(Bloomberg Opinion) -- In a major victory for American Express Co., the U.S. Supreme Court held Monday that the company may continue to bar merchants from steering customers to credit cards that charge lower merchant fees. The 5-4 decision broke down on strictly partisan lines. It shows that the court’s conservatives don’t much care for antitrust law, and are willing to make new law in order to limit its reach. The liberal justices would prefer to stick with traditional principles that are focused on protecting consumers.
On the surface, the majority opinion by Justice Clarence Thomas and the dissent by Justice Stephen Breyer are grappling over a technical question of economics: What market or markets does American Express participate in?
When the federal government and 17 states sued AmEx over its anti-steering provisions in 2010, they argued that AmEx cards involve two separate markets. One is the market that provides consumers with credit cards – what Breyer’s opinion called “shopper-related services.” In that market, AmEx wasn’t accused of doing anything anti-competitive, and for good reason: It charges customers an annual fee that is often more than the fees (if any) charged by competitors Visa Inc. and Mastercard Inc.
The other market is the one in which the card company provides payment processing for retailers, charging them a fee to do so – what Breyer called “merchant-related services.” This is where the government charged AmEx with acting anti-competitively in violation of antitrust law.
The basic claim against AmEx was that it used its market power over merchants to make them enter contracts promising not to steer customers to lower-fee card companies, either by verbal encouragement or lower prices. (Steering customers to cash isn’t barred by the contracts.)
Once the merchants agreed not to steer customers, AmEx raised its fees – some 20 times over a five-year period. This, the government said, was an anti-competitive abuse of power, which harmed merchants and therefore consumers in the form of higher prices.
A federal district court agreed, but the U.S. Court of Appeals for the 2nd Circuit saw it differently, as did the Supreme Court.
The way Thomas saw things, AmEx cards are in only one market: the market for “two-sided platforms” that intermediate between consumers and merchants. Such markets frequently display what the court called “indirect network effects,” also known as positive network externalities. Put simply, the more people use a network, the more valuable it is to use the network. If more people have AmEx cards, then more businesses take them, and vice versa.
Why should the market definition matter? Because if you think AmEx is competing as a platform with Visa and Mastercard, then its different business model looks like something that improves consumer welfare rather than harming it. AmEx makes its money from merchant fees, not credit-card interest. It therefore has to provide consumers with incentives to use its cards, incentives that take the form of rewards. And to pay for those rewards, AmEx says, it has to charge the merchants more than its competitors do.
Thomas concluded that the fact that AmEx raised merchant fees doesn’t on its own prove that it was having anti-competitive effects on consumers. To prove that, he said, the government would have to provide more direct evidence of an anti-competitive effect on consumers.
Breyer was having none of it. He argued that all market-makers are effectively in double-sided platforms. He suggested, very plausibly, that established antitrust doctrine would have treated AmEx as acting in two markets, not one.
So why the partisan 5-4 breakdown? It’s not that Republicans like the corporate giant AmEx and liberals like the little guy merchant. For one thing, Visa and Mastercard are hardly little guys, and they would have been winners under Breyer’s view. (They also once used anti-steering contracts, but gave them up when sued by the government.)
For another, the Supreme Court’s recent decision to require interstate sellers to pay state sales tax was primarily the work of conservatives – and it arguably favors the local little guy over Amazon and other big interstate merchants.
Rather, the conservatives are more skeptical than liberals of antitrust doctrine as a government tool for actively regulating free markets. Thomas and the conservatives embraced a view of the case that made it harder for the government to enforce antitrust law.
That matters a lot for the bigger question of where the courts are likely to go in the future when it comes to antitrust actions against giant platforms and companies like Alphabet Inc., Amazon.com Inc., Apple Inc., Facebook Inc., and the like.
If the court becomes more conservative, with the confirmation of justices appointed by President Donald Trump, we are likely to see less and less successful use of antitrust law against big companies.
That’s good news for big, powerful corporations. It’s less good for thinkers increasingly worried about what Justice Louis Brandeis called the curse of bigness.
©2018 Bloomberg L.P.