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]

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Merchant Interchange Distraction (WayTooHigh.com)

November 19, 2007

We couldn’t help but notice today’s news that Citigroup is again facing [$15] billions is write-offs from its mortgage losses. 

Along with other major banks, you would think that when they gathered together to illegally fix merchant interchange rates, they would have also discussed why the other house of cards was poised to crash. The major banks are accused by us and others of violating antitrust laws by fixing prices. 

The same banks that were represented on the Visa and MasterCard boards, are also the ones facing billions in losses from the subprime mess. Where was the leadership?  With all the top-level terminations, it is clear there was huge mismanagement. 

Were they too focused on violating the Sherman Antitrust Act to recognize that the phony mortgage business would have to crash too?  While studying how they schemed to create billions each year in the name of interchange fees, they should have, instead been questioning what would happen to the “homeowners” when their no-interest mortgages’ lapsed.  It turns out that people were renting homes, as they had no equity invested.  Although all the media attention is on the banks’ mortgage mess, our litigation has the potential to be even greater and more overwhelming.

[commentary: WayTooHigh.com]


“Retailers Call on EC to Stop Card Price-Fixing” (ePayNews.com)

November 15, 2007

Excerpt:

Top executives at 14 major European retailers are asking the European Commission (EC) to lower what they call excessive interchange fees charged by payment card companies. Card companies earn €13 billion euro (US$19.08 billion) in annual revenues from card transaction fees, which the retailers say is excessive.

 The letter appears to be timed to coincide with the final stages of the EC’s enquiry into the charges currently levied by MasterCard on cross-border transactions within the European Union. A decision by the EC is expected in mid- to late November 2007

Click here to read more.

(Source: ePayNews.com)