digital libraries, Western Digital’s My Book storage system provides users a safe place to secure up to one terabyte (1 TB) of digital content.  In the mid-1990’s that hardware would cost about a million dollars and fill an entire room, today it is under $500 and is the size of a few cell phones.   With “Moore’s Law”, technology is getting faster and prices cheaper.  Except, when you have unbridled market power and control a system that is obsolete.  It is like a drug addict who only knows how to stay in a daze. 

But, we are awaking Visa and MasterCard and reminding them that their once impenetrable interchange fee fiefdom is on the verge of distinction.  Other countries have got smart and demand rates be lowered, in some cases to a tiny fraction of those fees in the U.S., even though our nation is among the most technology advanced, our communications infrastructure should mean it costs less to transmit data, and third-world fraud rates have to be higher, yet they too pay a tiny fraction of our near record merchant interchange fee prices.  Technology today is so super-fast, just like our high speed ScanMyPhotos.com picture scanning – we cannot help but lower prices. 

Even though the banks are reporting huge problems from its mortgage mess, they would not be allowed to wield their anti-competitive power to artificially hold up what are now obsolete fees to help cover their other mistakes.  We understand that only about 13% of all interchange fees are used to actually cover the transactional costs. 

[Commentary: WayTooHigh.com] 


Why Visa, MasterCard and its Member Banks Are Accused of Illegal Price-Fixing by Agreement

November 21, 2007

We found this very simple defination of price-fixing on the Wikipedia site [click here for more info].

Price fixing is an agreement between business competitors to sell the same product or service at the same price. In general, it is an agreement intended to ultimately push the price of a product as high as possible, leading to profits for all the sellers. Price-fixing can also involve any agreement to fix, peg, discount or stabilize prices. The principal feature is any agreement on price, whether express or implied. For the buyer, meanwhile, the practice results in a phenomenon similar to price gouging.

Methods of price fixing will include selling at a common target price; setting a common “minimum” price; buying the product from a supplier at a specified “maximum” price; adhering to a price book or list price; engagement in cooperative price advertising; standardizing financial credit terms offered to purchasers; using uniform trade-in allowances; limiting discounts; discontinuing a free service or fixing the price of one component of an overall service; adhering uniformly to previously-announced prices and terms of sale; establishing uniform costs and markups; imposing mandatory surcharges; purposefully reducing output or sales; or purposefully sharing or “pooling” markets, territories, or customers.

Generally, price fixing is illegal, but it may nevertheless be tolerated or even sanctioned by some governments at various times, particularly among those whose countries are developing economies. See also Collusion.

In neo-classical economics, price fixing is inefficient: the anti-competitive agreement by producers to fix prices above the market price transfers some of the consumer surplus to those producers and also results in a deadweight loss.

In the United States, price fixing can be prosecuted as a criminal felony offense under section 1 of the Sherman Antitrust Act. [1] In Canada, it is an indictable criminal offence under section 45 of the Competition Act. Bid rigging is considered a form of price fixing and is illegal in both the United States (s.1 Sherman Act) and Canada (s.47 Competition Act). In the United States, agreements to fix, raise, lower, stabilize, or otherwise set a price are illegal per se.[2] It does not matter if the price agreed upon is reasonable or for a good or altruistic cause; or if the agreement is explicit and formal or unspoken and tacit. In the United States, price-fixing also includes agreements to hold prices the same, discount prices (even if based on financial need or income), set credit terms, agree on a price schedule or scale, adopt a common formula to figure prices, banning price advertising, or agreeing to adhere to prices that one announces. [3] Although price fixing usually means sellers agreeing on price, it can also include agreements among buyers to fix the price at which they will buy products.

Under American law, exchanging prices among competitors can also violate the antitrust laws. This includes exchanging prices with either the intent to fix prices or if the exchange affects the prices individual competitors set. Proof that competitors have shared prices can be used as part of the evidence of an illegal price fixing agreement. [4] Experts generally advise that competitors avoid even the appearance of agreeing on price. [5]

Under U.S. law, price fixing is only illegal if it is intentional and comes about via communication or agreement between firms or individuals. It is not illegal for a firm to copy the price movements of a de facto market leader called price leadership, which has been seen to be the case in markets for breakfast cereals and cigarettes. But informal agreements or unspoken agreements to fix price also can violate the antitrust laws. The price-fixing laws apply to industries and professionals, for-profit concerns and non-profits and charities. [6] The United States Department of Justice Antitrust Division and United States Federal Trade Commission are responsible for enforcing federal price fixing laws; see also Sherman Antitrust Act. The Department of Justice handles both criminal and civil cases. As of 2004 under US law corporations may be fined up to $100 million for criminal price fixing; individuals can be charged and sentenced to prison sentences of up to 10 years for price-fixing violations. The Federal Trade Commission can prosecute firms for price fixing as a civil matter. Many State Attorneys General also bring antitrust cases and have antitrust offices, such as Virginia, New York, and California. Private individuals or organizations can bring their own lawsuits for triple damages for antitrust violations and also recover attorneys fees.

[Source: Via Wikipedia]