Assessing the Competitive Effects of Surcharging the Use of Payment Mechanisms

The Department of Justice’s theory of liability in its case attacking the non–discrimination provisions in American Express’s merchant contracts contends that point–of–sale competition on the price of making a purchase with a credit card is an instrument creating economic efficiency. That is, the economy would run more efficiently, and consumers would be better off, if merchants were free to charge variable prices for different types of credit cards. After all, charging different prices for using different types of payment mechanisms appears to be just another form of presumptively positive price competition. The Second Circuit rejected that conclusion, recognizing that in credit card markets competition already occurs at multiple points. American Express must compete to: • convince cardholders to apply for and use its cards; and • convince merchants to accept its cards./p\u3e The question, the Second Circuit correctly recognized, is whether adding a third type of competition – for cardholders to use the card when merchants pass through their card acceptance fees – would make American Express’s card network more efficient? By prohibiting merchants who accept American Express cards from discriminating against the brand, the card company imposed a unilateral vertical restraint. Such restraints are often deemed to be reasonable under the antitrust laws because they may “stimulate inter–brand competition.” This is because an upstream provider, like American Express, has little interest in reducing its downstream sales. It would only impose a vertical restraint if that restraint efficiently helped it to sell more products. Only when an upstream or downstream provider has market power enabling it to impose restraints that harm consumers by raising price or lowering quality does a vertical restraint violate the antitrust laws. The Department of Justice’s theory postulated that the non–discrimination provisions in American Express’s merchant agreements harmed consumers by effectively requiring merchants to increase their prices to cover higher credit card fees for all customers because merchants could not pass the cost of accepting American Express directly to American Express’s own customers. The Second Circuit acknowledged the potential for consumer harm would exist if American Express charged merchants supra–competitive prices and pocketed the excess as rents. But the court held that the government failed to prove that rivalry on the price consumers pay to use a credit card at the point of sale would increase efficiency in credit card markets. As the Second Circuit explained, credit card markets are two–sided. In order to prove harm to consumer welfare in a two–sided market, an antitrust plaintiff needs to show that a restraint makes the overall system less efficient. That is, do consumers overall pay more for less because of the restraint. A card network like American Express must compete for both cardholders and merchants. One therefore cannot demonstrate that price increases on one side of the market are inefficient without examining how those prices impact competition on theincreased revenue from the merchant side to offer a better card product to its cardholders and compete more effectively with other card networks, like Visa, for cardholder loyalty. The Second Circuit did not definitively decide whether American Express’s non–discrimination provisions were pro– or anticompetitive. It simply concluded that two–sided market economics made the question more complex than the government plaintiffs acknowledged in trying the case. And based on the record evidence, the court couldn’t tell whether the non–discrimination provisions made the market more or less efficient.Since the plaintiff bears the burden of proving harm to competition, i.e. a reduction in efficiency to the overall market, the government plaintiffs had failed to prove their case. Part I reviews the economics of two–sided markets and provides reasons to conclude that non–discrimination provisions in credit card markets are efficient. Part II explains that a market’s two–sided nature does not guarantee that participants in that market will charge competitive prices. Card systems with market power could set merchant fees at supra–competitive levels, leaving the market less efficient. This Part then contrasts Visa’s and MasterCard’s fees in the 1990s and early 2000s–which were challenged by merchants in a class action–with American Express’s current fees. It concludes that the factors giving the merchants a plausible case against Visa and MasterCard do not support the government plaintiffs in their case against American Express. Part III addresses a systemic concern expressed in a recent New York Times editorial about how a decision in American Express’s favor might impact the future enforcement of antitrust claims against dominant firms. This Part concludes that those concerns are unfounded. The Sherman Act has two principle sections. Truly dominant firms would remain subject to scrutiny under Section 2 of the Sherman Act, and Section 1 vertical restraint cases already require proof of consumer harm no different from what the Second Circuit required in its decision favoring American Express

We Were All Originalists . . . For a Minute: Has the Supreme Court Abandoned the Search for Original Public Meaning? Should It?

Predicting the Supreme Court’s next turn is tricky business. The two obstruction-of-justice cases considered here may turn out to be what used to be called “sports,” i.e., cases where the Court used a mode of analysis that it abandons in future cases without explanation. Perhaps, though, these cases hold the promise of a new, more open frontier of judicial interpretation in the service of our self-governing spirit. One in which courts and the parties to litigation cooperatively seek to advance legislative purposes to better our society. Part II traces the development of originalism, a textualist approach to legal interpretation arising out of perceived overreaching by mid-twentieth- century courts. After summarizing constitutional and statutory court decisions interpreting the law using non-textual methods, Part II explores the originalist response from Robert Bork’s original legislative-intent-based interpretative method through semantic originalism’s search for original public meaning. Part II explains that semantic originalism achieved purity in an interpretive method at the expense of, for lack of a more precise phrase, democratic principles. An objective contemporary reader’s understanding of a law’s text can be described as the only legitimate binding law because legislators have a duty to communicate the laws that they enact. But if objective readers would misunderstand the legislature’s purpose, semantic originalism would nonetheless require a court to enforce that misunderstanding, rather than the intentions of those democratically elected to create the law. One might say that semantic originalists ingeniously preserved the law’s integrity at the cost of its soul. Part III examines the methods the Court applied in Pugin and Fischer, showing how each, to varying degrees, pushes toward a search for congressional purpose, rather than original public meaning, through techniques that empower judges to use common sense and logic¾fully imbued with modern understanding¾to determine how a statute should apply. Part IV explores the dual American commitment to both a Rule of Law and an ongoing spirit of self-governance. It argues that the common view that legal interpretation deals exclusively with the Rule of Law while the political branches provide space for self-determination misunderstands the American ideal and conflicts with the nature of contemporary political processes. The Court’s approach in the obstruction-of-justice cases evinces the need for legal interpretation to embody both a fealty to a fixed meaning communicated through text and a self-determining spirit that can manifest through litigation drawing on the purpose for which a law was created. This interpretive approach does not empower judges to make law. Rather, judges are the tool through which the People, as litigants, engage in a self-determinative process of ascertaining how a lawmaker’s purpose can be mined to make our law fit modern society

Responsibility in Capital Sentencing

Although modem doctrine is worth preserving, it could be improved significantly by focusing explicitly on heightening individual responsibility. Two concrete ways to improve it would be to (1) explain the sentencer\u27 s role in the narrative voice, a way of speaking that, at least in American society, appears to be associated with the assignment of responsibility; and (2) require heightened scrutiny of death sentences by state appellate courts, bringing the responsibility of state appellate judges in capital cases in line with the responsibility they bear in constitutional cases dealing with analogous mixed questions of fact and law under the First, Fourth, Fifth, and Sixth Amendments, as well as in noncapital punishment cases under the Eighth and Fourteenth Amendments. Part II summarizes modem death penalty doctrine and surveys the wide-ranging criticism of that doctrine both from members of the Court and academic commentators. Part III presents the responsibility theory as an alternative to the Court\u27s misguided pursuit of consistency and individualization in capital sentencing. It explains why individual responsibility is necessary to morally acceptable capital punishment and shows how modem doctrine tends to advance individual responsibility. Concluding subsections respond to likely empirical and theoretical criticisms. Part IV proposes reforms of modem doctrine that would more fully realize the benefits of the responsibility theory