By Carolyn Vallejo and Ben Carsley
Court appointed expert Alan O. Sykes, hired to advise on the lawsuit against major credit card companies’ practice of swipe fees, filed a memorandum Wednesday outlining his opinion on the challenges plaintiffs face in proving the anticompetitive effects of such fees, as well as any damages caused by them.
Filed with U.S. District Judge John Gleeson, who is overseeing the case, the memorandum argues that merchants are better off with a multibillion-dollar price-fixing settlement. A number of merchants including Walmart have argued against the settlement agreed to by other merchants.
In his 51-page memo, Sykes advises the court that retailers suing the credit card companies would likely secure “little or no relief at the conclusion of the trial.” Further, Sykes said plaintiffs are facing an uphill battle in their efforts to show that interchange fees “cause anticompetitive harm that outweighs their pro-competitive benefits.”
Sykes memorandum relied heavily on the fact that the “two-sided nature of the general purpose payment card industry injects subtleties into the analysis that do not arise in a typical antitrust case.” He noted that the economic theory of two-sided markets showed that, “If merchants are less sensitive than consumers, this body of theory implies that economic welfare can be enhanced if merchants bear a substantial portion of the total costs incurred by card issuers (through a mechanism such as interchange).” He also argued that the plaintiffs might have trouble proving antitrust damages since “benefits to merchants from reduced interchange fees might be offset in whole or in part by a loss to cardholders.”
Sykes was concerned about parts of the settlement that could release MasterCard and Visa from liability over similar conduct that could harm innovation. According to the NYU law professor, “I do concur with the concern … that a release covering the future effects of all existing or ‘substantially similar’ conduct or rules raises a danger of adverse, unintended consequences in a technologically dynamic industry …”
The memo was also filed the same week retailers requested, in a separate case, that current rules regarding interchange fees remain in place as the U.S. Federal Reserve appeals a previous ruling by U.S. District Judge Richard Leon, which found that the central bank incorrectly capped fees at a higher than intended level.
The full memo can be read here.
In the memorandum, Sykes cites the work of Market Platform Dynamics Founder and economist David Evans and his 2011 book, “Interchange Fees: The Economics and Regulation of What Merchants Pay for Cards.”
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