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EF3442 Intermediate

Microeconomics
Visa and MasterCards Association Potentially Anticompetitive
Group 4
The General Purpose Card Industry
Cardholders benefit because of convenience, security, and rewards associated with
card payments. Merchants benefit from improved sales by offering payment method
options to the customers.
Joint Ventures: Owned by the numerous banking institutions that are members of the network
Mastercard
Owned by 25000 Member banks
Most banks were on governing board
of Visa

Governing Body
Composed of employees from member banks
These rights include the opportunity to vote for a
board of directors, participate in the governance
of the association, and share in the associations
assets upon dissolution
Visa
Owned by 14,000 member banks
Most banks were on governing
board of Mastercard

Q1. What is the ownership structure of Visa and MasterCard? How is the
management set up to reflect this?

Competitors
Dollar Volume of Transactions on GP Cards in
US (1997)
Visa
MasterCard
American
Express
Discover/Nov
us
Diners and
JCB
Capital Cost of developing
infrastructure
New Entrant wont have network
effect: No customer base, No
Merchant base
Creating a brand
Distribution Control: Exclusionary
Rules
Visa and MasterCard prevent banks
that issue their credit cards from
offering rival cards.

Barriers to Entry

Q2. Who are the competitors for Visa and MasterCard? What are the barriers to
entry for new competition?

COOPERATIVE EQULIBRIUM
The two boards shared all information with one another,
and were thus fully aware of each others operations.
Boards operated to ensure that neither took action that
could put the other at any kind of competitive
disadvantage
Brand development: No aggressive advertising against
each other
Product Development:
Delayed product launch which could have put each other in
competition

Q3. How does the dual ownership of Visa and MasterCard lessen competition
between the two?

Restraints from Visa and Mastercard
They potentially impede the ability
of other networks to convince
merchants to accept their cards.
They impede the ability of other
networks to provide Cash advance.
They impede the ability of other
networks to contract with issuers.
They potentially impede other
networks ability to offer new
general purpose card products.


Q4. How have Visa and MasterCard worked to restrain its competitors from
competing in the market?

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