Visa, Mastercard & American Express by Petr Kratochvil via Wikimedia Commons
Visa, Mastercard & American Express by Petr Kratochvil via Wikimedia Commons

The United States Supreme Court greatly increased the amount of control that credit card companies, banks, and online platforms have over the retail process in a controversial ruling.

Gag orders that prevent retailers from encouraging customers to use cheaper alternatives to the American Express card are legal in the United States, the Court ruled on 25 June. A group of retailers had argued that gag orders had encouraged monopoly an illegal practice under anti-trust laws in Ohio v. American Express Company.

Merchants that accept American Express (Amex) cards have to sign a contract preventing them from telling customers that alternatives like MasterCard, Visa, or debit cards might be cheaper. American Express makes its money by charging fees to merchants and cardholders. Amex cards are notoriously more expensive than other credit cards in the United States.

Two-Sided Markets

Critics of the decision in Ohio v. American Express Company fear it will encourage operators of “two-sided markets” to adopt anti-steering rules like those employed by Amex.

A two-sided marketplace is a platform that connects customers directly to a service or goods. Many of the biggest technology companies in Silicon Valley including Amazon, eBay, Uber, Facebook, PayPal, and Netflix operate two-sided markets. Those companies might benefit from the decision, Axios speculated.

The fear is that under Ohio v. American Express, other companies will emulate Amex’s practices. Uber might be able to prevent drivers from telling customers they can pay with credit cards that charge a higher transaction fee for example.

An even greater fear is that a company like Uber or Amazon might enter into an exclusive arrangement with a credit card company like Amex. Under the arrangement, Uber or Amazon would accept MasterCard and Visa, but not tell customers they can use those cheaper payment options through its app.

A trade organization whose members included Alphabet (Google), Facebook, and Amazon sided with American Express in the case, Axios reported.

Monopoly fears in Silicon Valley

Ohio v. American Express has become caught up in a larger argument over anti-trust laws in the United States.

The decision will encourage the growth of monopolies and limit government control over big business, Columbia University Law Professor Tim Wu charged in a New York Times editorial. Critics like Wu fear that gutting anti-trust law will take America back to the Gilded Age of the 19th Century when giant corporations controlled large segments of the national economy.

Ohio v. American Express would allow companies to put a 2% to 3.5% tax on all credit card transactions, Wu claimed. That would increase operating expenses for merchants and raise prices for consumers.

Another effect would be to stop merchants from telling consumers about cheaper next-generation payment technologies such as cryptocurrency, or Peer-to-Peer payment solutions. The credit card providers might be in a position to charge higher fees because they would have less competition.

Risks from litigation

Ohio v. American Express demonstrates how high courts can disrupt markets with rulings. Such actions can completely change the rules of business overnight.

The long-term effects from Ohio v. American Express are unclear but it is likely to change some business practices in the United States. The decision might influence future litigation in English-speaking countries like India and the UK, where courts often follow precedents set in other common-law nations.

Something else is clear the issues raised by Ohio v. American Express are likely to spark major political battles in the United States that will affect the markets. American business may soon get a new set of rules that will affect the rest of the world.

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