Issue: Was Visa’s and MasterCard’s conduct illegal under the Sherman Act and Clayton Act? Are exclusive dealing agreements a “per se” violation
Rule: Any business activity that tries to undermine competition is acting under an illegality under the Sherman and the Clayton Acts.

Section one of Sherman Antitrust act illegalizes any mergers, agreements, contracts and any activities that limit competition in the business environment.

Claytons act widened the scope of the Sherman law to include activities that would reduce competition in the market.

Facts:

There are four major card service providers in the US that is, Visa U.S.A., Inc., MasterCard International, Inc., American Express (Amex), and Discover. MasterCard and Visa being joined ventures owned by several banks, which perform most of their transactions like issuing the cards.

Amex and Discover issue their cards becauseVisa not to issue cards from their competitors.

Conclusion:

When Discover refused a suggestion by Visa to use visa cards instead of starting their own, Visa instructed all its affiliates to reject all the cards that did not belong to their group. The instruction barred all the banks associated with visa and MasterCard from issuing discovery and Amex cards. According to Sherman act, these rules are illegal since it limits the choice of cards available to the clientele of these banks; therefore, the clients of the banks in question have no choice but to use Visa and MasterCard eliminating competition. In another view, the combination of Visa and MasterCard and the banks is a violation of the law since the banks are mandated to go by the rules of their associates. More times than not, these rules favor the associate more than its competition.

Under Claytons Act, the decision by both Visa and MasterCard to instruct its banks to reject their competitors’ cards is also illegal. The “tying agreements and mergers” with the banks tend to reduce competitiveness in the card business. The conduct of the two affiliates to restrain its affiliate banks from accepting or issuing Amex and Discover cards amounts to “tying agreements” that the Act prohibits. On the other hand, the merger with these banks amounts to “mergers and acquisitions that substantially reduce market competition.”

Exclusive dealings involve agreements to buy all or a bigger percentage of the product on sale to a particular seller. Exclusive dealing agreements are not per se violations. This is because the rules that govern antitrust are only concerned when the implementations of such contracts have the ability of harming competition in a given sector.

References

Antitrust. (n.d.). LII / Legal Information Institute. Retrieved August 10, 2014, from http://www.law.cornell.edu/wex/antitrust

Kubasek, N., Brennan, B. A., & Browne, M. N. (2011). The legal environment of business: a critical-thinking approach (6 ed.). Upper Saddle River, N.J.: Prentice Hall.

Worth, R. (2012). Sherman Antitrust Act. New York: Marshall Cavendish Benchmark.