Case Study Of Mastercard International Incorporated And Visa Canada Corporation

Introduction
In 2013, MasterCard International Incorporated and Visa Canada Corporation were sued by the Commissioner of Competition due to the “implementing or enforcing rules which prohibit merchants who accept Visa and MasterCard credit cards from declining to accept particular Visa or MasterCard credit cards, applying a surcharge for those customers paying with credit cards, or engaging in other forms of discrimination.” Ten lay witnesses believed that MasterCard International Incorporated and Visa Canada made the credit card market a duopoly market, set barriers for other entrants, and set fees above market competitive price. After hearing, engaging, and deciding, the Competition Tribunal stated that the credit card market is still competitive
The Merchants thought that the Interchange fee was not set as a competitive price. They complain that Visa Canada and MasterCard International Incorporated have already consisted large percentages of market share. Meanwhile, “the Merchant Rule” limit the competitiveness of the market. As long as they are in the dominant position in the credit card market, they will set the interchange fee based on their own interest instead of market price. I believe that the main conflict between two positions is the existence of “the Merchants rules”. The Merchant rules limits the response abilities of the merchants towards the actions of Visa and
In the credit card market, Visa consists nearly 66 percent market shares, and MasterCard consists about 22 percent market shares. However, besides Visa and MasterCard, other payment methods are entering and taking over the markets. Why cannot the merchants negotiate with customers to use a different payment method or act to response to the network? Scott Schuh states that the cardholders, which are the key role in credit card market, lack of information. Consumers will not receive a receipt with all detailed amount about how his or her paying amount is made up. They even do not know the existence of the interchange fee. Meanwhile, since Visa Canada and MasterCard International Incorporated provide networks, they have plenty customer resources. Since it is a two-side market, customers want to present their credit cards in more stores, and merchants want to attract more customers by accepting Visa or MasterCard or both. Thus, I believe customer resource is the largest market power that Visa Canada and MasterCard International Incorporated exercised. Based on the large client base, Visa and MasterCard can set prices “unrelated to costs, and are designed to extract as much of a Merchant’s ‘willingness to pay’ as possible.” It’s impossible to calculate if Visa and MasterCard set the price a competitive level, but Visa Canada and MasterCard International Incorporated do have right to adjust interchange